That’s what Jim heard when all 104 pages of the retirement plan
document hit his desk. Well, not
really. It was a 104 page PDF downloaded
to his desktop, and it didn’t really make a thud sound.
Jim started a new job at a small company and wanted to participate
in the 401k plan. He emailed HR, and HR
emailed the plan provider to send over the documents. Like clockwork, all 104 pages arrived in his
inbox shortly thereafter.
The accompanying message?
“Let me know if you have any questions.”
Needless to say, he had no clue where to begin. He flipped through the pages and saw a lot of
terms he didn’t understand. At the end
of the day, he wants to save for retirement in a “good” investment – whatever
that means.
For most, this process seems easy.
Pick a few investments, pick how much you want to save each pay check,
submit the forms. Done! But it’s not quite so simple.
Think about the questions that need to be answered in order to sign
up for this 401k:
1.
How much is needed to have for a
“comfortable” retirement?
2.
What is the monthly savings amount needed
to reach that figure in question #1?
3.
How will he be able to afford putting
that amount away each paycheck?
4.
Is the 401k event the best type of
account to save for retirement?
5.
What type of investment is best and
within his risk tolerance?
How many of those questions do you think Jim answered before
enrolling in the 401K? Like most people,
he answered two questions.
He put in what think he could afford - answering #3
- rather than what he needs to put
away.
And he answered #5 using an online risk tolerance questionnaire.
I told Jim that there’s lots of ways to think about
retirement. Personally, I’d like to
think it will be a time that I can do what I want without having to worry about
money. Some people think of retirement
as living without a paycheck (or a very small one - Social Security) for 25+
years.
The downside is that taking time to get the “correct” answers (for
Jim) takes time. And usually for most
people, they would have to sock away more money than people can afford today.
The upside is that getting the correct answers leads to a payoff at
retirement in the future - not today. But peace of mind today and a roadmap for
your future.
How many people do you think do what Jim did versus spending time
to really answer the important questions?
Who do you know do what Jim did?
Don’t be Jim!
Happy New Year!
