Retirement planning: How to avoid saving too much
Summary
TLDRIn a recent discussion, David Blanchard, head of Retirement Research at PGM DC Solutions, argues against the binary view of retirement savings success or failure. He suggests that the current metrics might lead to oversaving and emphasizes the importance of finding financial passions to drive savings. The pandemic has shifted retirement savings habits, with many relying on 401k plans, yet Blanchard warns of the negative impact of resuming student loan payments on retirement funds. He advises saving at least up to the employer match despite financial challenges.
Takeaways
- đ€ Retirement planning is complex and not all Americans feel prepared, with only 56% believing they are on track for their retirement goals according to a BlackRock report.
- đĄ David Blanchard, head of Retirement Research at PGM DC Solutions, suggests that the binary outcome of success or failure in retirement planning may lead to over-saving.
- đ The use of metrics that only measure success or failure can mislead people into thinking they are not doing well financially, even when they are on track for success.
- đŒ The reliance on company-sponsored 401k plans for retirement savings is prevalent, but there is a significant coverage gap, indicating many Americans are not saving adequately for retirement.
- đĄ It's crucial to get help with retirement planning, either through online advisors or by having someone else run projections to understand what savings targets should be.
- đĄ Blanchard advises focusing on what you are passionate about financially, whether it's paying off student loans or saving for a house, as this can help motivate saving behavior.
- đŒ The resumption of student loan payments is expected to negatively impact retirement savings, as it will compete with retirement savings for financial resources.
- đ° Blanchard suggests that even with student loan payments, it's important to at least save up to the employer match in a 401k plan, as this is free money.
- đ§ Saving for retirement is challenging due to the difficulty of thinking long-term and the competing financial priorities that many people face.
- đĄ People tend to save more as they age, but it's important to focus on what drives better savings choices early on, as saving for retirement is a long-term commitment.
Q & A
What is the main concern raised by David Blanchard regarding retirement planning?
-David Blanchard is concerned about the binary approach to retirement planning where success or failure are the only outcomes, which could lead to oversaving.
Why might the current tools used by advisors lead to oversaving for retirement?
-The tools treat retirement as a binary outcome, suggesting that if you're not fully successful, you're failing, which can create a sense of not doing well even when you're actually on track for success.
What does David Blanchard suggest as an alternative to the binary success or failure approach in retirement planning?
-He suggests that individuals should focus on what they are passionate about financially and save for those goals, which can help accumulate wealth over time.
How has the use of 401K plans changed post-pandemic according to the discussion?
-There has been a growing use of 401K plans and Defined Contribution (DC) plans for Americans, but there is still a significant coverage gap, indicating that many are not saving enough.
What advice does David Blanchard give to people who are trying to save for retirement through their employer-sponsored plans?
-He advises them to at least save up to the employer match to take advantage of the free money offered by the employer.
What impact is the resumption of student loan payments expected to have on retirement savings?
-The resumption of student loan payments is expected to have a negative impact, as it will require some individuals to save less for retirement due to the competition for dollars.
How does David Blanchard suggest individuals approach saving for retirement when they have other financial priorities like student loans?
-He suggests that individuals should try to save up to the employer match for their retirement plans, even if they have to allocate more funds towards student loans.
What is the role of passion in retirement savings according to David Blanchard?
-Passion plays a significant role as it helps individuals find financial goals they enjoy saving for, which can make the process of saving for retirement more engaging and sustainable.
Why is it challenging for people to think long-term about retirement savings?
-It's challenging because humans naturally find it difficult to think long-term, especially when considering a retirement that is 30 years away and will last for another 30 years.
How does David Blanchard explain the importance of making conscious choices to save for retirement?
-He emphasizes that retirement will come due, and to ensure a comfortable retirement, individuals need to make a conscious choice to save, focusing on what drives them to make better savings choices.
What is the general trend in people's savings behavior as they age?
-People tend to save more as they age, but the key is to identify what will motivate them to make better savings choices when they are younger, considering financial responsibilities like student loan repayments.
Outlines
đŒ Retirement Savings Misconceptions
The script discusses the complexities of retirement planning and the potential issue of over-saving due to binary success metrics. David Blanchard, head of Retirement Research at PGM DC Solutions, argues that current tools may mislead people into thinking they are failing when they are actually on track for success. He emphasizes the importance of using the right metrics to measure retirement outcomes and suggests that the way information is relayed can create a false sense of underperformance.
