Things That Make Me ‘Mad as Hell’ — Part 2

 Last week, I shared a list of things that make me “mad as hell” — things that those in our industry generate, promote and often share as fact without any application of common sense, and no apparent appreciation for the damage done by their complicity in sharing such nonsense. 

Here’s the rest of the list: 

Reporting on average — well, anything (see Why an Average 401(k) Balance Doesn't 'Mean' Much).

You name it, if it involves numbers from widely varied sources, individuals, or different time periods, somebody in this industry will report it as an arithmetic average. This industry continues to insist on reporting average 401(k) balances, average fees, average estimates on retirement needs, and more recently “forgotten” average account balances. I get it. Averages are widely considered to be a middle of the pack assessment of reality.

But that’s only true when you are averaging things that are similar, and more importantly real. If you take numbers from completely different time periods, from individuals with a wide disparity of existence, or — worse yet — take completely made-up numbers compounded by wild exaggerations — and average them … well, you get mush. And that’s a kind assessment.

Surveys that show an average or median account balance — with no delineation for age or tenure. See 4 Things That Make Me Go ‘Huh?’

So, if you take the average balance of a 24-year old who has just started contributing, and add it to that of a 55-year-old who has been saving for a career — and then average those together … on what planet would that tell you ANYTHING about the real state of retirement plan saving or preparation? 

And yet, that “average 401(k) balance” is routinely referred to in the press, and “dutifully” reported even by the trade press as though its some kind of magic barometer on the actual state of retirement security.

Worse, every year that number is presented against the average (of averages) from the prior year as though that change tells us anything about the actual progress of anything beyond the ability of folks to do simple math, and with no acknowledgement as to just how silly it is to blend together the cumulated savings of individuals who are paid a wide range of salaries, who defer at widely different rates, who live in completely different parts of the country, and who range in age (and participation) from “yesterday” to decades. 

Yes, I’d say that your average 401(k) balance is, generally speaking, mathematically accurate — and, at least in terms of ascertaining the nation’s retirement readiness, nearly completely useless.

A single provider survey that shows an average or median account balance. See Why an Average 401(k) Balance Doesn't 'Mean' Much.

Most of these average account balance surveys are, in fact, the average of account balances of those whose balances are maintained by a single firm. Aside from the obvious disparities noted above (age, tenure) that distort the result into meaningless mush, we all know that people change jobs — and that employers change recordkeeping providers — all the time.

So, if my 401(k) balance is part of Recordkeeper A’s portfolio this year, but my employer changes recordkeepers so that my balance (and that of my co-workers) is part of Recordkeeper B’s portfolio the following year — imagine how that might (and should) impact the so-called “average” 401(k) balance that Recordkeeper A reports — suddenly several hundred million dollars “disappear” — particularly when it chooses to apply some percentage change to those two different years.[i] 

Tell me again why anybody thinks that number — much less the variance — tells me anything relevant about the state of retirement savings/security.

Surveys that claim participants want things they can’t possibly understand. See Talking Points: (Just Because) Survey Says?

In recent days, we’ve been assured that participants are clamoring to have access to private market investments. Before that, it was cryptocurrency — and for what seems like months now it’s all been about retirement income. Apparently vast majorities of participants are eager to have access through their 401(k) to an array of complex financial instruments to which they have, thus far, been largely (or totally) barred — or so surveys say.

Indeed, I’ve always been amazed that organizations are able to find so many ostensibly knowledgeable participants to weigh in on these complex topics — particularly since there is an abundance of (other) surveys that suggest that when it comes to financial matters, participants are, largely, clueless.

Not that that seems to dampen their collective interest in these new options — though when given a chance to put their money where their mouth is, participants seem to be about as cautious as you’d expect (want?) largely financially clueless individuals to be. Doubtless the questions posed in those surveys are less complex than the actual decision points turn out to be.

That said, and not to be TOO cynical — the vast majority of these surveys are sponsored by, and in many cases, conducted by the very firms that are manufacturing the very products that their surveys say participants want.

