The Top Questions 401(k) Plan Participants Are Asking Right Now

According to the Bureau of Labor Statistics, the most recent monthly year-over-year inflation number came in at a whopping 6.2%, marking the fifth consecutive month inflation has clocked in at 5% or more. The last time inflation was this bad (1990), we were just learning what happened when Kevin McCallister found himself home alone during Christmas.

Clearly, no one expected this nostalgic return to higher prices, but between that and the supply-chain squeeze causing shipping delays and bare shelves, this year’s Christmas gifts may not arrive until January. That’s not all people are worrying about. The Christmas ham and all that figgy pudding might cost a lot more this yule.

Realizing what this means to those saving for retirement only raises anxiety levels. What are the questions retirement savers are asking right now?

If you look in the trade press, you can see what plan sponsors are talking about. Mitch Shames, CEO of Harrison Fiduciary in New York City, says, “The areas of most interest and discussion with regards to retirement plans include ESG investing, Target Date Funds and retirement plan cybersecurity.”

But is this what’s on the minds of 401(k) plan participants?

Evidently, one subject not finding many headlines today is fees. This topic used to be the talk of the town. Today, it barely rises above the level of crickets in the night.

“I think the recent lack of public discussions around 401(k) fees is happening for two reasons,” says Jeff Burrow, President and Lead Advisor at Sierra Ocean, LLC in Ripon, California. “Yes, the disclosure rules have made the costs transparent and more easily able to be calculated, but most participants still don’t think much about it.”

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What might cause retirement savers to exhibit less concern about fees? It’s the same reason why consumers generally tend to place costs at a lower priority: the value obtained more than justifies the expense.

“The fact is we’ve been in a sustained bull market and the investing public is always more forgiving on fees when they consistently make money with their investments,” says Burrow. “If we were in a sustained bear market or a sideways trending environment, people would more often wonder how they might spice up returns. And bringing up fees and then lowering fees is the most certain way to do that when returns are meager.”

So, if it’s not fees, what precisely does rise to the level of “concern” for retirement savers?

“Participants generally know that inflation is the largest enemy for retirement,” says Chris Janeway, President of Fourth Point Wealth in Newport Beach, California. “They’re worried now about how long-term this inflation period may be and if it’s going to add years to their working life. They want to be sure that they can still retire on time and not outlive their money.”

Inflation is not just a future worry. It leads to present day issues that can result in a change in retirement saving behavior. This, in turn, puts savers in a difficult position.

“Many participants seem to be focused on balancing their need to save for retirement against a rising cost of living,” says Jeff Coons, Chief Risk Officer and Director of Institutional Services, High Probability Advisors in Pittsford, New York. “There is no one right answer for participants beyond ‘save as much as you can and at least take full advantage of the match offered by your employer.’ Likewise, autoenrollment and auto-escalation can be important signaling tools for employers to make sure participants are doing what they can to save for their own retirement.”

Beyond inflation, though, lurks a more menacing question. Really, it’s more akin to a doubt than a question. And it’s a temptation that has existed for some time, no matter how often savers experience the folly of the fallacy.

“The most common question these days is, ‘When will this stock market take a hit and how bad will it be?’,” says Burrow.

The question itself is not bad. In fact, it’s good in the sense that it shows savers trying to prepare for all contingencies. It’s what they ask next which will tell you if they’re headed for the safety net or the edge of a cliff.

“An often heard follow up is, ‘Can’t I just get out of the market ‘for now’ and then after stocks go down, I can get back in when things look good again?’,” says Burrow.

When confronted with this, Burrow “always reminds plan participants that the stock market falling from time to time is completely normal. In fact, anybody who has invested over decades and earned good returns during that time frame, went through more than one bear market (defined as the stock market going down at least 20%). So, all successful investors stay the course, through all of the up cycles and all of the down cycles.”

So, how do you stay off the ledge and on the safety net?

Burrow says, “The key is to position your retirement account with enough risk to get your account to grow in the long term, but not so much risk that you might throw in the towel when things turn sour. This is an art and not a science. But, everybody thinks they can easily get out of the market when the time is right, and even more of a farce, is the idea that one can easily determine when the time is right to get back in. This is an impossible task to be 100% accurate. And worse, if you are wrong on your timing, you could permanently impair your ability to retire if you lose too much, or make a mistake too close to your ideal retirement time frame.”

And that’s something worth worrying about.

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