California’s CalSavers Program: How It Works

Quick answer

• CalSavers is a state-sponsored retirement savings program for private-sector workers in California whose employers don’t offer a retirement plan.
• It’s an Individual Retirement Arrangement (IRA) that is portable and automatically enrolls eligible employees.
• Contributions are automatically deducted from your paycheck and invested in a diversified portfolio.
• You can adjust contribution amounts, investment options, and opt-out at any time.
• The program aims to make retirement saving accessible and easy for everyone.
• CalSavers is not a pension plan and does not guarantee a specific retirement income.

Who this is for

• California employees whose employers do not offer a retirement savings plan.
• Individuals looking for a simple, automatic way to start saving for retirement.
• Workers who want a portable retirement account that stays with them regardless of employment changes.

What to check first (before you act)

Your Retirement Savings Goal and Timeline

Before diving into CalSavers, consider what you want your retirement to look like. How much income will you need? When do you plan to retire? While CalSavers is a great starting point, understanding your long-term financial picture will help you determine if your contributions are on track.

Your Current Cash Flow

Analyze your monthly income and expenses. How much can you realistically afford to set aside for retirement each month without straining your budget? CalSavers allows automatic deductions, so knowing your disposable income is crucial for setting an appropriate contribution rate.

Your Emergency Fund or Safety Buffer

Ensure you have an adequate emergency fund before committing to regular retirement savings. This fund should cover 3-6 months of essential living expenses. This prevents you from needing to tap into retirement savings for unexpected costs.

Existing Debt and Interest Rates

Evaluate any outstanding debts, especially high-interest ones like credit card balances. It’s often more financially sound to prioritize paying down high-interest debt before aggressively saving for retirement, as the interest paid can outweigh potential investment gains.

Credit Impact

While CalSavers itself doesn’t directly impact your credit score, managing your finances well, including making consistent savings contributions, can indirectly support good financial health, which is beneficial for your credit. Conversely, if you were to face financial hardship and have to withdraw funds prematurely, it could have implications for your financial stability.

Step-by-step (simple workflow)

1. Eligibility Confirmation

What to do: If your employer participates in CalSavers and you meet the eligibility criteria (typically employed in California for a certain period, and your employer doesn’t offer a retirement plan), you’ll be automatically enrolled.
What “good” looks like: You receive an enrollment notification from CalSavers detailing your automatic enrollment and options.
A common mistake and how to avoid it: Not reading the enrollment materials carefully. Avoid this by taking the time to understand the program details provided to you.

2. Review Your Enrollment Information

What to do: Carefully read the information sent to you by CalSavers. This will include details about your initial contribution rate, investment choices, and how to manage your account.
What “good” looks like: You understand your current contribution percentage and the default investment option.
A common mistake and how to avoid it: Assuming the default settings are best for you. Avoid this by actively reviewing your investment options and contribution rate.

3. Set Your Contribution Rate

What to do: Decide what percentage of your paycheck you want to contribute to CalSavers. The program starts with an automatic 5% contribution, which increases annually unless you opt out or choose a different rate.
What “good” looks like: You have selected a contribution rate that aligns with your budget and retirement goals.
A common mistake and how to avoid it: Sticking with the default 5% without considering your personal financial situation. Avoid this by assessing your cash flow and determining a comfortable, yet effective, contribution level.

4. Choose Your Investment Option

What to do: Select how your contributions will be invested. CalSavers offers a few options, including a default Capital Preservation option and a Target Date Retirement Series.
What “good” looks like: You’ve chosen an investment option that matches your risk tolerance and time horizon to retirement.
A common mistake and how to avoid it: Not understanding the investment options or their associated risks. Avoid this by researching each option or consulting with a financial advisor.

5. Decide on Automatic Contribution Escalation

What to do: CalSavers automatically increases your contribution by 1% each year, up to a certain percentage, to help you save more over time. You can opt out of this if you prefer.
What “good” looks like: You have made an informed decision about whether to allow or opt out of automatic increases.
A common mistake and how to avoid it: Unintentionally allowing increases that strain your budget. Avoid this by monitoring your contribution rate and adjusting it if needed.

6. Manage Your Account Online

What to do: Create an online account to track your progress, view statements, and make changes to your contributions or investments.
What “good” looks like: You can easily access and manage your account information.
A common mistake and how to avoid it: Forgetting to create an online account and thus missing out on important updates or the ability to manage your savings. Avoid this by setting up your online access soon after enrollment.

7. Update Personal Information

What to do: Keep your contact information (address, email, phone number) updated with CalSavers.
What “good” looks like: CalSavers has your current contact details, ensuring you receive important communications.
A common mistake and how to avoid it: Failing to update your information after moving or changing jobs. Avoid this by proactively updating your details whenever your personal information changes.

