As part of the leadership team for the firm I work for, one of my (our) responsibilities is to evaluate and provide fiduciary oversight to the retirement plans provided by my firm. While undertaking this responsibility I’ve had the unique opportunity to be educated on many very interesting facts about small business, retirement plans, and employee participation. The purpose of this commentary is to share some interesting facts about retirement planning, but before that I think it’s worthwhile to share my own experience with retirement planning.
In December of 1987, I joined St. Paul Fire & Marine Insurance Company (Travelers today) having just been married and being all of 24 years old and living paycheck to paycheck. At the time the “St. Paul” had just introduced a relatively new retirement savings vehicle called a 401K plan. Maybe due to the newness of the plans, or because I was 24 and couldn’t imagine retirement I didn’t pay much attention to that plan until –luckily for me– a coworker of mine named Ed pulled me aside and figuratively slapped me upside the head and explained what I was missing.
“First of all”, he told me, “where can you earn 100% on your investment?” Very ignorant, and confused I asked him what he was talking about. Today, I understand he was explaining the “company match.” Now not all firms offer a company match, but St. Paul Companies did as does my current employer (up to a certain percentage of your salary, but just hang with me for now). Ed continued, “plus you invest pre-tax, so that’s another 25% so even if your investment breaks even you’ve earned 125%!” Now I’m sure there’s an actuary somewhere that will correct my math, but it close enough for argument sake. “Finally,” Ed told me, “if you just put your money in a fixed interest account you could earn -at that time- 7%. All total that’s 132% on your investment, you can’t afford not to save.” I don’t see Ed often any more, but every time I do I remind him of this story and thank him.
Fast forward 31 years, I still have the money I put away, it’s doubled at least twice and is the foundation of my retirement planning. No, in and of itself it’s not enough for my wife and I to retire, but it’s a great building block and something that I would have delayed starting if it weren’t for Ed. The sad thing is if I believe the statistics reported by Vanguard Retirement Planning, in a sample drawn from their 370,000 retirement plan participants the amount saved for retirement doesn’t look good:
Age Median (Midpoint)
Established Average
45 -54 $21,667 $94,991
55-64 $28,935 $141,378
65+ $39,539 $180,490
At first glance the dollars in these accounts look big, but if you realize that many people are going to count on their 401K (or other similar plans) to enhance their retirements, these dollars aren’t close to being enough. Which is in direct contradiction to the overall retirement planning being done by Americans at large. According to the U.S. Department of Labor’s February, 2018 “Private Pension Plan Bulletin” we have saved $7.5 trillion using 401K type plans. In aggregate the retirement savings Americans have made is larger than almost every country’s total GDP output! So, what gives?
It all comes back to whether or not you have an “Ed” in your life? Because the people who started early, even by saving small amounts from each paycheck, are the people who will enjoy financial well being when they stop working. If everyone who is eligible to participate in employer-based savings plans actually saved via their company sponsored plans, the numbers in the chart shown above would look substantially different, so would your retirement.
Old people always say time goes by fast… well now I’m one of them and I’m not sure how fast time goes, but I do know that saving a little at a time is a lot easier than playing catch up at 55.