Baby 'Steps'

I recently ran across a survey that claimed 7 in 10 DC plan sponsors were “taking steps” to solve the retirement income challenge… but that looks to have been “aspirational.”

While the survey’s[i] intro cautioned that there was more to be done, that struck me as a remarkably high (and reassuring) finding, though it didn’t mesh with my sense of the world at present. Sure enough, turns out, there is apparently a retirement income “journey”—one that apparently has several stages—all of which were (apparently) classified as “steps.” Those included:

• 34% – INITIAL (my emphasis, their wording) stages of learning about retirement income approaches
• 14% – in the process of better understanding participants’ retirement income needs
• 8% – in the process of evaluating specific retirement income solutions/products
• 7% – implementing/implemented a retirement income solution/product

Indeed, the survey goes on to comment that another 8% have evaluated these type solutions, and decided not to pursue them. And more than a quarter (27%) say retirement income is “not currently a topic of interest or need.”  

So, not to put too fine a point on it, but that looks to me like (only) 15% are taking actual steps to solve the problem, though I suppose there’s something to be said that nearly half are at least keeping an open mind on the subject.    

And even those who are considering a solution seem a bit confused. Consider that when it comes to products and solutions designed to support retirement income, plan sponsors cited stable value funds (70%). The income fund in a target-date series was a distant second (46%), though products most likely to be considered for future inclusion in 401(k) plans include annuities, long-duration fixed income funds, and managed accounts that support decumulation.

Don’t get me wrong—despite some significant legislative enhancements in SECURE 1.0 (and some modest encouragements in SECURE 2.0)—there remain plenty of legitimate, rational reasons why a plan fiduciary might rationally defer or delay action here. While today there are (more) solutions available, and more regulatory/legislative clarity—the traditional concerns (still) loom large in rationalizing inertia.  Mostly I think it still boils down to a question as to whether it’s the employer’s responsibility to provide these options (and to take on additional fiduciary exposure), particularly if nobody is asking for it.

More’s the pity, because in my experience if you want employees to feel comfortable about retiring, they need to know how much income they will have to live on. For most, that’s going to be a function of their Social Security benefit (diminished by their Medicare premiums), and what kind of income stream their retirement savings can produce. The latter isn’t hard math, but it’s more complicated than most participants will want to pursue (particularly with their financial future at stake). They may not be lining up at HR’s door demanding these solutions, but the physical—and fiscal—reality is that they need them. 

It's been said that “a journey of a thousand miles begins with a single step.”

The sooner, the better. 

- Nevin E. Adams, JD

 

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[i] The research was conducted by Coalition Greenwich from May 23 to Aug. 26, 2022, using an online, quantitative approach with 155 DC plan sponsors who have at least one 401(k) plan and at least $100 million in 401(k) assets. Plan breakdown by AUM: 36 plans with $100-$249M AUM; 37 plans with $250-$499M AUM; 31 plans with $500-$999M AUM; 32 plans with $1-$4.9B AUM; 19 plans with over $5B AUM.

A Father's Footsteps

“A father is a man who expects his children to be as good as he meant to be.” – Carol Coats

Like many, perhaps most, of you, as a parent I’ve tried to compensate for the ways in which I felt that my parents could have done . . . “better.” 

My parents led mostly through example—and powerful as that can be, as a kid those messages are often too subtle to be noticed, much less appreciated. Indeed, my dad was a man of few words—spoken words, anyway.

At 6’ 5” he was an imposing figure, all the more from the pulpit from which he did speak. He was a good speaker, but not a natural one. A minister, he worked hard at it, studied his subject matter, practiced his presentation relentlessly, each and every week. I always thought it amazing that such a quiet, introverted man would choose that career—but, and though it can’t have been easy, it was something he felt called to do at an early age. He had opinions, but didn’t impose them on others. Indeed, it was difficult (and sometimes frustrating) to wrest opinions from him. Significantly, he walked his “talk”—his faith, his love and respect for all people, even those with whom he disagreed—and those were attributes in short supply, even then. But this quiet “giant” found his true gift in writing—and in the process extended his influence and his ministry well beyond a single congregation. And yes, gentle reader no one was more thrilled than Dad to see THIS son “stumble” into writing for a career, albeit with a different focus.   

For all that fine example, I didn’t learn anything about finance from my dad—he avoided big purchases with the fervor of Ebenezer Scrooge, though he’d spend that much (and more) on small things (mostly books, much to my mother’s chagrin). Like many in his generation, my dad wanted to “hold” the checkbook, but it was Mom who always made sure that there was money in the account. And while Dad tithed “biblically,” Mom was the one who started setting aside money from her paycheck in her 403(b) plan at work—and continued to do so, even when my father was convinced they couldn’t afford it—and made no secret of THAT opinion. Or did until he got a glimpse of the statement that showed Mom’s retirement account growth—and then, inspired by that example—he began setting money aside for retirement as well.

His impact on me, and my life notwithstanding, I’m a different person than my dad, though his example is never very far from my thoughts. As a parent, I’ve tried to share with my kids the lessons I’ve learned (and continue to learn), tried to spare them the pain that came with many of those (though some I still can’t bear to admit aloud), but also tried to give them the room they need—and deserve—to learn their own on the life path(s) they chose—though that’s a life lesson of its own, and one with which I still sometimes struggle.

That said, I’ve tried to be more expressive in my love for them, and pride in their accomplishments, and more vocal in my support when they’re going through the inevitable “rough” patches of life. Tried to provide more direction, without imposing my decisions—tried to share with them some sense of money, and its management, the thrill of having work that gives you joy (even if the where and who you do it with don’t always), the importance of having the right partner in life…

Sometimes we follow in our parents’ footsteps—and sometimes we go a different way. But here’s hoping that the footprints we leave along the way—intentional and unintended—make other’s lives…better.

