As we grow older and supposedly wiser, we find that “the important often gives way to the urgent” during our working years. We focus our attention on what is immediately in front of us, and we can lose sight of the distant future. The challenge truly hits home when, long into our careers, we “look up” and see that we are much closer to retirement than we thought — and we might not be ready.
How awesome would it be if we could just create a mechanism that would, for all practical purposes, assure us a financially secure retirement? If there were such a thing and we could make it easily available to millions … THEN we would really have something!
Fortunately the beautiful 401(k) plan, while not a guarantee, already exists and can help ensure we are ready when the day comes:
- Easy to enroll and maintain ongoing and consistent savings through payroll deduction
- Significant tax benefits
- Institutional class investment offerings
- “Free” money, since many plans offer additional money in the form of matching dollars
Millions of American’s are using the 401(k) plan as their main savings vehicle. We just need to finish the solution and solve a few remaining obstacles — namely, the fear participants still have about their savings and feeling like they have to manage this burden alone. The following statistics are telling:
- Three out of four workers are less than very confident about having sufficient income to live comfortably in retirement (2*)
- Approximately one-fourth of workers say that personal financial matters in their lives distract them at work (1*)
As beautiful as the 401(k) plan is in its current form, it can be positively stunning with a long-needed enhancement — giving participants professional assistance in the form of direct and specific advice, currently not allowed by the industry. The following data points collected by David Blanchett, published author and head of retirement research for Morningstar Investment Management, LLC, in a 2014 working paper (3*) begin to tell the story:
- Nearly 90% of participants increased their savings rate after receiving advice
- Participants using advice services could end up with nearly 40% more income in retirement
It is clear that one of the main reasons so many people do not take advantage of the company 401(k) plan is due to confusion and fear of making the wrong decisions. Professional advice would go a long way to alleviate this obstacle and create a savings revolution among American workers.
So, is participant advice and guidance the answer for retirement readiness and financial literacy in today’s workforce? Not entirely. However, research points to it as one of the steps required to increase the likelihood of employees achieving their financial goals.
1* – Financial Wellness at Work: A Review of Promising Practices and Policies, Consumer Financial Protection Bureau, August 2014.
2*- Employee Benefit Research Institute (EBRI), Issue Brief No. 413, April 2015.
3*-The Impact of Expert Guidance on Participant Savings and Investment Behaviors, August 20, 2014: http://corporate.morningstar.com/us/documents/barrons/Expert-Guidance.pdf