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.