Two recent surveys contain some unsettling results for today’s workers planning to retire in thirty years, and it’s the workers’ own fault (see “Will Plan Sponsors Leave the Under-30 Crowd Doomed to Repeat 401(k) History?”). All this means, though, is the more things change, the more they stay the same.
Let’s hop on the Wayback Machine and head back to the 1980s, when hair was big, music was nerdy and rugged individualism was the mantra. Strange as it may seem, all three touched on this new retirement plan known as the 401(k). With its participant choice option, the 401(k) plan was certainly tailored for the individual in all of us.
With the growing power of personal computer spreadsheet software, charting investment strategies appealed to our inner nerd. Finally, with 30 or more years until retirement, those young workers astute enough to actually save had visions of more than big hair dancing in their bank accounts.
Aye, there’s the rub: “Those young workers astute enough to actually save.” Unfortunately, it turns out he who bought the most toys did not win. The ones with the most toys are still working, still trying to pay off the debt of their carefree days. The savers won.
Well, not all the savers, only the ones who took a chance and bet it all on long-term growth (i.e., equities), have won the much coveted “retire in comfort” trophy. Again, too many savers decided life already had too many risks and did their best to avoid attracting any more in the guise of their retirement plan.
Whoa! Bad move. Little did they realize the real risk was not taking a risk. And by the time they did, it was too late.
And when did they discover the dangers of their recalcitrance? On or around 2006, when Congress passed the fabled Pension Protection Act. One of the primary objectives of that piece of legislation was to discourage 401(k) investors from investing too much into the popular stable income options.
Perhaps spurred by the predominance of asset allocation models, perhaps due to the lure of safety, perhaps due to the general financial illiteracy of the greater workforce, whatever the reason, prior to 2006 an extraordinarily large portion of retirement assets found their homes within the bowels of some insurance companies guaranteed contract (the typical component of a stable value fund).