The Pros and Cons of CalSavers

As retirement planning becomes increasingly important, individuals are seeking out convenient and accessible ways to save for their golden years. CalSavers, California's state-sponsored retirement savings program, has gained popularity as an option for those without access to employer-sponsored retirement plans. In this article, we will explore the pros and cons of using CalSavers as a retirement vehicle to help you make an informed decision about your financial future.

Pros of CalSavers

Accessibility and Convenience:

One of the primary advantages of CalSavers is its accessibility. It is available to California residents who work for employers with at least five employees who do not offer a retirement plan. This program makes it easier for individuals to start saving for retirement, as they can enroll and contribute through automatic payroll deductions.

Low Fees:

CalSavers offers a simple investment lineup with low fees, making it an affordable option for retirement savings. The program utilizes a Roth IRA structure, which means that contributions are made with after-tax dollars, but withdrawals in retirement are tax-free. Additionally, the fees associated with CalSavers are generally lower compared to many private retirement plans.

Diverse Investment Options:

CalSavers offers a variety of investment options, allowing participants to choose the level of risk and diversification that aligns with their financial goals and risk tolerance. This flexibility is particularly beneficial for those who want to tailor their investments to their specific needs.

Automatic Enrollment and Escalation:

CalSavers automatically enroll eligible employees in the program, making it a hassle-free way to start saving for retirement. Moreover, it includes an automatic escalation feature, gradually increasing the contribution rate over time, ensuring that participants increase their savings as their income grows.

Cons of CalSavers

Limited Employer Involvement:

While CalSavers is designed to help individuals save for retirement, it places most of the responsibility on employees. Employers are required to facilitate payroll deductions but have limited involvement in the program. This may result in less engagement and education about retirement planning compared to employer-sponsored plans.

No Employer Contributions:

CalSavers is solely funded by participant contributions, with no employer match. In contrast, employer-sponsored retirement plans often come with matching contributions, which can significantly boost retirement savings. Without this employer match, participants must rely solely on their contributions to build their retirement nest egg.

Contribution Limits:

CalSavers, like other Roth IRAs, have contribution limits that may be lower than what some individuals need to save for a comfortable retirement. As of my knowledge cutoff date in January 2022, the annual contribution limit for Roth IRAs was $6,000 ($7,000 for those aged 50 or older). Depending on your financial situation and retirement goals, these limits may restrict your ability to save adequately.

Investment Risk:

While CalSavers offers a range of investment options, all investments come with some level of risk. Participants are responsible for managing their investment choices, and there is no guarantee of returns. Those who are risk-averse or lack investment knowledge may find it challenging to navigate the investment landscape effectively.

Conclusion

CalSavers can be a valuable retirement savings option for California residents without access to employer-sponsored retirement plans. Its accessibility, low fees, and investment flexibility make it an attractive choice for many. However, it also has its limitations, such as the absence of employer contributions and contribution limits. It's essential to carefully consider your financial situation, goals, and risk tolerance when deciding if CalSavers is the right retirement vehicle for you. Additionally, be sure to check for any updates or changes to the program since my knowledge cutoff date in January 2022, as policies and regulations may have evolved.

So, what do you think? Is CalSavers the right match for you? Let us know today by giving us a call at 909.466.7876 for a free consultation!

Also, do you know What Suits Your Business Best, Calsavers or 401(k)? Learn about this subject and more on our blogs/resources page.