Making a List...

  “You better watch out, you better not cry, you better not pout…”

Those are, of course, the opening lyrics to that holiday classic, “Santa Claus is Coming to Town.” And while the tune is jaunty enough, the message — that there’s some kind of elfin “eye in the sky” keeping tabs on us has always struck me as just a little bit…creepy.

That said, once upon a time, as Christmas neared, it was not uncommon for my wife and I to caution our occasionally misbehaving brood that they had best be attentive to how their (not uncommon) misbehaviors might be viewed by the big guy at the North Pole.

In support of that notion, a few years back — well, now it’s quite a few years back — when my kids still believed in the (SPOILER ALERT) reality of Santa Claus, we discovered an ingenious website[i] that purported to offer a real-time assessment of their “naughty or nice” status.

Indeed, no amount of parental threats or admonishments — in fact, nothing we ever said or did — EVER managed to have the impact of that website — if not on their behaviors (they were kids, after all), then certainly on their level of concern about the consequences.

In fact, in one of his final years as a “believer,” my son (who, it must be acknowledged, had been particularly “naughty” that year) was on the verge of tears, panic-stricken — following a particularly worrisome “reading”[ii] — concerned not so much that he’d misbehaved, and certainly not that he’d disappointed his parents with his misbehaviors — but that as a result, he'd find nothing under our Christmas tree but the lumps of coal[iii] he so surely “deserved.”

Naughty or Nice?

Every year about this time we read survey after survey recounting the “bad” savings behaviors of American workers. And, despite the regularity of these findings, most of those responding to the ubiquitous surveys about their (lack of) retirement confidence and their (lack of) preparations don’t offer much, if anything, in the way of rational responses to those shortcomings. Yes, even though they apparently see a connection between their retirement needs and their savings (mis)behaviors. The most recent “target” was the oft-overlooked Gen X — who, at least according to one recent survey is (even) less prepared than the Boomers OR Millennials (Gen X just can’t catch a break!)   

The reality has long been that a significant number will, when asked to assess their retirement confidence, generally acknowledge that there are things they could — and know they should have —done differently. Retirees routinely bemoan and regret their lack of attention to such things. Sadly, if there’s anything as predictable as the end of year regrets, it’s the perennial list of new year’s resolutions to (finally) do something about it. And the cycle repeats.

So if they know they’ve been “naughty” — why don’t they do something about it?

Well, some certainly can’t — or can’t for a time — but most who respond to these surveys seem to fall into another category. It’s not that they actually believe in a retirement version of St. Nick, though that’s essentially how they seem to (mis)behave. That said, they continue to carry on as though, somehow, these “naughty” savings behaviors throughout the year(s) notwithstanding, they'll be able to pull the wool over the eyes of that myopic, portly old gentleman in a red snowsuit. They act as though at their future retirement date (which a growing number say will never arrive), despite their lack of attentiveness during the year(s), that benevolent elf will descend their chimneys with a bag full of cold, hard cash from the North Pole. Or that sufficient time (or market gain) remains to remedy their “wrongs.”

Unfortunately, like my son in that week before Christmas, many worry too late to meaningfully influence the outcome.

A World of Possibilities

Now, the volume of presents under our Christmas tree never really had anything to do with our kids’ behavior(s). As parents, we nurtured their belief in Santa Claus as long as we thought we could (without subjecting them to the ridicule of their classmates[iv]), not because we truly expected it to modify their behavior (though we hoped, from time to time), but because we believed that children should have a chance to believe, if only for a little while, in those kinds of possibilities.

We all live in a world of possibilities, of course. But as adults we realize — or should — that those possibilities are frequently bounded in by the reality of our behaviors, as well as our circumstances. And while this is a season of giving, of coming together, of sharing with others, it is also a time of year when we should all be making a list and checking it twice — taking note and making changes to what is “naughty and nice” about our personal behaviors — including our savings behaviors. To “be good,” not just for “goodness” sake, but for what we all hope is the “goodness” of financial “freedom” in our lives.

Yes, Virginia,[v] as it turns out, there is a retirement savings Santa Claus — but he looks a lot like you, assisted by “helpers” like your workplace retirement plan, your employer’s matching contributions — and your trusted retirement plan advisors and providers. 

