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401(k) or ATM? Automated retirement savings prove easy to pluck prematurely

Some workers are finding it hard to ignore the money they’re supposed to be setting aside for their golden years.

As The Wall Street Journal reports, the retirement savings made possible for millions of Americans thanks to automatic enrollment in 401(k)-style plans is proving to be an alluring pool of money for workers to borrow from or cash out when they leave a job.

The findings from academic economists answer a question that has long concerned employers that put workers into 401(k) plans and give them the option to drop out, rather than requiring them to sign up on their own: Will auto-enrolled workers treat their 401(k)s like automated-teller machines?

The answer, according to the study, is yes—but not to the extent that the workers spend all their gains from auto-enrollment.

Within eight years of joining a 401(k) plan, the results indicate that automatically enrolled workers withdraw nearly half of the extra they manage to save, compared with workers left to sign up for the retirement plan on their own.

As the Wall Street Journal reports, the findings illustrate how difficult it can be to change savings and spending habits. And this tapping or pocketing of retirement funds early, a phenomenon known in the industry as leakage, threatens to reduce the wealth in U.S. retirement accounts by about 25% when the lost annual savings are compounded over 30 years, according to a separate analysis by economists at Boston College’s Center for Retirement Research.

Thanks to auto-enrollment, “we have figured out how to get money into the retirement savings system,” says Brigitte Madrian, a co-author of the new study and an economist at Harvard University. “Now we need to think about how to keep that money in the system.”

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