Saving For Retirement Shouldn't Be So Scary
August 25, 2015
I am a huge proponent of promoting the importance of saving for retirement. But I’m nothing like the austere champions of saving that berate the public for not saving, actually investing, enough or at all. Or who label them financially illiterate because the concept of compound interest won’t sink in. I understand why saving for a distant life is a hard message to hear for many people. I also understand why people fear investing as a way to save for retirement.
Aside from being deliberately confusing, investing is risky. This risk is so often downplayed by the usual responses of:
- think long-term
- focus on your goals
- you only lose if you sell
- focus on monthly income
- don’t focus on the accumulated amount
I know a lot of financial types will have an appropriate industry response about how she could recover her losses by keeping some of her money in the market because she didn’t need it all at once. But these folks miss the point. That 25% loss was a huge number. A psychologically unforgettable number… So huge that it made me rethink my sunny “but it’s for the long-term” response I am always quick to give to reluctant retirement investment plan participants.
And now with the financial markets having a lackluster 2015 and a horrible five trading days in a row, my friend’s story is fresh in my mind because I’m six years older. Six years closer to my own retirement date. And even though I technically have about two decades to get my financial house in order, I know I need to consider more retirement saving options than IRAs, 401(k)s and after-tax investment accounts. And I need to consider non-saving options that will impact my retirement, like entering retirement debt-free and healthy.
But I want every worker to learn something from these financial market meltdowns other than hold the course.
Why isn’t it okay to say that investing in financial markets is a great way to save for retirement, but is also risky? And why are we trying to limit retirement plan options to defined contribution plans? Sure, we shouldn’t panic during down markets and staying the course is good advice, but isn’t this also the time to look at more options. Less risky options...
I think it is time that we start treating investment risk like we treat plan fees. Before the 2012 Department of Labor fee disclosure rules, fee information was basically hidden from 401(k) plan participants and plan sponsors. Now it is out in the open and everyone is looking at ways to reduce fees. And fees are falling because someone shone a light on how they can greatly reduce account balances. Maybe retirement plan investment risk is the next challenge to address.
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Denise Perkins
