Planning for retirement

Springfield News-Leader

Americans don't understand the need to budget and save money. Since 1992, the country's savings rate has dropped from 7.2 percent to less than 2 percent.

That's one of the unfortunate factors in the current debate over Social Security reform. The government-funded retirement program has never been meant to be the sole source of money in a person's golden years. However, when people don't save for the future, they put themselves in a position of depending on the government for help.

Personal savings and investments, for those who are able, are the main tools in preparing for a comfortable retirement.

Individual Retirement Accounts and 401(k) plans allow people to do this. Far too few people take advantage and they don't save enough money.

... A proposal from House Ways and Means Chairman Bill Thomas, a California Republican, will make it easier for companies that have 401(k) plans to automatically enroll workers in the retirement savings programs. This won't allow companies to force people to participate. The option to opt out will still be there.

Most people probably won't opt out, however, for the same reason most people don't currently enroll. It would require effort.

Congress needs to do two main things to allow automatic enrollment: address some states' labor laws that companies believe prohibit automatic enrollment and protect companies from liability from workers who sue over investment losses.

Such legislation would be a positive step in helping Americans save money for retirement. A 2001 study found participation more than doubled -- from 37.4 percent to 85.9 at one large corporation when employees had to opt out.

However, just getting people to participate in a 401(k) -- or any other investment plan -- is not enough.Studies show that employees who are automatically enrolled don't make any proactive changes to make the most of their investments. They should be investing in riskier and potentially more profitable stocks and fewer bonds, if any at all. They should also study what the best percentage of their salary to contribute to a retirement savings plan would be. The key is education.