Why So Many Retirement Plans Stink

Having owned a small business for seventeen years along with being self-employed for the fifteen years prior to that, I have some insight into why some retirement plans may not be good.  Owning a business is a division of knowledge.  In my case, I had to have an extensive knowledge of the shipping and packaging industry along with knowledge on running a business.  They are two entirely different things and it can be challenging to stay proficient at both.  Keeping up to date on the industry and competition is a full-time job in addition to understanding hardware, software, insurance, HR, customer service, legal, etc.  This is why many businesses end up outsourcing their retirement plans.  They simply don’t have the knowledge or time to take care of it.  This outsourcing to one of the many financial services firms that exist can lead to excessive fees and lousy fund choices to choose from.  Your employer may think they’re all the same, but they’re not.

For people that are starting a job, there is a lot of paperwork to fill out and the retirement plan is just one more box to check with questions many people don’t understand.  The HR department typically has no idea as well.  We all know we should save for retirement but how it works, what to invest in, how much to save and a variety of other questions are left unanswered due to no one understanding investing or the plan thoroughly.  Even worse, when they give advice, it can be bad advice.  I have analyzed several account portfolios where the owners of the accounts had no idea how they ended up with the funds they owned.  The funds were expensive, the asset allocation was inappropriate, and there were better choices available.  This can be very costly to the employee over time.  Literally, hundreds of thousands of dollars can be at stake over the long-term.

It may be human nature that people don’t pay attention to their personal finance and retirement due to lack of knowledge and understanding. If you are taking the time to read this, you understand the need to plan for your retirement and the change can start with you.  You can or may have already started by reading and educating yourself on investing and your retirement plan. Focus your reading by using independent sources that have no financial interest in your outcome.  I have many resources listed on my website from some of the most respected financial academics and advisors in the world and it will help you understand how these plans work. Login into your retirement plan and read through your options while noting any questions that you may have along with anything that you may not understand.  Start with your HR department after you have read the plan and see if they can answer any questions and then follow up with the plan provider.  Just be wary of what you are told to make sure it is accurate and can be verified if possible, through a third-party source before making any decisions.  Too many times people speak without understanding investing and can give some poor advice.

If your company offers a retirement plan, you need to decide whether you want to invest in the plan and the funds you wish to select within the plan.  If your company offers a cash match for your retirement, it may be worth investing the minimum to receive the match even if the choices are poor.  There are times when a plan is so bad you may want to walk away and invest outside your company in a traditional or Roth IRA.   If this is the case, you may want to suggest to HR staff about replacing the existing plan with a financial services company that offers low cost index funds that are simple and easier for people to understand.   They would benefit both the employer and the employees as it will provide higher investment returns long-term for their employees.   Nothing will change unless you are willing to take action.

Don’t take this lightly, remember there can be hundreds of thousands of dollars at stake long-term.  Don’t rely on HR or the plan provider with your investments.  By taking control of your situation today you are starting on the path to personal freedom. 

I have a recommended resources page that has lists of books, websites, videos, etc. that will help you become informed on investing along with lists of independent sources who have no financial interest in your outcome.  Feel free to contact me with any questions and I will do my best to answer them or point you to a resource that can. 4

Investing and Simple Living

What does simple living have to do with personal finance?  I started to make the connection years ago because I had made my life and personal finances far more complicated than they needed to be.  What really struck me though after reading the Millionaire Next Door multiple times was that the typical millionaire led a very simple life.  These people were wealthy but didn’t seem to overcomplicate things.  I would say that having wealth and living simply are not mutually exclusive.

The millionaires that are profiled in The Millionaire Next Door book seem to have the best human qualities.  They typically have good character, stay married, are frugal, humble, live far below their means, raise responsible children and contribute to society with high quality businesses and services.  They are not what people think.  They practice incredible thrift and frugality.  They typically enjoy their work and family.  They are not into material objects such as large homes, expensive cars, or other consumer goods.  They are excellent investors with their own money.  They believe financial freedom is more important than consumer purchases. They believe having financial freedom gives you choices in your vocation, your time and your life.  This to me is the ultimate in simple living.  Any preconceived notions that you have about wealth in America will probably be changed if you read this book.

I had spent most of my life on autopilot just going from one thing to another and mostly enjoyed what I did.  Whether it was career or personal I just did what I thought everyone else did.  Many years ago something changed and I started to read some books on simple living, minimalism and consumerism.  These books really struck a chord with me.  I started to think about always being busy, being tired, and being stressed.  The constant purchases, home remodeling, repairs, autos, etc. that everyone else thought of as normal.  I started to question the conventional wisdom of society.

My wife and I became fairly successful from an economic standpoint as our lives progressed.  I was very ambitious and have always enjoyed my business career.  One day while working on our personal finance and investing I realized that we had enough money for our current lifestyle.  What was more interesting to me at the time was that I realized I didn’t want anything more than I already had.  This is when it clicked for me.  I had spent many years working for things I really didn’t care about.  I am a simple guy.  Fortunately for me, my wife has agreed with me (for the most part) regarding my epiphany on simple living.

We both have made career changes that have freed up our time and made our work life simpler.  She moved out of a management position and cut back her hours and I have sold my small business.  We have been constantly selling things, giving things away and evaluating what is truly important to us since then.  Stuff isn’t.  Personal freedom is.