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Random Nuggets I’ve Learned from the Internet, 2nd Edition

One of the benefits of constantly consuming retirement-related content is that, even after 28 years in the retirement business (yes, I’m old!), there is still an endless number of things to learn. In the second edition of “Random Nuggets I’ve Learned from the Internet,” I cover some of those.

  • While it’s easy to lose oneself for hours in this website that performs long-term monetary and non-monetary simulations, when I played with the numbers, the thing that resonated with me the most was how well the S&P 500 has held up over the long term. For example, if someone invested $1,000 50 years ago in the S&P 500, and left it there without contributing anything additional, they would have a little over $3.8 million today! Of course, there wasn’t an S&P 500 mutual fund in which to invest back in 1970 (Vanguard’s didn’t start until 1976), but even after 40 years, that $1,000 would have turned into $2.6 million. And again, this is just on a single investment of $1,000. Compounding is awesome!
  • Using averages to calculate retirement plan data can be troublesome - particularly in the area of account balances, where averages can be distorted by the relatively small portion (less than 1%) of extremely large retirement plan account balances. Using the median is a better measure of retirement plan account balances; however, this number is often much smaller than the average, so recordkeepers and other firms that collect this data don’t like to publicize it. However, I recently learned about a problem with using median as well; namely, that some recordkeepers include zero balances in their median figures, which makes zero sense to me, as zero balance “accounts” are not accounts at all, in my opinion. However, by including zero balance accounts in the median, the number may be artificially low. Therefore, my new recommendation to plan sponsors when they want to obtain a fair measure of a typical account balance in their plan is to ask for median, excluding zero-balances.
  • Discussing investments as a primary topic in retirement plan participant meetings is generally a bad idea (yet many participant presentations are focused on just this), since it can be confusing it is not important for those just starting out, and it distracts from the main goal of ensuring that individuals are saving for retirement. Thus, instead of investments, participant meetings should focus on topics such as how participants can afford to save. However, I recently read some interesting observations from a person who is not a professional financial advisor, which led me to rethink the use of investing as a topic in retirement plan meetings. In the account, the “investing meetup” was prompted by the employees receiving information on their company’s new 401(k) plan. The author noted that while the “meetup” was ostensibly about investments, he discovered that he actually needed to discuss topics such as safe withdrawal rates, the math behind early retirement, budgeting and spending. So, while investments were the draw to participants to attend the meeting, the session was used to lead a broader discussion around retirement readiness and financial independence. Therefore, I encourage retirement plan sponsors to get to know their audience. If investments can be used as a “hook” to gather your participants - do it! However, be sure to also discuss topics that are more critical to retirement savings engagement.

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Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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