Mindmap
Keywords
đĄRetirement Planning
đĄSuccess or Failure
đĄOversaving
đĄAdvisors
đĄ401k Plan
đĄCoverage Gap
đĄSaving Goals
đĄStudent Loans
đĄEmployer Matches
đĄLong-Term Thinking
đĄSaving Choices
Highlights
Retirement planning is challenging for many, with only 56% of Americans feeling on track for their retirement goals according to a BlackRock report.
David Blanchard suggests that the binary outcome of success or failure in retirement planning might lead to oversaving.
Advisors often measure retirement success in a binary manner, potentially leading to unnecessary stress and oversaving.
The focus should be on the process of saving for retirement rather than just the end goal.
There has been a significant shift in retirement savings post-pandemic, particularly in the use of 401K plans.
The use of 401K plans for retirement savings has increased, but there is still a large coverage gap.
It's important to seek help from advisors or online tools to project and plan retirement savings.
Saving for retirement should be aligned with personal passions and financial goals beyond just retirement.
Paying off student loans can be a competing priority for younger Americans, affecting their retirement savings.
At least saving up to the employer match in a 401K plan is recommended, despite the need to pay off student loans.
Long-term thinking is difficult for humans, making retirement savings a challenge.
Retirement requires a conscious choice to save, which can be influenced by what one is passionate about.
People tend to save more as they age, but focusing on what drives them to save is crucial when they are younger.
Saving for retirement is not just about financial goals but also about aligning with personal values and interests.
The pandemic has highlighted the importance of having a flexible approach to retirement savings.
Transcripts
retirement planning can be a difficult
path to navigate for some or maybe all
and a recent report from BlackRock
showed that only 56 percent of Americans
feel like they are on track for their
goal our next guest says the two outcome
guidelines of success or failure could
be leading people astray David Blanchard
is PGM DC Solutions head of Retirement
Research he's joining us now in the
studio thank you so much for being here
and you actually posit that there's such
a thing as saving too much for
retirement which might be something I've
never heard before so please explain
yourself so you know like that could be
good news for a lot of folks out there
but I think the key is is how we measure
outcomes and I worry that a lot of the
tools that advisors use today they treat
retirement as as binary where either you
succeed or fail and you can't get like
most of the way there and if you use
metrics like that it could lead to
oversaving so I'm not suggesting folks
don't save for retirement what I am
concerned about is the way that we often
relay the information could create
[Music]
um
the sense that you're not doing well
when you're actually on track for
Success have we seen a massive shift
post the depth of pandemic and how
people are saving for retirement well I
mean For Better or For Worse if you're
saving for retirement there's a really
good chance it's only going to be in a
company sponsored 401k plan right you
see very little contributions in um like
personal accounts and so I think that we
have seen a growing
um use of 401K plans DC plans for
Americans but there's still a big
coverage Gap so we're seeing we're
seeing gains where we should be and so
if people are trying to save for
retirement whether it's through their
employees sponsored plans or for the
very few who are doing it outside of
that
how should they think about
what success looks like or how they
should meet their goals well I think
it's it's really important to get help
you can get help online through an
advisor but but have someone else run a
projection for you to think about what
you should be saving
um I think that if you have if you're
fortunate to have access to like a 401k
saving that but then beyond that a
question you should ask yourself is like
what are you passionate about
financially you actually enjoy saving
for saving for retirement is tough it
doesn't excite folks to save and so if
it's if it's paying off your student
loans if it's saving for a house find
the things that you care about save for
those and then hopefully over time you
can accumulate some wealth you mentioned
student loans we're coming back up to
another critical period where a lot of
students who hadn't had to pay off their
loans recently or you know weren't
penalized for where that's going to
reassume and so what type of impact is
that expected to have on people's
retirement savings now as they're
reprioritizing that I think it's
definitely negative I mean I think that
for a lot of younger Americans there is
this competition for dollars and
resuming student loans will require some
folks to save less for retirement
there's obviously no it's no easy
answers there but my my suggestion is if
you can at least save up to the match I
understand that there's new you know
like new monies you're going to be
spending on your student loans but the
employer matches free money if you got
it at least saved to there
um and I'm also curious over time how
people's philosophy towards saving for
retirement has changed or has it not I
mean it's hard to do not just because
like it's hard to make enough to put
enough aside but it's hard as humans to
think long term in that way what's
incred I mean 30 years away is
retirement that's going to last for 30
years that's really tough and so that's
why for a lot of folks that that want to
save it's tough to save for retirement
and I think that that that's why you
need to ask this question what am I
passionate about I think the
retirement's going to come due I mean
and hopefully for all of us we can
retire so it does require making this
conscious choice to save I mean people
tend to save more as they age but I
think that there's that key of like what
will actually drive you to make better
savings choices and focus on that when
you're younger because it's hard to save
given things like student loan
repayments
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