Chart of the Week
The performance of the major indices over the past 10-12 years hasn't been akin to a smooth sailboat ride. By giving ourselves the latitude to take on some extra risk (and expense), we can make a less than ideal situation much better.
There are many things participants like about target date funds. Clarity. Diversification. One fund, one career. But perhaps most of all, participants seem to really like the fact that they don’t need to worry about re-balancing them.
Retirement assets nearly doubled between the end of 2000 and the first quarter of 2013, from $11.6 trillion to $20.8 trillion.
75% of investors said they would be encouraged to save more if they understood how their retirement savings translates into future retirement income. The more clarity we can give people about their track toward retirement, the more they can take action.
Perhaps it is self-evident, but it is worth reminding participants that inflation is the major downside of holding cash.
Assets in TDFs grew fivefold from $71 billion at the end of 2005 to roughly $380 billion by year-end 2011, and are forecasted to reach $1.1 trillion in 2016. While the recent growth of TDF assets is clear, do you feel participants' clearly understand how they work and the benefits they can provide?
With many asset classes at their lowest yields, amid increasing volatility the income challenge for investors and retirees is enormous. However, the range of asset classes that can help generate attractive yields may be broader than most realize.
The simple story in this chart is that there has been a dramatic rise in the number of women working up to the "traditional" retirement age of 65, nearly reaching parity with men by 2010. What about the not so simple part?
It's no surprise the economy has had its ups and downs the last twenty years or so, and that participants are sensitive to economic swings. The chart shows that participant contributions rise and fall with, and often slightly ahead of, GDP.
Perhaps the biggest factor preventing plan sponsors from taking a more active role in their participants' retirement planning is they assume it'd be an unwelcome intrusion on freedom of choice. Surveys show that participants want and welcome the guidance.
How can we help make good 401(k) plans great? When plans add automatic enrollment, they have 25% higher participation. When offered to younger employees, that number almost doubles. Nearly all employees who are automatically enrolled stay in.
During the height of World War II, economic output was sky high, incomes were surging, and personal savings rates were at unprecedented levels. Now, the lingering impact of the economic downturn have left many Americans in a much different position.
In tough economic times, where living expenses seem to be spiraling out of control, it’s tempting for people to veer off course by tapping into their 401(k) accounts. Yet, taking loans or withdrawals can do some serious damage to your nest egg later on.
Most participants are buying high and selling low--the opposite of the ideal "rule" of investing. It's time to shift the focus away from market timing, fund selection and investment returns to making their savings automatic.
Although there are many more asset classes to choose from compared to 10 years ago, it doesn’t always mean that each of them-stocks, fixed-income securities, commodities, and other asset classes-are necessarily going to work together.
The spread between the highest and lowest returns-which reached its peak in 2008 and 2009-drove home the point that not all of them approach their objective in the same way.
When participants are saving for retirement, investing a set amount on a regular basis leads to "dollar cost averaging." It means they buy more units when prices are low, and fewer units when prices are high – likely to their benefit over time. Unfortunately, withdrawing a set amount from your retirement nest egg leads to the opposite, or "dollar cost ravaging."
What's the best thing about hitting the big 5-0? Retirement is getting closer. What's the next best thing? You can save more money! Participants need to understand the power of catch-up contributions. They can make a tremendous impact when it matters most, as they approach retirement.
If participants are behind in their retirement savings, what are the chances that working through their 70s can help bail them out? Apparently, not as high as they may have hoped. The reality is that most peoples' expectations of retirement just don't measure up to the reality.
Life can be a series of tradeoffs. Travel the world or college? Kids or career? REITs or Vegas? Fortunately, as we get older, we'll have fewer choices to make, as the rising costs of inflation—specifically in medical care—will continue to eat away at our purchasing power.
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