I’m not saying they couldn’t have found individuals that do, or that they weren’t able to pose the questions (or present the responses) in a way that supports those conclusions.

But it does make you wonder…

Data “analysis” that takes real stuff, combines it with fake stuff, makes up a new scary-sounding name for it, and then claiming that vast majorities of all the retirement plans in existence are in “violation.” See Talking Points: A Red Flag for a ‘Red Flag’ Report.

As you can tell from the above, there are plenty of mis- or exaggerated positionings of data (real and imagined) to take issue with. But the most egregious example of this in recent memory was a report that claimed — based on an “analysis” of Form 5500 filings — that 84% of all (that’s right ALL) retirement plans in the United States have “at least one likely Employee Retirement Income Security Act (ERISA) red flag from a regulatory and/or fiduciary violation.”

Now, we all know that at any given moment, there are plans with issues. That said, and as with the “analysis” on “forgotten” accounts, this one is just silly on its face. Not that that kept even the trade press from dutifully (almost breathlessly) sharing that headline. And then they proceeded to detail — without comment/context — the basis for that “assessment.”

See, they made up categories; Regulatory Infraction Red Flags (RIRF) and Egregious Plan Mismanagement Red Flags (EPMRF). Nothing illegal about that — and to their credit, they at least detailed the “red flags” that would cause a plan to be tagged in one (or both) of those categories.

Regarding the former, those 1) had loss from fraud or dishonesty; 2) not offering qualified default investment alternatives (QDIA); 3) an insufficient fidelity bond; and 4) not 404(c) compliant. With a straight face, the firm claimed that at least 328,833 retirement plans had at least one of these RIRFs, representing approximately 43% of the total plans. And with an equally (and much more disappointing) straight face, the trade press glossed over the reality that neither offering a QDIA nor being 404(c) compliant were requirements under ERISA.

As for the latter, those “infractions” (their word choice, not mine) were detailed as “1) Not including automatic enrollment; 2) No corrective distribution of excessive contributions; 3) No 404(c) with participant-directed accounts; and 4) Failure to transmit payments on time.” Once again, we don’t have a breakdown of how many in which category, but they claim that at least 584,113 retirement plans had at least one EPMRF, representing approximately 76% of the total plans. And, once again, they just ignored the reality that neither automatic enrollment nor 404(c) compliance is legally required (unless it’s a plan adopted after Dec. 29, 2022, and those won’t yet have shown up in the Form 5500 data). And, once again, the trade press just reported these categories and criteria “straight.”

Look, an advisory firm can set out whatever standards it deems appropriate, affix clever (if arguably misleading) names (and acronyms) to practices that fall short of those individual standards, and even issue a press release proclaiming that it has found the vast majority of plans in existence are found “wanting” based on those standards — doubtless in hopes that it will be picked up and shared uncritically by the media (and read by potential clients). 

But is that the kind of firm you’d be wanting to help ensure legal compliance?

What to Do

One would like to think that with the readership here, all it would take is for yours truly to hold this kind of stuff up to the light, and we’d self-correct, or disappear altogether. Worst case, you’d hope that the trade press would at least apply a context filter to their reporting. Sadly, several of the things on this year’s list continue to be reported and carried — with no context or caveat — year after year.

And let’s face it, every time someone writes about them — even critically — it generates both the awareness, “clicks” and impressions that feed and fuel the impact metrics that PR firms used to benchmark success. Like Howard Beale on Network, the crazier and more outrageous the commentary, the more likely it will get picked up. I’ve even tried ignoring the nonsense — but with expanded access to social media, I find that a growing number of “us” are uncritically sharing and forwarding, perhaps on the assumption that you can’t put out a press release with made up stuff in it.

I’ve tried to comment on that stuff — included links to my analysis, where applicable — and hoped to encourage caution, if not responsibility, in those actions. Trust me, folks who don’t like the 401(k) or the private retirement system are looking for this kind of commentary to undermine confidence and support in those systems.

