Employee Benefit Views

Survey reveals 401(k) participants view advice as for the old and rich

Posted September 15, 2010 by By Kelley M. Butler at 02:43PM. Comments (4)

My kids are typical little ones — giant bundles of id who want everything they lay their eyes on. Usually toys and candy. Occasionally though, they’ll ask for something they’ll never, ever use.

Once, my son asked me to buy him a container that keeps marshmallows fresh. (Yes, they really make those; and yes, he really asked.)

I thought of this when I read just released survey results from Charles Schwab that show despite 401(k) participants’ consistent clamoring for investment advice, fewer than one in 10 actually use it when it’s available to them.

Although 74% of Schwab’s plan sponsor clients currently offer 401(k) participants access to investment advice — a number that’s grown considerably from 42% in 2005 — and 55% of participants say they would use free, personalized advice if their employer made it available, less than 10% of people with access to advice actively use it.

Ironically, 53% of respondents say they find retirement benefits more confusing than health benefits.

Even more puzzling were respondents’ reasons for not taking advantage of free advice:

* 23% don’t think they have saved enough money to warrant spending time to get help.
* 49% want to have more than $100,000 saved before taking the time to get advice.

Worse, the majority of survey respondents cited “approaching retirement” as the top reason to seek help with planning — when it can be too late to maximize the potential savings in a 401(k) plan.

So, it seems participants want to wait until they’re older and richer to get advice — when they likely won’t need it, and even if they do, it may be too late for it to be effective.

I wonder if these folks also have marshmallow fresheners.

On Tuesday, I spoke to Catherine Golladay, VP of 401(k) education and advice for Charles Schwab, to get her thoughts on these results.

"For some reason, participants are thinking [of advice] as ‘not something that applies to me,’” she said.  “Since 401(k) plans are employees main or only source of retirement income, employers have an important role to play in changing that perception."

Funnily enough, Golladay said sticking with offering free, personalized investment advice is actually the way to go about changing that perception, despite participants’ sluggish adoption rates.

Among Schwab’s other findings, among investors who received advice in the last two years, 52% are confident in making investment choices, versus 35% who want advice but haven’t received any.

"For all the money we spend on glossy education materials, I wonder if we’re getting our money’s worth,” Golladay said. “I think those have their place and can be helpful, but if you’re looking at where money is best spent, I wouldn’t shortchange that one-on-one advice."

So, where will you be spending your money? On glossy education materials? Personalized investment advice? Perhaps marshmallow fresheners? What do you think of participants’ perception that advice is only for older, richer people?

Share your thoughts in the comments.


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Posted by: Catherine P | September 16, 2010 10:05 PM

For many young workers, the 401k is another method of gambling that they saw their parents take part in, some who lost 40% or more, some who got hit with fees for taking out funds to pay the mortgage. The savvy kids know that 401ks have fees, and that, even if making contributions will reduce their taxes, it also reduces their final pay. If it's a choice between fitting in with ones peers and having access to gadgets, electronics, staying connected, being entertained, and paying the rent and food, of course they will decline/delay 401k retirement. In the 80's and 90's I put everything I had into my 401k because it was sold to me as (1) oh it's tax deferred -- that's fabulous! and (2) if you diversify you can retire at 55-60 just like your fabulously wise parents did! Now that young people are in the workplace with 60-80 year olds (!) they KNOW that a 401k is no guarantee of a timely retirement. They also have a hunch that, when the time comes to retire in ~ 50 years, nobody but the priviledged with trust funds will be able to leave the workplace unless they file for disability. There's also the general expectation that if everyone their age is struggling, there will be yet another tax-payer funded program they can vote for. A bit like the crazy home-buyers who went overboard....they knew if the whole house of cards fell apart, then there would have to be some sort of safety net set up because the govt. will never allow complete economic breakdown. "Don't worry, be happy now! Be a good consumer. If things get bad someone will always save you later!"

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Posted by: Rob S | September 16, 2010 12:19 PM

Unfortunately most young people see retirement as too far away and some far off idea. In most cases they would rather then spending money on things they can do or use in the present (ie. iphone, HDTV, car).Frankly its not fun, its like watching paint dry and its difficult to plan b/c who knows what will happen in 20-30 years.

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