We punish children for bad behavior, but who punishes adults?

Bad behavior leads to very unpleasant things. What I'm really talking about is unfortunate decisions, as opposed to felonious activity. More specifically, I'm referring to actions in and around 401(k) plans.

A recent survey by Cerulli Associates suggests that 401(k) plan participants may have their priorities confused. It also indicates many may be living in a dream world when it comes to what they need to do to retire in comfort. And it appears the most delusional are the ones who can least afford to be.

A full 49 percent of respondents said they wanted information about their investment selections. This was a bit more popular than information regarding contribution amounts needed to retire in comfort. This supports what financial professionals have been complaining about for some time: Participants are most interested in what they can't control.

Perhaps it's not surprising that the survey showed 69 percent of respondents either conduct their own investment research or make their own investment decisions. Perhaps that's why they're so interested in focusing on their investments. The good news is that 63 percent believe their 401(k) has adequate investment opportunities.

But is this concentration on investments effective? A 2012 Wharton study concluded that contribution rates are more important than investment performance. Indeed, workers can make up the difference between the optimal investment allocation and the average investment allocation merely by working four more months. And the Cerulli survey says 67 percent of the respondents believe they either aren't “on track” to retirement or simply “don't know.” It seems all that work on their investments hasn't done the job.

It gets worse. We know the best way to retire in comfort is to save more. Unfortunately, 73 percent of the 401(k) workers surveyed who are currently saving under 3 percent won't be increasing their savings. Amazingly, of the workers contributing 6 percent or less, 22 percent believe they are “on track.” Most financial professionals recommend a preferred deferral rate of somewhere in the double digits.

Just how ridiculous is this “on track” assumption? Let's assume you can get an 8 percent return on your investments over the long term (the historical average is 10 percent). If you are deferring only 3 percent, you need to work 47 years to save enough to satisfy your retirement needs (based on a constant $75,000 salary). If you up your deferral rate to 6 percent, then you still have to work 39 years. But that leaves no room for error. Deferring 12 percent means you only have to work 31 years. Today, a career lasts 40 years or so. And you don't make a constant salary your entire working career, so the numbers shown here are overly optimistic.

The Cerulli survey tells us there's bad behavior going on. Unfortunately for these poor savers, punishment won't be administered until it's too late for them to correct their actions.

Instant Insights /

What's the penalty for bad 401(k) savings behavior?

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