Retirement Savings Defining Moments

Retirement Savings Indiviuals Can Be Either; Confused, Over-confident, or Apathetic about 401k’s

It is my belief that confusion, and apathy regarding retirement savings, often begins with the standard 401k presentation through Human Resource Departments in most companies.  Many Human Resource Departments are not qualified to educate the employee on the pros and cons of 401k plans. Here is an example of some confusion over understanding 401k plans. The new employee will seek advice from other employee’s or the advice of parents and their experience with 401k plans.  Many times they will use the most common resource in the world - the internet - and we all know how reliable the internet is in providing accurate information. Inexperienced retirement savers will have no idea what to do and will sign up lacking knowledge or understanding.

Today, the vast majority of people are troubled and confused about the economy.  They have been bombarded by the media, bullied by salespeople, and bewildered by millions of things they feel they need to know.  Over the last several years, the have seen all the financial lessons they learned fail them.  They know they can’t live on 2% or 3% rates of return, yet they are scared and hesitant to make the crucial decisions necessary to survive in today’s economy.  To make matters worse, 90 million Americans are facing some of the most crucial financial challenges of their lives. 

401(k) Balances Tend to Increase with Participant Age and Job Tenure
Average 401(k) participant account balance, year-end 2012


Note: The tenure variable is generally years working at current employer, and thus may overstate years of participation in the 401(k) plan.

Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. See ICI Research Perspective, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2012.”


Even Seasoned 401k Retirement Savings Individuals Can Become Overconfident 

The seasoned retirement saver relies on past performance and not future returns that are affected by economic trends and shifts which can lead to overconfidence. The over-confident saver chases the rate of return to accumulate funds for retirement.  The standard formula for rate of return is flawed:  Time x Rate of Return x Monetary Unit = Accumulation.  The only thing consistent in this formula is time. Everything else is inconsistent or unstable.  Looking backward and not forward builds false confidence in values for the future.  Learning what attacks the value of money is important so that one can make wise and informed decisions to accumulate as much retirement dollars as possible. 


Confused and apathetic, as well as, the over-confident retirement saver issues all could be addressed through education.  Locating a seasoned financial advisor that is more concerned with teaching how to think rather than what to think is vital to understanding and discovering how best to save for the future.  To quote an unknown source, “knowledge is something we learn and wisdom is the ability to apply that knowledge to our everyday lives.”  Education, discovery, and understanding are what retirement savers need to plan properly for their financial future.  It is time we talk so contact me.