Happy Father’s Day, Dad.

- Nevin E. Adams, JD

A Need to 'Know' Basics

Back in the middle of the pandemic, my then 91-year-old mother was presented with two options—one a specialist recommended, the other favored by her trusted general practice physician. And of course, it was to be…her decision.

This kind of thing happens all the time in the medical field where such things often seem as much art as science, with a myriad of factors to consider, not the least of which is the skill and experience of the medical professionals putting forth their recommendations. Not that it’s limited to life-and-death decisions. Indeed, it’s the kind of decision with which we’re often presented; when that annual auto inspection detects a hitherto undetected major repair need, when that leaky toilet repair uncovers some long-standing, but unobserved water damage, when that last minute call to fix a water heater or air conditioner reveals that it might—but might not—last the season. Those things routinely involve experts of one sort or another turning to us relative (or complete) amateurs, presenting us with complicated choices that often involve a complex weighing of factors we may not even understand. And yet we do.

Or, if you’re a 401(k) participant these days, we just do it for you. 

But don’t retirement plan participants need to have some idea about what’s going on with their retirement savings? In a “do-it-for-you” default enrollment/investment paradigm, aren’t we basically creating a generation that simply trusts and accepts the decisions of their “betters”—who, to be honest, aren’t always deserving of that trust. Said another way, where’s the “check engine” light for your 401(k) account?

That brings me to the continued focus of the need for “financial literacy.” Long touted as something of a panacea for the apparent shortcomings of our education system when it comes to practical financial applications, I remain skeptical.[i] Not that it wouldn’t be nice to have participants who had a basic appreciation for the markets, the impact of fees, the balance between equity and fixed income, and perhaps even a fundamental understanding of what a mutual fund is. But I think financial “literacy”—though its definition is surely fluid—is perhaps a higher bar than needed for most.

I still think effective financial education begins early, and at home. Not about the markets, perhaps—but the basics of a budget, the discipline of an allowance—better still, one anchored on household obligations.[ii]    

That said, a recent acquaintance has suggested what I think is an outstanding idea—and perhaps a way to not only expand the knowledge of the current generation of savers, but to build for the future; take that financial literacy training you may already be doing for your 401(k) clients—and expand it (in a separate session) to include…their kids!

Odds are you’ll not only provide valuable insights to that next generation of savers—but I wouldn’t be at all surprised if you find that help fulfill their “need” to know as well!

What do you think? 

- Nevin E. Adams, JD

 

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[i] See The Problem(s) with Financial ‘Literacy’.

[ii] Don’t get me wrong—IMO kids should also have things they do around the house to help as members of the family. 

The Fear of Finding Out

I hadn’t been to the dentist in a long time. A VERY long time.

Two weeks ago, and at the encouragement of my wife, I finally went back to the dentist. I hadn’t been since COVID, and that period provided a very good excuse for avoiding that visit. Turns out, I hadn’t been for quite a while before COVID—not so much intentionally, just life getting in the way.

That’s not completely accurate, of course. On the best of visits, trips to the dentist had never been exactly “pleasant,” though I’ve been fortunate to be in the hands of friendly, patient and—gentle—staff over the years. That said, my last visit had involved what wound up being a unexpected and relatively involved procedure that, while it remedied a painful (and potentially dangerous) situation, left me with a certain, shall we say, “fear of finding out”…

Now, avoiding the dentist didn’t prevent problems, of course. And many’s the day over the past several (gulp!) … years when I would tell myself that it would be better to catch—and fix—a problem early. But, concerned about what such a visit would find … well, I kept on finding reasons not to … find out.

I wrote recently about the 33^rd Annual Retirement Confidence Survey, published by the Employee Benefit Research Institute (EBRI) and Greenwald Research, which found both workers’ and retirees’ confidence in having enough money to live comfortably throughout retirement dropped—and while it was the sharpest decline in confidence since the so-called Great Recession—it wasn’t as sharp as one might have expected under the circumstances (high inflation, volatile markets, uncertain job environment).

But below that headline (and, let’s face it, “confidence” can be a fluid sentiment), that same survey found that (only) about half of workers have “tried to figure out how much money” they would need to have saved by the time they retire so that they could live comfortably in retirement. Which calls to mind the question; is their confidence (or lack thereof) a function of them having made that assessment[i]—or is it more a case of “ignorance is bliss?” Or are they simply afraid to find out?

Well, as Greenwald Associates CEO Lisa Greenwald recently reminded me, not only are those already in retirement more confident about their prospects, retirement confidence also tends to be higher among those who have actually made the assessment—even when, based on the limited objective information available (including the aforementioned “guessing”)—there might not be a “rational reason” underpinning that sentiment at the moment. 

As it turned out, my trepidations about my return to the dentist weren’t unfounded; there was some work that needed to be done that wasn’t pleasant, and yes, it might have been less unpleasant if I had made that visit earlier. On the other hand, now that I’ve been, I have a sense of how things stand, and I no longer have to worry about how bad it MIGHT be. Yes, I have already made my next six-month checkup—and yes, I’m not nearly as concerned about that visit as I was this past one.

Yes, despite the “fear of finding out”—be it a trip to the dentist, the doctor, or a retirement needs assessment—there is something to be said for having a professional assessment, of having a sense of what has to be dealt with—so that you can. 

- Nevin E. Adams, JD 

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[i] On the other hand, in previous years when that question was asked (and the number having made an effort to determine need nearly identical) the RCS found that the most common method of ascertainment was—guessing (45%).