Retirement Survey: The Results
Regular readers of Money and Such may know that I am a member of my company's 401(k) stirring committee. Right now we are in the process of reviewing our 401(k) plan and examining offers from several different plan providers, including ING, Fidelity, Vanguard and ADP.
As a big believer in index funds, my natural inclination is to go with Vanguard. However, I recognize that I am not a typical investor, so yesterday I decided to take an informal poll among my fellow employees. My goal was to find out what their thoughts were regarding the 401(k) options that we are looking at. I discovered several very interesting facts:
1. People Don't Track Their Retirement Plan Progress - many of the people I interviewed confessed that they have only checked their 401(k) plan once. That "once" was the time that they enrolled in the plan. Whether because of laziness, because of ignorance or simply because they don't care, most of the people I interviewed expressed little interest in their plans.
2. People Either Care or They Don't Care - very few people exhibit a "moderate" level of interest in their 401(k). People tend to either max out their investments and be very involved with the plan, or they tend to invest very little and not bother with it at all. No one I interviewed spoke about a moderate level of involvement. For some reason, this appears to be a kind of all or nothing game.
3. Most People Don't Like Options - we are considering the introduction of a self directed 401(k) option, in addition to the regular menu of funds. Employees that choose this option for their 401(k) would be getting a brokerage account in which they can invest all or some of their assets as they please. To my amazement, most people said that if such an option existed they would not take advantage of it. I am guessing that the reason for this is fear. People don't know how to invest their retirement assets and are afraid to ask. Is it possible that people equate a fixed number of named options with safety?
4. Most Young People Don't Think About Retirement - almost invariably, the under 30 crowd I interviewed said that they do not invest or invest very little in their 401(k). Few, if any, even invest enough to take advantage of the company match, which is equal to 50% of the first 6% of salary.
5. No Strategy - it seemed like very few of the people I interviewed had any coherent investment strategy for their retirement assets. Some told me that they preferred investing only in aggressive, actively managed funds because they wanted to beat the market. One person told me that she basically invests in whatever her grandfather recommends, and so it didn't really matter to her what investment options we would make available.
6. Seniority is No Guarantee - one of the things that surprised me is that senior employees (Director level or above) were no more likely to have a coherent plan than were their junior counterparts. However, because they tend to be older and closer to retirement, a larger percentage of senior employees are taking an active interest in their retirement assets.
The results of this informal survey really cause a dilemma for me. On the one hand, as a relatively knowledgeable investor, I have a strong preference for index funds knowing that they would probably better serve my colleagues. Personally, I don't require a lot of hand-holding, service or training but many of my colleagues do. I also recognize the importance of minimizing investment costs.
I think that the best service I can perform for my colleagues is to ensure that they receive the training and information that would increase their odds of a secure retirement. Unfortunately, the option I deem to be most favorable from an investment perspective (Vanguard), does not offer a great deal of training and support for the employees. The option that offers the most education and hand-holding (Fidelity), is also more expensive and has limited indexing options.
I would appreciate comments, ideas, insights and suggestions from my readers. How do you think I should approach the problem?