The case for boosting retirement savings by automatically enrolling workers in tax-deferred retirement plans is often thought to be unassailable. Oregon, Illinois, and California have recently passed laws requiring employers who do not offer retirement plans to automatically transfer a fraction of employees’ paychecks to an individual retirement account (IRA). Similar “auto-IRA” legislation is in the works in other states. Nobel-prize winning behavioral economist Richard Thaler recently tweeted: “There is no coherent argument against these state plans.”
My research collaborators and I beg to differ. In our recent Journal of Retirement article, Jason Scott, John B. Shoven, John G. Watson, and I show that saving for retirement may not be in the best interests of many – if not most - young people, who have more pressing spending needs. Therefore, automatic enrollment programs that boost saving across the board, regardless of age and circumstance, may do more harm than good.
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