Is the Weight of Your Retirement Readiness Taking You Out of the Game?
/In 2000, psychologists Sheena Iyengar and Mark Lepper from Columbia and Stanford Universities published a study about jams.1 On a regular day at a local food market, people would find a display table with 24 different kinds of jams.1 Then on another day, at that same food market, people were given only six different types of jam choices.1
Guess which display table led to more sales? Iyengar and Lepper found that while the big display table – with 24 jams – generated more interest, people were far less likely to purchase a jar of jam than in the case of the smaller display – about ten times less likely.1
The study shows that while more options may seem appealing at first sight, choice overload can lead to inaction.1
Some studies have found that when it comes to choosing a 401(k), some investors face similar obstacles. The average participant has access to nearly 18 options but only utilizes 3.5 investment funds.2 Iyengar, Huberman, and Jiang (2004) suggest that participants may suffer from “choice overload,” where complex investment menus discourage participation in the plan.2 With market volatility and some retirement portfolios losing significantly over the past year,3 as an investor, do you have confidence in your investing strategy?
Retirement Readiness is Declining
When it comes to retirement readiness, it is estimated that the average person is only on track to have 78% of the income they will need in their post-work years.4
The federal reserve conducted a study from January 2020 – May 2021 measuring the financial readiness of non-retired adults and retirees.5 Of the non-retired adults they surveyed, only 36% thought their saving was on track for a secure retirment.5 When that same non-retiree group was asked about their investment decisions, more than 6 in 10 with self-directed retirement savings said they had low levels of comfort when making investment decisions in their accounts.5 According to research, only 52% of eligible workers participate in a plan6 – are you participating in your employer’s retirement plan?
Retirement can be Expensive
Some retirement experts have recommended strategies such as saving 10 times your pre-retirement salary and planning on living on 80% of your pre-retirement annual income.7 However, what type of lifestyle are you looking forward to living in your retirement? For some retirees, every day in retirement can feel like the weekend and their spending habits can follow suit. Dan Ariely, a professor of behavioral economics at Duke University, conducted research that suggests that based on the desired lifestyle of retirees, the average person would need up to 130% of their final annual salary in retirement.8 With only 18% of workers feeling “very confident” they will live comfortably in retirement,9 how confident are you?
American Dream 401(k)
Many 401(k) plans provide an illusion of security – however, not all 401(k) plans are created equal. More often, what is sometimes believed to be investing may be merely speculating and gambling with your financial future. Take the time to understand what investing is and how it works so you can place yourself and your family in a position to achieve your American Dream. At Matson Money, we have created the American Dream 401(k), an investing strategy for retirement based on Nobel Prize-winning empirically tested academic investing principles that creates an opportunity for investors to have confidence in their long-term investing strategy.
Interested in Learning More?
Join us for a two-day investing seminar, the American Dream Experience, and be empowered to recapture, realize, and reclaim your American Dream.
DISCLOSURES:
This content is based on the views of Matson Money, Inc. This content is not to be considered investment advice and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision.
This content includes the opinions, beliefs, or viewpoints of Matson Money. All of Matson Money’s advisory services are marketed almost exclusively by either Solicitors or Co-Advisors. Both Co-Advisors and Solicitors are independent contractors, not employees or agents of Matson.
Other financial organizations may analyze investments and take a different approach to investing than that of Matson Money. All investing involves risks and costs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, guarantee profit, or protect against loss.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
References
1. Geerts, Florent. The Jam Experiment – How Choice Overloads Makes Consumers Buy Less. Published August 17, 2017. Retrieved 29 June 2023 from https://medium.com/@FlorentGeerts/the-jam-experiment-how-choice-overloads-makes-consumers-buy-less-d610f8c37b9b.
2. Mitchell, Mottola, Utkus, and Yamaguchi. The Inattentive Participant: Portfolio Trading Behavior in 401(k) Plans. Pension Research Council, The Wharton School, University of Pennsylvania. Published December 2005.
3. Anderson, Brian. ‘Peak 65’ is Coming—And Retirement Advisors are Changing Because of It. 401k Specialist. Published June 14, 2023. Retrieved 29 June 2023 from https://401kspecialistmag.com/peak-65-is-coming-and-retirement-advisors-are-changing-because-of-it/.
4. Place, Nathan. 3 Reasons retirement readiness is declining. Financial Planning. Published March 22, 2023. Retrieved 29 June 2023 from https://www.financial-planning.com/list/fidelity-research-shows-retirement-readiness-is-falling.
5. Economic Well-Being of U.S. Households in 2020 – May 2021. Board of Governors of the Federal Reserve System. Retrieved 29 June 2023 from https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-retirement.htm.
6. Employee Benefits Research Institute. Workplace Retirement Plans: By the Numbers. January 19, 2023. Web accessed 5.19.2022. https://www.ebri.org/docs/default-source/by-the-
numbers/ebri_rsrc_facts-and-figures_011923.pdf?sfvrsn=9b6b392f_8
7. Probasco, Jim. How Much Do I Need to Save to Retire? Investopedia. Investopedia. Published September 9, 2022. Retrieved 29 June 2023. https://www.investopedia.com/retirement/how-much-you-should-have-saved-age/.
8. Exley Jr, Robert and Rega, Sam. Retirement is expensive – here’s how much you really need to save for it. CNBC. Published March 21, 2022. Retrieved 30 May 2023 from https://www.cnbc.com/2022/03/21/how-much-money-you-need-to-save-to-retire-and-live-your-dream-life.html
9. Workplace Retirement Plans: By the Numbers. Employee Benefits Research Institute. Published January 19, 2023. Retrieved 29 June 2023 from https://www.ebri.org/docs/default-source/by-the-numbers/ebri_rsrc_facts-and-figures_011923.pdf?sfvrsn=9b6b392f_8