It’s time to do more than just make a list — but it’s a place to start.

Happy Holidays!

• Nevin E. Adams, JD

 

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[i] And it’s still online at http://www.claus.com/naughtyornice/index.php.htm

[ii] And yes, though this was before smartphones, there was a tendency to constantly check in. That said, there do appear to be a number of apps online now that purport to fulfill a similar function. 

[iii] For those unfamiliar with that reference… https://abc7chicago.com/st-nicholas-day-saint-lumps-of-coal/4846172/

[iv] At one point one of my daughters refused to contemplate the possibility of a 2^nd grade “relationship” because the boy didn’t believe in Santa!

[v] In case you’re curious as to that reference… https://publicdomainreview.org/collection/yes-virginia-there-is-a-santa-claus-1897/

The Path of Less Resistance

There was some good news — and some disappointing news — about the take-up of a “new” plan design last week.

It was the first anniversary of a coalition of recordkeepers called the Portable Services Network (PSN) — a consortium of firms that includes Alight, Vanguard, Fidelity Investments, Empower, TIAA and Principal — not to mention the Retirement Clearinghouse, whose long-term patience and commitment made the concept of auto-portability a reality. There’s even support for auto-portability in SECURE 2.0.     

The Good News

The good news: PSN reported that in its first year of operation — more than 15,000 plans representing approximately 5 million participants have signed up for auto portability. According to a press release, 549 auto portability transactions have been completed as of Dec. 1, 2024; and 7,841 auto portability transactions are “in motion” as of Dec. 1, 2024. In-motion transactions are those where the Retirement Clearinghouse has confirmed a match for an account holder of a small account stranded in a retirement plan or moved into a safe-harbor IRA (with the opt-out/consent notification process having been initiated). 

Why This Matters

Auto-portability is a process that facilitates an automatic rollover from one plan to another (or an IRA) when an individual changes jobs or otherwise terminates employment. Like auto-enrollment, it seeks to take advantage of behavioral finance — taking a complex process and creating a default that works to the benefit of the participant. As with automatic enrollment, participants can opt out — but in creating an “easy” path to do the “right” thing, it is hoped that not only will these balances remain as retirement savings, but that it will be easier for individuals to keep up with and manage their retirement savings.        

It’s a big deal — the Employee Benefit Research Institute has said that the leakage associated with job change could add up to $1.6 trillion in additional retirement savings over a 40-year period. More significantly, it could add up to $744 billion in extra retirement income for 98 million minority job-changers, with 30 million Black Americans expected to preserve $216 billion in incremental retirement wealth.

While there has been improvement over the years, those rollover decisions are — complicated. In fact, as I put together the financial components of my “retirement,” there was one aspect I dreaded more than any other. My balances were large enough that I didn’t HAVE to do anything more than leave my account “behind” — and for me that was certainly easier and less painful than going through the rollover process. 

That said, many don’t have that option — they are only presented with the option to roll it over to the IRA (that they probably don’t have) or a successor 401(k) (that they probably aren’t signed up for yet) — or to take it in cash. And I have to imagine that for the vast majority, taking it in cash is really the only option — even though they’ll wind up paying taxes and penalties that will significantly erode their balance — not to mention their retirement security.

The Disappointing News

PSN cited data by the Plan Sponsor Council of America (PSCA), based on the PSCA's survey of plans conducted in Sept. 2024, that found that — (only) 6% of all plans have implemented auto portability or will do so soon, including 12.5% of plans with between 200 and 999 participants, and 8.7% of plans with 1,000 to 4,999 participants.

And while that take-up rate was modest, that same survey found that 25.6% of plans are considering the implementation of auto portability, including 30.4% of plans with 1,000 to 4,999 participants and 47.5% of plans with over 5,000 participants. Not bad, considering that three years ago nearly 80% of plan sponsors surveyed hadn’t even heard of auto-portability!

All that said, for auto-portability to really work — to truly facilitate the movement of retirement savings from one plan to another — you need the broad network. More than that, you need the broad participation of the plan sponsor community to provide that option to retirement savers. Here’s hoping that in the months ahead more do. 

