Opinion

Your mission: Open the 401(k) floodgate

I’m lucky enough not only to be a journalist and writer, but, for more than 30 years I’ve also been a full-time practitioner in the fields I write about. So it shouldn’t surprise you that I regularly speak to plan sponsors, plan investors and their various forms of investors. There’s one thing all these experienced people agree on: The most important element to achieving retirement success is to simply start saving.

Ironically, this is also the hardest thing for people to do. Not to save, but to start saving. Once an investor gets started, the process develops its own momentum. Fortunately, there are so many lists to help 401(k) investors get started (here’s one: “7 Simple Saving Secrets Every 401k Investor Should Know,” FiduciaryNews.com, Feb. 5, 2013). But what’s totally amazing is this: It works.

Allow me to explain.

Two events occur within the last week that emphasize both the problem of getting people to start saving and the fruits of those disciplined enough to begin to save.

On a Friday afternoon, I had the privilege to speak to a group of 300 mostly twenty-something employees. My task: To show them how easy it was to live a comfortable retirement 45 years in the future for a 25-year-old of today who makes $25,000 a year. I had all the requisite charts and graphs. I highlighted how saving in a tax-deferred account actually netted you more money in your weekly paycheck. I explained the power of compounding. I showed the impact of consuming one less soft drink a day can have on their retirement lifestyle. In all, they saw all the usual suspects when it came to building a successful argument that would convince a younger person to begin saving. It’s a presentation I’ve given on plenty of occasions.

Then I opened the floor to questions. Here’s a sampling of what I got. “Do I think gold has peaked and if so what other commodities would be appropriate to invest in?” “How can I best take advantage of the returns offered by alternative investments?” “Am I better off in Euros given the current LIBOR rate and the likelihood the global economy will get off the dollar standard?” “What direction are interest rates going in?”

Let me repeat. This was a room of 25-year-olds, most of who had yet to begin saving, let alone investing. The HR department was so concerned they hired me as a financial speaker to convince them to start saving. I just spent 55 minutes making the case for them to begin investing. I even showed them how they could succeed in retirement by making as little as a 4 percent annual return (although I suggested for most 6 percent should be the expected target). Despite all this, the questions revealed a bias towards CNBC-style investment-speak rather than the practical wisdom of saving.

Well, I got mad. And my blunt responses reflected my disappointment. There were no further questions from the group, but as I was packing up my gear, people came to see me one-on-one. These people wanted to learn more about saving. They had no investing questions. They thanked me for opening their eyes. The best compliment I got came from across the room (acoustics being what they were). I overheard someone who said, “I’m giving up pop for Lent anyway, so now is a great time to start saving.” That one statement made my visit worthwhile.

And then it was my turn to be embarrassed. On my way out, I ran into the person who invited me to speak. She asked how I thought it went.

I said, “At first, in getting all those investment questions, I thought no one listened to what I was saying. But afterward, when people came to me individually, I knew I got through to at least some of them.”

The HR director smiled and said, “Oh, about those questions. The attendees wrote those down earlier in the morning before they had even seen you. I think what you experienced when they came up to you showed how successful the presentation was. It got them off what they were initially thinking and on to what they should be thinking.”

But here’s the real kicker: A few days later I sat down one-on-one with about half the employees of a small firm to go over their retirement situation. I was shocked to see, with the exception of the new employee who wasn’t yet eligible to participate – from the receptionist to the guy in the corner office, from age 35 to age 65 – had all made it to the golden path. They weren’t ready to retire, but not a single one of them had a return requirement of greater than 4 percent.

What’s more, when they asked questions, they didn’t query about investment scenarios. In fact, most of them told me they’d rather not think of the investment. Instead they asked questions like, “Should I be saving more?” “How can I save more?” and (for the one who wasn’t yet eligible) “When can I start saving?”

These dozen or so folks had discovered the secret to retirement success. It’s not what you invest your savings in; it’s that you save to invest.

It’s the mission of every plan sponsor, of every plan service provider, indeed of every plan fiduciary, to help keep employees focused on the most important factor in their ability to achieve a comfortable retirement – savings.

About the Author
Chris Carosa

Chris Carosa

Christopher Carosa, CTFA, is chief contributing editor for FiduciaryNews.com, a leading provider of essential news and information, blunt commentary and practical examples for ERISA/401(k) fiduciaries, individual trustees and professional fiduciaries. With three decades of experience in the investment industry, Carosa has helped create or found a number of financial products and firms including mutual funds, common trust funds, registered investment advisers as well as a billion-dollar trust company. He is also the author of the new book, "401(k) Fiduciary Solutions." Follow Fiduciary News on Twitter and LinkedIn.

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