8. Consider Portability

What to do: Understand that if you leave your employer, your CalSavers account is yours to keep. You can continue contributing if your new employer also participates, or you can roll it over to another retirement account.
What “good” looks like: You know your savings are portable and can be managed even after changing jobs.
A common mistake and how to avoid it: Assuming the account is tied to your employer and will be lost if you leave. Avoid this by understanding the portability features of the program.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not enrolling or opting out without a plan	Missed opportunity to save for retirement, leading to financial insecurity later.	Actively participate in CalSavers or establish an alternative retirement savings plan.
Sticking with default contribution rate	Insufficient savings for retirement if the default rate is too low for your needs.	Review your budget and retirement goals to set a contribution rate that is appropriate for you.
Ignoring investment options	Suboptimal growth of your retirement savings due to inappropriate investment choices.	Research the available investment options and choose one that aligns with your risk tolerance and retirement timeline.
Not updating personal information	Missing important account updates, statements, or communication from CalSavers.	Keep your contact information current with CalSavers and your employer.
Forgetting about the account after leaving a job	Inability to track savings or make informed decisions about your retirement funds.	Understand the portability of your CalSavers account and know how to manage it after employment changes.
Not understanding fees	Reduction in your overall retirement savings due to unexpected or high fees.	Review the program’s fee structure and understand how they might impact your long-term returns.
Relying solely on CalSavers	Not having enough savings for retirement if CalSavers alone is insufficient.	Use CalSavers as a foundation but explore other savings vehicles and strategies to supplement your retirement income.
Not setting a clear retirement goal	Lack of direction and motivation, leading to inconsistent savings habits.	Define your retirement income needs and target retirement age to better guide your savings efforts.
Over-contributing beyond your means	Financial strain, leading to potential debt or inability to meet essential expenses.	Regularly review your budget and contribution rate to ensure you can comfortably afford your savings.
Not checking account statements regularly	Missing errors, unauthorized activity, or the opportunity to adjust strategy.	Log in to your CalSavers account periodically to review your statements and confirm your investment performance.

Decision rules (simple if/then)

• If you are a California employee whose employer does not offer a retirement plan, then you will likely be automatically enrolled in CalSavers because it’s a state-mandated program.
• If you receive an enrollment notice from CalSavers, then you should review it carefully to understand your initial contribution rate and investment choice because these will affect your savings.
• If your current budget allows, then consider increasing your contribution rate beyond the initial 5% because higher contributions lead to faster retirement savings growth.
• If you are many years away from retirement and comfortable with some risk, then consider investment options with higher growth potential because they can lead to greater long-term returns.
• If you are nearing retirement or prefer lower risk, then consider more conservative investment options because they aim to preserve your capital.
• If you want to increase your savings automatically over time, then allow the annual contribution escalation because it helps you save more without active decisions each year.
• If you need to access funds for an emergency, then understand that CalSavers is a retirement account and withdrawals may have tax implications and penalties because it is not designed for short-term access.
• If you leave your job, then know that your CalSavers account is portable because you can keep it and manage it independently of your former employer.
• If you have specific financial goals or concerns about your CalSavers investments, then consult with a qualified financial advisor because they can provide personalized guidance.
• If you are unsure about your retirement needs, then use online retirement calculators or resources to estimate your future income requirements because this will help you set appropriate savings targets.
• If you find the default investment option doesn’t align with your risk tolerance, then actively choose a different investment option because CalSavers offers choices to suit various preferences.
• If you want to change your contribution amount or investment allocation, then log in to your online CalSavers account because this is where you can make those adjustments.

FAQ

What is CalSavers?

CalSavers is a retirement savings program for California workers whose employers don’t offer a retirement plan. It’s designed to be an easy and automatic way to save for the future.

How am I enrolled in CalSavers?

Most eligible employees are automatically enrolled. If your employer participates and you meet the criteria, you’ll be enrolled unless you actively choose to opt out.

Can I change my contribution amount?

Yes, you can adjust your contribution percentage at any time through your online CalSavers account to better fit your budget or savings goals.

What are the investment options?

CalSavers offers several investment options, including a Capital Preservation option and a Target Date Retirement Series, designed to suit different risk tolerances and time horizons.

Is CalSavers a pension?

No, CalSavers is an Individual Retirement Arrangement (IRA), not a defined-benefit pension plan. It does not guarantee a specific retirement income amount.

What happens if I leave my job?

Your CalSavers account is portable. You can leave the funds in the account, roll them over to another retirement account, or continue contributing if your new employer participates.

Are there fees associated with CalSavers?

Yes, there are fees, which are typical for investment accounts. The program aims to keep these fees low. You can find detailed information on their official website.

Can I opt out of CalSavers?

Yes, you can opt out of the program. However, it’s generally recommended to save for retirement if possible, and opting out means you’ll miss out on the automatic savings mechanism.

Is my money safe in CalSavers?

Your investments in CalSavers are subject to market fluctuations, meaning their value can go up or down. The program is overseen by the state of California and managed by financial professionals.

What this page does NOT cover (and where to go next)

• Specific investment performance projections or guarantees.
• Detailed comparisons with other private retirement plans or investment vehicles.
• Advanced tax planning strategies related to retirement accounts.
• Guidance on estate planning for your retirement savings.
• Specific advice for individuals with complex financial situations.