At Work

What you don’t know or understand can really hurt your retirement pocketbook. 🤑

Listening to a financial advice talk show this morning and a retired man called with a question. He wanted confirmation of his 401k investments.

It turned out he and his wife decided that among funds available the best for them was the 2040 target date fund. Think about that for a minute.😕

He had no idea what a target date fund was. In this case the 2040 fund has a mix of investments designed for the person who expects to retire in 2040. In other words, higher risk for higher long-term return, not for a retired person seeking more stability while using the funds.

Don’t get yourself into a retirement pickle

Target date funds typically offer an option for those already retired where the investment mix includes more fixed income investments.

The lack of understanding about 401k plans and retirement investing hurts a lot of people and has long-term consequences. Employers generally do a poor job educating workers on a continuous basis. It has been my experience that 401k investors save too conservatively, or too aggressively, fail to periodically rebalance their investments and do not understand the concept of asset classes and diversification.

Plan sponsors need to do a better job‼️

PS. Many 401k plans contain far too many investment options which only confuse and add no value.

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6 replies »

  1. I do not think that it is all the employer’s fault. Back when I was in high school four decades ago, you were only required two years of math. It didn’t matter if it was general math or calculus. What is really needed is a year of personal finance or business math. I had a chance to take a business math course in college. It was really general math but everything was about interests rates, compounding, loans, mortgages, margins, rate of returns and alike. The employer has to assume that the employee has a base knowledge which most do not have. This personal finance course might also prevent people from getting into credit card debt or losing their houses. A course like this might get people into retirement planning and funds in their 20’s instead of their 50’s.

    After one bad experience with a certified financial advisor, I always try to figure out what their angle is and why they want to talk to me. They will never get rich off of me. Some have been up front, others just want to sell me something.

    Most people cannot get their heads around the large sums of money needed for retirement yet they see people getting by on just social security so nothing make sense to them. Sometimes the amount is so large they do not even try. Sometimes my employer information was so generic out of fear of being sued that I just could not see how the information was useful to me. It is hard to get examples of how much money you “save” doing tax deferred vs non-tax deferred because everybody case is different. Like you said, too many choices causes in action. Nobody want to lose by picking the wrong fund.

    There is a lot advice of how to split your investments as you age. But thanks to Warren Buffett and his 10 year bet currently in progress, if you invest 40% bonds / 60% equalities in an index fund and stay the course you will match the market and not lose your money long term. But there are ads for how you can beat the market and 60% of those funds fail to match or beat their indices. It is just too much information.

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  2. Right on point. My neighbor (about to retire) met with a financial ‘advisor’ who promised a 3.5% guaranteed return a recommended annuity through investing in Government Bonds … where 30 year Yields are under 2.8%! Not sure what action he took, but suggested maybe – just maybe he misunderstood and they were stating the annual withdrawal percent he was able to withdraw. I think he ‘wanted’ to hear a guaranteed return rate of 3.5% so that is what he heard.

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    • A local major national bank manager wanted my 80+ year old mother-in-law to convert her CD’s over to annuities that 1) paid no better than the CD’s and 2) the annuities locked her money up. I was able to stop her before she signed the papers. I tried to get her to switch banks for better rates but she would not do it. Annuities used to be a good option back 20-30 years ago when you could get rates that would match inflation. But who would recommend to an 80+ year old to lock up their money when they might needed for medical? Because there is no commission on bank CD’s but there are on annuities.

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