Today I would quite simply ask each of you to pause when you see the types of things I’ve noted here — if you see merit in sharing them, please consider providing context to go with that share.

And if it’s clearly nonsense on its face, please join me in calling it out for what it is — “BS.”

Maybe if enough of “us” hold them to account (and remember that some of “us” are “us”), we’ll all be better informed and better able to help folks build a financially successful retirement.

• Nevin E. Adams, JD

 

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[i] This can, of course, also happen at the individual participant level for someone who changes jobs and takes his/her balance either with them to a different provider, or perhaps takes it out altogether to an IRA.

 

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.

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

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%).

Groundhog "Ways"

February 2 is the day upon which America turns its attention to Punxsutawney, PA (and what seems to be a rapidly expanding array of Punxsutawney Phil wannabes) to get a read on the duration of winter.

The theory, of course, is that if your local groundhog sees his (or her?) shadow when he/she emerges from his/her burrow, it will send him/her scurrying back inside, and with that action foretell six more weeks of winter, whereas no shadow portends a timely/early spring. However, like weather forecasters everywhere, Phil is often wrong in his predictions. Indeed, by some estimates (and going back to 1887) he’s only been right… 39% of the time (and since 1969, only about 36%[i]).

As complicated as it surely must be to accurately predict the end of winter, that at least is an event in the relatively near term. And one that (for Punxsutawney Prognostication, anyway) requires only the emergence from one’s burrow. Predicting retirement outcomes… well, that’s a whole other thing. 

Surveys routinely show that most Americans have not even tried to guess how much money they will need to live on in retirement, much less actually made an educated guess. In fact, according to the Employee Benefit Research Institute/Greenwald & Associates’ 2020 Retirement Confidence Survey, just over 4 in 10 (44%) have (ever) estimated how much income they and your spouses would need each month in retirement. That’s a pretty consistent finding from the RCS, which began asking that question way back in 1993.

Worse—and this data point was not in the 2020 RCS—when you ask how people had made some kind of assessment of their retirement income needs, a jaw-droppingly large percentage indicated they… guessed.

Guessing might well be deemed a superior approach than ignoring the matter altogether, but consider that heading toward “retirement”[ii] with no idea of how much you might need is a bit like going on a long trip in an unfamiliar vehicle with a fuel gauge that isn’t working—oh, and with no real certainty as to exactly where you’re going, or when you need to get there. 

Many allow themselves the luxury of postponing this focus for another day—ignoring two harsh realities. The first is that time is (literally) money—the longer it’s put off, the steeper the financial “hole” to fill. Second—and one that ignores several harsh realities of its own—thinking that date of “retirement” will be of our choosing.[iii] If nothing else, the events of the past year should serve as a fresh reminder of that point (see also 6 Things People Get Wrong About Retirement).

Several years back, the RCS asked individuals how much they need to save each year from now until they retire so they can live comfortably in retirement. One out of five put that figure at between 20% and 29%, and nearly one-quarter (23%) cited a target of 30% or more. Those targets are larger than one might expect, and larger than the actual savings reported by RCS respondents would indicate.[iv]

All of which brings to mind this question: Were the savings projections so high because so many workers didn’t do a savings needs calculation—or did participants avoid doing a savings needs calculation because they thought the results would be too high?

Or both?

Let’s face it, if you’ve never tried to figure out how much you’ll need to live in retirement, you may not live very comfortably in retirement. 

And you don’t need to consult a Pennsylvania groundhog to know that could make for a really long retirement “winter.” 

- Nevin E. Adams, JD

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[i] Which still seems to put him ahead of most local weather forecasts.

[ii] And we are all, one way or another, even if you want to just think of it as a time post-employment.

[iii] Fewer than half of the retiree respondents to the RCS retired “about when” they had planned, and only 6% later than planned. Roughly half—and this has been true through the long life of the RCS—retired earlier than expected.  

[iv] And considerably larger than the record high savings numbers reported in the Plan Sponsor Council of America’s Annual Survey.