Everyone Needs a Wake-up Call
Author
Richard D. Glass
To Be Published in
Vested Interest
Spring 2003
LIMRA International
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Everyone Needs a Wake-up Call
Richard D. Glass
America is a nation of non-savers. The national savings rate hovers slightly above zero. The
Employee Benefit Research Institute (EBRI) reports that only one third of the American workforce
has ever calculated how much money they will need to retire comfortably.
It comes as no surprise that, according to estimates by Vanguard, the average 401(k) participant
contributes of only two-thirds of what he should to his plan.1 After all, the American worker is a
reflection of his culture—a culture of the quick fix, the one-minute manager, and immediate
gratification (including living beyond our means).
Further, workers who do want to take the time to develop a systematic retirement investing strategy
often find that calculators from different websites give radically different results.
Conventional wisdom maintains that American workers do not want to face up to the fact that they
alone bear the responsibility of funding their retirement. While this wisdom has merit, perhaps even
greater contributing factors to low savings rates are:
•
Plan sponsors are concerned that, if their employees really understood the uncertainty of
investing and/or how much they need to contribute, they would demand defined benefit
pensions and/or undergo severe morale problems.
• During the latter part of the 1990s, the roaring bull market caused 401(k) plan providers’
revenues to greatly exceed their costs, thus minimizing the need to proactively solicit increased
participant contributions.
• Almost without exception, providers have not viewed investment education as a profit
generating tool. Thus, during bull markets (such as in the 1990s),