Because, thanks to the PSN it now seems that when it comes to retirement savings, you really, finally CAN take it with you!

- Nevin E. Adams, JD

Setting A (Too) High Bar?

  A recent article in The Wall Street Journal was titled “Here’s What Retirement With Less Than $1 Million Looks Like in America.” And it’s better than one might expect.

The individuals in this particular piece were a diverse group — indeed, the only real point of commonality was they all had less than $1 million in retirement savings. In view of the ubiquitous headlines proclaiming impending retirement destitution, one might well have expected tales of doom and gloom, though that wasn’t the case here.[i] There WERE, of course, stories of folks keeping an eye on costs, not travelling as much as they had expected, and in at least one case, deciding to stay put, rather than relocate to a warmer climate … but overall, these five — with savings ranging from $240,000 to $800,000[ii] — seemed to be in a good place — and half didn’t even wait till 65 to retire (though all chose their retirement time).

This is NOT the narrative that garners headlines (and clicks), of course. And, let’s face it; these individuals all had SOME retirement savings — presumptively because they, at some point in their working lives, had access to such a plan at work. There’s much to suggest that those lacking that access wouldn’t fare as well, though arguably nothing besides inertia (and in some cases, economics) precludes them from setting aside money in an IRA. But it does bring to mind that ever-present question — how much do you need to retire comfortably, at least on a financial basis? 

The real answer is, of course, it depends. 

Throughout my career, I have made several attempts to estimate my post-retirement income needs.  I did this with some trepidation because I had never quite managed to adhere to all the touchstones our industry touts. I never managed to save 15% of pay (even including employer matches, though I always contributed enough to get all of that), and never even maxed out my contributions until the last several years of my career (had to help get the kids through college, don’t you know). And as aggressively as we saved over the course of our lives — including taking advantage of catch-up contributions, we headed into retirement with nowhere close to the 10-12 times my annual salary in retirement savings some say should be your target. 

That said, once I got within sight of retirement, I also found that we didn’t need anything close to the 70% of pre-retirement income target to live the way we lived pre-retirement (much less the 80-85% some now advocate). Now, some of that is because my wife and I have always been modest in our expenditures — we live within our means. Perhaps more significantly, it’s (still) early — there aren’t yet any significant healthcare issues to worry about (we HAVE invested in long-term care insurance) — and my pre-retirement income was…comfortable. And while it wasn’t an economic prerequisite, relocation to a less expensive part of the country has provided some extra cushion (though, in fairness, the move itself, and the inevitable “adjustments” to a new home muted no small amount of that in year #1). 

In fact, how — and where — you live pre-retirement can have a significant impact on whether or not those common — and admittedly generalized — retirement savings milestones are applicable.  And, for those who haven’t — and perhaps won’t — take the time to undertake a more sophisticated analysis, those “rules of thumb” are surely designed to provide a sense of a target that should not only cover, but likely more than cover most needs. And — though long-term financing remains a question mark for many, perhaps most, Social Security provides a solid foundation to build upon — something that is worth checking out before hitting the panic button.

One thing that has been on my mind of late is, have “we,” in our efforts to help Americans save “enough” for retirement, pushed goal posts that are higher than they need to be? And in that process, have we not only undermined the confidence in an ability to retire with dignity, but fostered what seems to be a pervasive sense that the retirement system is…a failure? 

While I realize the answer is as varied as the individuals and individual circumstances considered — I think it’s a point worth considering.

Thoughts?

• Nevin E. Adams, JD

 

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[i] I’m always amazed at these type of personal vignettes — where a reporter from some major national newspaper somehow manages to track down a handful of individuals who are willing to share intimate details about their lives, financial and otherwise. The cynic in me often wonders at the process of picking particular individuals — do they shape the story, or are they chosen to support the story already envisioned by the writer? That said, they do put some real-life “texture” to the theoretical notion of retirement we all talk about. 

[ii] The article cites data from the Employee Benefit Research Institute (EBRI) that found total household balances in retirement accounts for those 55 to 64 years old are $413,814 on average, based on 2019 data, the most recent available.