Part of my job requires that I attend regular benefits fairs and seminars held by an employer to help promote the benefits they offer and encourage participation. Generally at these events you will find the various health insurance providers, any sort of additional wellness programs and the retirement plan provider, which would be me. This event is a great opportunity for current employees who may already be enrolled in benefits to ask questions or learn more about the benefits and also as a great opportunity for employees who may not be participating in the benefits to finally enroll.
When you are sitting at a table for 8 hours and greeting hundreds of people who have the opportunity to take advantage of a particular benefit such as the retirement plan you begin to see trends and some downright astounding behavior. The event I attended last week was no different and by interacting with so many people over the course of a day I was able to categorize people into five basic categories.
The Saver
The saver comes in many forms from young to old, new employee or old and male or female. The one trait these people all have in common is being thankful for having a retirement savings plan and they make a point to stop at my table to say so. Most of these people are extremely happy and are simply amazed at how fast their savings has grown, especially with a decent company match program. The savers are also the ones who will stop by and actually increase their deferral percentage and boast about the plan to their co-workers.
The Guilty Conscience
I find this group the most fascinating and I’m amazed at how they will go out of their way to avoid contact with me. These are the people who realize they should be saving in the retirement plan but for whatever reason have not started yet. These individuals are easy to spot because as they wander through the room from table to table they will almost always make it obvious they are avoiding my table. They may visit every other table in the room if only to pick up the free swag yet completely avoid coming within 20 feet of my free goodies.
Occasionally a guilty conscious will stop at the table and their guilt is clearly visible. You can almost see that they are embarrassed with the fact they haven’t enrolled, yet even though they are there and could enroll in about 30 seconds they will still refuse. Next come the excuses about why they haven’t or some will even take the paperwork and promise to fill it out and turn it in before the end of the day. I don’t understand how a person can be completely aware of the situation yet continue to carry that guilt by putting off enrollment.
The Procrastinator
The demographic of this group is primarily the younger people between age 18-30. I find this group to be extraordinarily cocky about the fact that they have plenty of time to get serious about saving in the future. I had a frank conversation with a young lady who was 24 years old and was finally getting started with her career after being with the company for about eight months. I asked why she wasn’t enrolled and I received the typical answer of “Oh I have plenty of time to worry about that when I’m older.” Of course I pulled out my info about compounding interest and how starting early makes a big difference, I even stressed the fact that she is missing out on a fantastic company match and could be receiving a few thousand dollars worth of free money every year, but again it drew no interest.
Since it was clear I wasn’t able to convince her to begin saving today I asked what she thought about Social Security and I was shocked to hear her answer. She admitted that Social Security was not likely to provide any benefit to her in retirement and she didn’t care. So I asked where she thought her retirement income was going to come from if she wasn’t saving on her own and Social Security wouldn’t be there to provide much if anything. She basically said she doesn’t care and doesn’t want to worry about it. Is it just apathy? Maybe. Whatever the case may be, this is one of those issues where putting your head in the sand won’t make the situation better.
The Outside Investor
This group of people can be almost painful to talk to. For the most part the outside investor chooses not to take part in the employer retirement plan because they are already working with someone else. Now that is fine, but I don’t understand how people can give up a 100% match on up to 5% of their pay. Clearly there are cases where a plan may have horrible investments and a poor or non-existent match where it makes sense to invest elsewhere, but with a good plan with low-cost index funds and a generous match I don’t understand the logic.
An example I had last week was an older employee who was probably around 50 and they have been with the company for about 15 years. When she stopped by to pick up some swag I asked if she was enrolled and the answer was no. Before I could even ask why she got real snippy and said she was working with someone else who was doing way better than the 401(k). First, I’m thinking OK, how do you know that if you aren’t invested in it? Are you actually tracking the plan’s funds to compare performance? Of course I didn’t say any of this but right away I knew she was probably lying.
So, since she was giving me some attitude I fired back with “oh, so you’re earning over 100% on the new money you invest every year then?” alluding to the company match. Clearly that was an outrageous claim and she said no, of course not! I go on to explain how the match works and how she is literally throwing money away, especially since she has been with the company so long she is fully vested so it is a guaranteed return. Again, she wanted nothing to do with it and insisted that her broker was making her rich.
Aside from the people who are investing outside of the plan and don’t want to participate in the plan at work I find there are a lot of people who are in the plan yet their broker or advisor give them a hot tip and they want to take out all of their employer plan money and move it over with them while they are still working. Unfortunately they are always upset when they find out they can’t take out the money while they are still employed and under the qualified age. What I find even more interesting are the investments they are being pitched by someone on the outside. I always ask what they were going to go into if they moved the money and I hear some crazy things.
One of the more common investments I’m coming across are people pitching them equity-indexed annuities. They almost always say that their insurance provider or someone they didn’t know solicited the product and they are thrilled that they can invest in the market with no downside risk! If it isn’t the equity-indexed annuities it is often just a straight variable annuity with outrageous fees. A discussion on annuities is a separate issue for another day, but these are the most common reason people come to me believing they can’t do better in the 401(k) or use that as a reason to try to take the money out. Whatever the case may be, these people are almost always being misled by someone else and therefore missing out on a huge opportunity.
The Poor
Finally, the most common type of person I see during these events by far are those who claim they are too poor to save. The excuse is always the same and they simply claim they can’t afford a single dollar to come out of their paycheck. Now I realize that there are certainly some employees who may not be in the best financial situation but it is also worth noting that this employer doesn’t hire people in at minimum wage either.
Most people approach the table and are quick to grab the freebies and when asked about the plan they simply say they can’t afford to. Fair enough, but when I ask them how much they think it would take out of each paycheck to save $1,000 over the course of a year they have a blank look on their face and have no idea, but say they could never save that much. I continue to go on and inform them that if they save a little less than $20 per paycheck (bi-weekly) they will have saved $1,000 with the help of the employer match. Occasionally I see a light bulb go off and they realize how they wouldn’t even notice less than $20 coming out of their paycheck but more often than not I still see people insist they couldn’t live if $5 came out of their check let alone $20.
I have seen some very interesting behavior from these types of people in the past and last week was no different. At the last benefits fair one of the vendors was someone selling Mary Kay cosmetics. I’m not sure how they got in or why they were at the event, but that isn’t relevant. But what was interesting was when one of these employees who stopped by and said they simply couldn’t afford even $5 per paycheck. They gave a list of excuses about why they just couldn’t spare anything, so no big deal. What was shocking was as I watched them wander through the rest of the vendors they stopped at the Mary Kay table and guess what they did? They purchased a bunch of overpriced cosmetics! Five minutes ago they couldn’t spare five bucks and get a 100% return on their money yet they happily go on to blow $30 or more on a bunch of frivolous things.
What Type of Person Are You?
Hopefully if you are reading this you are a saver. If not, what category do you fall under and why? If you’re feeling guilty about not saving enough or at all, that is an easy fix. Just start even if it is a very small amount. If you think time is on your side, think again. Time is either your greatest asset or your worst enemy and it can get away from you quickly. Are you investing already? If so, great, but don’t become shortsighted and miss some potential opportunities available to you. Even more important, make sure you are working with someone you can trust and has your best interests at heart. Finally, if you think you can’t afford to save, think again. Yes, there are cases if you are making minimum wage or on the verge of bankruptcy this can seem impossible. Maybe you can’t save a great deal right now but even a few dollars here and there is better than nothing. What is even more important than the money you save is the habit you develop of creating an automatic savings plan which will carry over to when you are capable of putting away more substantial funds.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.