I often have strong feelings about the right and wrong way things should be done. I’m not proud of it. I have to remind myself that there’s a lot of in-between. Also, many people may believe that my “right” is wrong and “wrong” is right.
Whenever I feel this way, I think, “Let’s go… to the numbers!” Even that might be misguided. I may be better thinking, “Let’s go… to the psychology!”
I was recently alerted (via this Motley Fool article) of a NerdWallet survey done at the end of last year. The survey had the title of “Americans Worried About Retirement, Unlikely to Save More Next Year”. Motley Fool took that survey and decided that “Survey Reveals the Majority of Americans Are Saving for Retirement All Wrong.”
On Friday, I explained why another article’s title didn’t match the data or even the article text. I didn’t want to go there again today and it isn’t the point I’m trying to make. However, Motley Fool painted me into a corner by extracting a 2000 person study of people ages 18+ into something that speaks to “the Majority of Americans.”
I certainly wouldn’t want to trust a survey that thinks it’s worthwhile to ask an 18 year old about “retirement readiness.” I imagine that 18-year old might respond, “If you buy me and my friends a case of beer, we’ll talk about retirement with you for a bit.”
The other parts of the survey about top financial concerns and savings priorities are a little more relevant. I’d like to see the “retirement readiness” question moved to a different survey reserved for those 25+, maybe even 30+. For example, Nerdwallet lists a “key finding” of: 43% of millennials ages 18 to 34 are currently not saving for retirement at all.
What I wanted to write about today was this key finding:
“Missed tax advantages”
“Of those who are saving for retirement, 55% report doing so in a regular savings account, compared with 50% who report using a workplace retirement plan like a 401(k) and 39% who are using an individual retirement account like a traditional or Roth IRA.”
That shocked me. Why would such a high percentage of people use regular savings accounts for retirement? (This is what Motley Fool picked up on.)
Aside from very young adults who skew the numbers I came up with 3 reason why this could be the case:
- I immediately jumped to a lack of consumer education. Maybe people don’t know about Roth IRAs and 401ks? Maybe they are too confusing.
- Next, I jumped to laziness. Maybe people perceive it to be too difficult to sign up for a Roth IRA or a 401k? Maybe they just didn’t get around it due to everything else going on in their life.
- Finally, I wondered if the survey itself was giving me the answer. It mentioned that people are concerned about medical bills, lack of an emergency fund, and credit card debt. It’s hard to prioritize putting money in a retirement account when you have those concerns, right?
It’s got to be a combination of those 3 and perhaps a few other things that I haven’t thought of. It would have been good if the survey went a little deeper into the “Why are you saving for retirement in a savings account?” rather than to seemingly stop and point the finger at them.
On the topic of pointing fingers, I started this article coming from the perspective of the Motley Fool analysis of “People are saving for retirement all wrong!” I was going to explain that compound interest is a river and you want it to flow with you. When you factor inflation, a savings account makes you work against the current.
My mind went into “math rage.” (If that’s not a thing it is now!). It might not be that people are saving for retirement all wrong. It might be that they are using the savings account for a few different things. It might also be due to the psychology of not wanting to risk retirement savings in the market. That’s were the psychology argument at the top of the article came into play.
In the end, despite my “math rage”, I have a problem with saying that people are saving for retirement the wrong way without knowing the details. Their “why” is important.
I am a nerd when it comes to surveys. Two masters degrees does that to you. Without reading the survey, and proposed responses, I cannot confirm or deny the outcome listed above. I can tell you that technically I “save for retirement” with a savings account. However once I get too much money in my savings account, I move it to other accounts (such as my Roth, or other accounts) but my contributions go to my savings first.
However if the outcome of the survey is as reported, I’m seeing red.
Lazy Man says
I don’t have two masters, but I have two bachelors and a strong sense of logic. Computer Science does that to you.
I don’t know how they worded the language, but I think the idea was whether you save in a savings account vs. a tax-advantaged (Roth IRA/401k/etc.) account. I’m speculating and maybe I’m just too lazy to dig into the methodology on the NerdWallet site (if there is a methodology). I came from the Motley Fool and due to time constraints of getting the article published, decided that I wouldn’t chase the rabbit down the hole of NerdWallet’s methodology.
If you have the time (does anyone?), I would appreciate you thoughts after you dig into the surveys (if you can).
I wasn’t trying to brag with the two masters comment, just that for each program had to take lots of classes in survey creation, interpretation, and data analysis.
They don’t have the raw data through the links of the original articles, so I am unable to tell what kinds of questions they asked.
Lazy Man says
Oh, I didn’t mean my comment towards you. I was thinking that for readers, it doesn’t necessary take two masters to pull the pieces apart on this.
The NerdWallet article where it was based (https://www.nerdwallet.com/blog/investing/retirement-savings-financial-health-survey-2016/) has a short methodology at the end. It was an online Harris Poll and states, “This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated.”
You can get more information on the methodology by emailing someone at NerdWallet, but I think it is a waste of time. I feel the takeaway here is that the study should have been designed better (at least the retirement parts). I don’t want to say it is useless, but maybe that it’s a useful to construct a follow-up one.
I think the “Boiler Plate “Saving For Retirement” Article That Most People Will Read” probably sounds something like this:
“Put money in your 401k, here’s a complicated way to figure (aka take a guess) out how much money you’ll need: enough to replace 80% of your income a year for 25 years (which year of income? Does that cover inflation? Leave out mentioning things like asset allocations, buy and hold investing, social security, etc, oh did you know you can also take out a loan on your 401k if you get in trouble? Oh and also did you see our other article about how ridiculous 401k fees are or the one about how to trade stocks like the pros? Scroll past the ad for professional financial companies and advisers (“whew this stuff is complicated and I know they’re a big financial company so they probably know what their doing”) and one more ad for “The Best Acura Ever Built” to read some comments about how social security won’t be around or how the stock market is just a scam (did you really forget the Great Recession already?).
Who wants to try to figure out retirement after reading something like that?!