TIAA: New Study Reveals the Impact of Pre-Retirement Withdrawals and Loans on Automatic Enrollment Retirement Plans

Originally Published by TIAA.

A study released today by the TIAA Institute found employees who withdraw from their defined contribution accounts before retirement age, a practice known as “leakage,” limit the potential increase of their retirement plan savings due to automatic enrollment by 40 percent.


The study, titled “Potential vs. Realized Savings under Automatic Enrollment,” analyzed the savings plan outcomes of nearly 15,000 employees at a Fortune 500 financial service company. The study compared those hired 12 months before the company introduced automatic enrollment at a 2 percent default-contribution rate with those hired in the 12 months following the change.

The results indicate that automatic enrollment increases total potential retirement account balances by 7 percent of starting pay eight years after hire. However, leakage in the form of pre-retirement loans and withdrawals that are not rolled over into another qualified savings plan account for 3 percent of starting pay bringing the net effect of automatic enrollment down to a 4 to 5 percent balance increase in the same timeframe.

“As more employees gain access to automatic enrollment plans, it’s important to understand how individual financial decisions can impact the evolution of retirement balances over time,” said Stephanie Bell-Rose, Head of the TIAA Institute. “This study provides valuable insight about the effect that automatic enrollment and pre-retirement leakage have on savings accumulation. We hope that this study and our continued support for research on the topic will improve decisionmaking and help individuals achieve retirement income security.”

In addition, the study uncovered substantial differences between individuals who remained employed at the firm and those who left. Leakage offsets relatively little of the incremental savings generated by automatic enrollment for those who remained employed, but it had a significant effect on retirement accumulation for individuals who left the firm. For the latter group, leakage decreased the potential incremental savings from automatic enrollment by more than half at low levels of tenure, and still exceeded 40 percent when measured at eight years.

To view the full report, please click here.

.

Latest News

Black renters

New Study Reveals Landlords Consistently Discriminate Against Potential Renters With Black or Hispanic ‘Sounding’ Names

In the largest study of its kind ever conducted, researchers with the National Bureau of Economic Research have uncovered what many people of color already know when hunting for an apartment or home: most landlords consistently discriminate or harbor bias against non-white individuals looking to rent their property.  Bloomberg’s Kelsey…

book banning

American Library Association Documents 155 Attempts at Banning Books About POC or LGBTQ Issues in the Last 6 Months

In a depressing turn for anyone who thought society may have outgrown book burning or censorship of books over the last 100 years, it appears the hate-filled phenomenon is back on the rise, increasing with alarming frequency across the country. CNN’s Nicole Chavez has reported the American Library Association “has…

Novartis Chief Medical Officer John Tsai on Balancing Medical Innovations With Patient Needs

Originally published at novartis.com by Elizabeth Dougherty. John Tsai is Novartis’ Head of Global Drug Development and Chief Medical Officer. Novartis Pharmaceuticals is a DiversityInc Hall of Fame company.   John Tsai’s career as a physician, and now as Head of Global Drug Development and Chief Medical Officer for Novartis, had an unlikely…

Montgomery Mayor Steven Reed

City of Montgomery, Alabama Faces $25,000 State Fine for Changing Street Named After a Confederate Leader

Despite a state law designed to “protect” longstanding Confederate monuments and memorials, the city of Montgomery, Alabama, has decided that it would rather incur a fine than continue going on with a city street named after President of the Confederate States from 1861 to 1865, Jefferson Davis. Kim Chandler of…

Global Diversity

Despite Massive Uptick in Global DEI Initiatives, New Study Reveals Real Change in Corporate Workforces Remains Slow 

Even though DEI as a business imperative continues to grow both in the United States and around the world, a new study has found that many business leaders and executives have merely raised awareness of why diversity, equity and inclusion is important — as opposed to actually making meaningful progress…

Novartis Collaborates With Microsoft To Innovate Medicine Through Data and Artificial Intelligence

Originally published on LinkedIn. Novartis Pharmaceuticals is a DiversityInc Hall of Fame company.   “We are not just discoverers. We actually create molecules that have never been made before.” Says Karin Briner, Head of Global Discovery Chemistry at Novartis Institutes for BioMedical Research (NIBR). By collaborating with Microsoft and augmenting the expertise of our…

Mastercard Announces Launch of Crescent City Card Program in Partnership With New Orleans and MoCaFi

Originally published at mastercard.com. Mastercard ranked No. 5 on The DiversityInc Top 50 Companies for Diversity list in 2021.   New Orleans Mayor LaToya Cantrell was joined by executives from Mastercard, Mobility Capital Finance, Inc. (MoCaFi), and Forward Together New Orleans to announce the Crescent City Card Program. The program involves a…

Mastercard on Supporting Inclusive and Sustainable Urban Development by Expanding Its ‘City Possible’ Network

Originally published at mastercard.com. Mastercard ranked No. 5 on The DiversityInc Top 50 Companies for Diversity list in 2021.   Mastercard has continued to expand its support for addressing urban challenges and inequalities, working with city leaders and partners around the world, through the City Possible™ network and capabilities. The unique solutions…