Retirement planning: How to avoid saving too much

Summary

In 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

• 🤔 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.
• 💡 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.
• 📈 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.
• 💼 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.
• 💡 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.
• 🏡 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.
• 💼 The resumption of student loan payments is expected to negatively impact retirement savings, as it will compete with retirement savings for financial resources.
• 💰 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.
• 🧠 Saving for retirement is challenging due to the difficulty of thinking long-term and the competing financial priorities that many people face.
• 💡 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

00:00

💼 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.

Keywords

💡Retirement Planning

Retirement planning is the process of preparing for the financial needs of retirement. It involves saving and investing money to ensure a comfortable lifestyle after one stops working. In the video, retirement planning is presented as a challenge that many Americans face, with only 56 percent feeling on track for their retirement goals, highlighting the importance of proper planning for a secure future.

💡Success or Failure

Success or failure in the context of the video refers to the binary outcomes often used to measure retirement readiness. The guest, David Blanchard, argues that this binary approach may lead to oversaving, as it doesn't account for the nuances of financial planning. The video suggests that retirement planning should be more flexible and not just about achieving a simple 'success' or 'failure'.

💡Oversaving

Oversaving is the act of saving more money than necessary for a particular goal, such as retirement. David Blanchard posits that the fear of failure in retirement planning might lead individuals to oversave, which could have other financial implications. The video script suggests that a balanced approach to saving is crucial to avoid unnecessary financial strain.

💡Advisors

Advisors in the context of the video are professionals who provide guidance on financial planning and investment strategies. The script mentions that many tools used by advisors treat retirement as a binary outcome, which may not be the most effective way to measure retirement readiness. The role of advisors is to help individuals find a personalized balance in their retirement planning.

💡401k Plan

A 401k plan is a retirement savings plan sponsored by an employer, allowing employees to invest a portion of their pre-tax salary. The video discusses the prevalence of 401k plans in American retirement savings, noting that they are often the primary method of saving for retirement, but also highlighting a coverage gap for those not offered such plans.

💡Coverage Gap

Coverage gap refers to the lack of access to retirement savings plans for certain segments of the population. The video points out that while 401k plans are widely used, there is still a significant portion of Americans who do not have access to such plans, indicating a need for broader retirement savings options.

💡Saving Goals

Saving goals are the specific financial targets individuals set for themselves, such as saving for retirement, a house, or paying off student loans. The video emphasizes the importance of setting and meeting these goals as part of a comprehensive retirement plan, and suggests that individuals find financial goals they are passionate about to stay motivated.

💡Student Loans

Student loans are financial debts incurred by students to pay for education costs. The video discusses the impact of student loans on retirement savings, suggesting that the need to repay these loans can reduce the amount individuals can save for retirement. It also touches on the upcoming period where loan repayments resume, potentially affecting retirement planning.

💡Employer Matches

Employer matches refer to the additional contributions an employer makes to an employee's retirement account, typically up to a certain percentage of the employee's salary. The video script advises individuals to at least save up to the employer match in their 401k plans, as it represents 'free money' that should not be overlooked in retirement savings.

💡Long-Term Thinking

Long-term thinking is the ability to plan and make decisions with a focus on the distant future rather than immediate gratification. The video points out the difficulty of saving for retirement due to the long-term nature of the goal, which can be challenging for individuals to envision and prioritize.

💡Saving Choices

Saving choices are the decisions individuals make regarding how much and where to save their money. The video suggests that people tend to save more as they age, but it's important to make conscious saving choices early on, especially when faced with competing financial priorities like student loan repayments.

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