Jim'sMoneyBlog

Financial Opinion and Insights

Are You “On-Track” to a Successful Retirement?

IFG BlogJim Lorenzen, CFP®, AIF®

If so, you may be alone.

I attended a 401(k) Recon conference north of Los Angeles last week and was amazed, though not totally surprised, to hear a few very interesting points.

One speaker relayed a story about one company’s 401(k) enrollment meeting where 100% – yes, everyone – said they wanted to enroll in the company’s 401(k) plan.  They all were going through the materials and even choosing allocations they felt were appropriate – and all them were excited about starting to save for their retirement!

Would you like to guess how many actually followed through and actually participated?   3%.  That’s right; only three in one hundred actually did it.   Education didn’t seem to help, at least in that particular case, despite all the glowing post-meeting comments.

Benjamin Graham, the ‘dean’ of value investing who taught Warren Buffett at Columbia University, once said that behavior, more than investment choices, represent the largest impediment to financial success for most Americans; and the data seems to bear that out.

Poor savings habits, poor investor performance due to behavior, and paralysis often due to too many choices create roadblocks many have trouble overcoming.

Maybe the best gauge of investor success (or failure) might be whether they are ‘on track’ to a successful retirement, which some define as replacing 75% of preretirement income at age 67.   According to a study – I think it was conducted by Mass Mutual – revealed that only 15% of American workers are ‘on track’.   Even without my HP12-C, it’s obvious that means 85% are not.

It’s not rocket science.  It’s about three simple components:  time, savings rates, and return.   Time is the only component that constantly declines; and, as it does, it creates pressure on the other two.  When procrastination behavior impedes one of those, all the pressure falls on investment return.  This may be why some people reach a point where they begin making the risky choices they live to regret.

I’ve spoken about financial literacy before and how our schools need to do a better job – I even once met a CPA who didn’t know the difference between gain and yield.  When an accountant doesn’t know, it explains the deficiencies the rest America’s workers are experiencing.

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Jim Lorenzen, CFP®, AIF®Jim Lorenzen is a Certified Financial Planner® and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional. 

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