An Expensive Misunderstanding That Can Sink Your Retirement
An alarming number of people have misunderstood a critical element of their retirement strategy and it will cost them big.
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Full Transcript below:
00;00;00;00 - 00;00;36;02
Unknown
Welcome back to 30 Minute Money. Our podcast delivers action oriented smart money ideas and bite sized pieces. I'm Scott Fitzgerald at ROC Vox Recording and Production. Steve Wershing from Focused Wealth Advisors is joining me in studio once again. Hey, Scott, how are you? It's great to see you. And and you know, I like to joke around. I like to kind of be the, the jokester on this podcast, but but this, after reviewing this, this episode, I think is very, very important.
00;00;36;05 - 00;00;53;09
Unknown
And, the title is a misunderstanding that may cost thousands their of their retirement. And I thought it was just one of your, your books. You know, I'll, I get them in there. That's right. But there's some statistics on here that are very shocking. This is not just me being hyperbolic as usual. This is this. This is this.
00;00;53;12 - 00;01;20;16
Unknown
I read this study. This this study just got released by Principal Financial, which is one of the biggest names in retirement plans in the country. And it blew my mind. Yeah, utterly blew my mind when I read this. And the top line, you know, the first statistic that they mentioned and a lot of these releases and whatnot. So principal did a did a survey of, people who are not people who are eligible for retirement plans and not participating.
00;01;20;18 - 00;01;46;26
Unknown
And here's the top line statistic that blew my head open. 59% of those people thought they were participating, that I that just just I know it's shocking and scary and sad all all at the same time. Exactly, exactly. Now I get it. If it's hard, it's confusing. Especially when you're taking a new job. You know, you've got all these things, you've got to you've got to take care of.
00;01;46;26 - 00;02;06;20
Unknown
And you all these elections you have to make for benefits and you've got to get settled into your position. Yeah. So I get it. It's confusing, but it just it really did blow my mind that that 60% of the people who are not participating thought they were what was the what was the margin of error in this? I don't know that 3%, I think was like the usual, you know, whatever.
00;02;06;20 - 00;02;29;25
Unknown
Even if, if it let's say it's 3%, that's still 36%. Does it mean more than half? It's not 30%. So it's still. Yeah, exactly. Exactly. Now one of the things that can be one of the things that can be confusing is that, you know, more and more plans have what's called auto enrollment, which means as soon as you start working, they immediately sign you unless you tell them otherwise.
00;02;29;25 - 00;02;47;18
Unknown
Right? Yeah. They will sign out. Right. And this was big because it was really just, essentially almost mandated within the past couple of years. So a lot of people saw headlines and they saw news stories that said, oh, well, when you, you know, more and more plans, you know, you go to work and they will automatically enroll you in the retirement plan.
00;02;47;21 - 00;03;04;21
Unknown
And it's easy to take that leap to say, oh, well, I'll just take a new job and they'll sign me up. But but of course not. Their most plans are not auto enrollment yet. They may very well get there in the next few years, but people see that, and then they just assume that they have been auto enrolled.
00;03;04;25 - 00;03;28;06
Unknown
So 49% of those people who who thought they had were participating thought they had been auto enrolled. And so that's why they thought they were signed up. They just didn't look to see whether it was being deducted. And it didn't occur to them that they weren't getting a statement. Yeah. Interestingly, three quarters of those people said 77% said that they started saving as soon as they were eligible.
00;03;28;09 - 00;03;48;27
Unknown
I'm not sure why they believe that, because clearly they were not. These are all from that 59%. Yeah, that's what they were participating in. So somehow they thought that they signed up as soon as they could, but they had not actually signed up. And this is a little more understandable. 22% of those people did not know whether they were eligible or not.
00;03;48;29 - 00;04;19;01
Unknown
Hey, I get that. You know, those those requirements can be confusing and nobody reminds you. Yeah. You know, if you have to wait a year before you can participate, it's not like somebody, you know, send you an email saying, hey, today's the day you can sign up. So you kind of have to remember, and, you know, I don't know how it is for all companies, or at least the big companies that offer benefits like this usually have some sort of a an HR department or employee services department with people who are there to help their their staff understand these things.
00;04;19;08 - 00;04;45;04
Unknown
I know going back to my early days in corporate America and the staff that was at the company I worked for were horrible at explaining they got it. They understood every single decimal point, but boy could they not express that to me at all. Yeah, and you know, I'm slow. I'm a little bit thick headed. It's a little hard for me to understand some things, but, you know, that's also a big issue with these companies.
00;04;45;04 - 00;05;08;02
Unknown
We don't know. You don't know what they're doing to to make sure that they're that their staff can understand this and has all the right information. Right. Even even though there is a requirement under federal regulations, under Arizona, there's a lot of requirements under federal education, but there's kind of wide latitude about what constitutes that education. Right. Is it a pamphlet or is it a class, you know.
00;05;08;02 - 00;05;27;29
Unknown
Right. Yeah. It could be either. So now the scary thing that goes along with that is that 33% of those of those people who are surveyed expect their 401 K to provide, you know, to be a top source of their income in retirement. I'm actually surprised is not higher than that, because there are fewer and fewer things like pensions and that kind of stuff.
00;05;27;29 - 00;05;52;25
Unknown
So I would I would have expected that a majority of people who were surveyed expect their 400 and K to be a significant source of their retirement income, but even for that 33%, you know, it's hard to know that over half of them thought they were participating and were not. I mean, that's just you know, how far is that going to go before they realize, oh, I really don't have a lot to put away that that's that's a that's a big deal.
00;05;52;27 - 00;06;15;04
Unknown
Yeah. I'm this kind of this information always makes me reflect on on my employee, employer, employment life. Is that the word my history of employment and and my lack of. I always thought, you know, that I was going to be old. Like, there's plenty of time. There's going to be plenty of time. There's going to be playing time.
00;06;15;05 - 00;06;36;06
Unknown
That was 51. I'm, I guess not a whole lot of time left. That's right. I mean, I want there to be at least 30 years, but who knows. Right. Right. And you know, if you want to put money away for the future, you know, it's it works. You know, it works into your budget most easily. It works into your it's easiest to incorporate that if it's a small percentage of your pay.
00;06;36;06 - 00;06;58;24
Unknown
Right. But if it's a small percentage of your pay, you need to be doing it a really long time to build up enough. Right. And that's then that's, you know, so that's the thing is, you know, you want to start as early as you possibly can. But you also want to keep, you know, you also want to pay attention to it that that's that's I think that's the big message that I take out of here is that, you know, you really need to be you need to be paying attention to your finances.
00;06;59;00 - 00;07;19;02
Unknown
Because what we're seeing is that there are significant group of people, that are falling farther behind and don't even realize it. Plus, not to mention a lot of these companies have a match that that's money on the table that they're just completely losing. Yeah. It just it's like they're offering them a raise and they're saying, no, thank you.
00;07;19;03 - 00;07;46;05
Unknown
But you do. Just the joy of working here is more than reward enough. Now of the people who knew that, you know, who knew that they were not participating, about 42% of those reported that it was consumer debt. That was the main reason. And that ought to set off alarm bells. If you can't put money aside for retirement because you've got so much credit card debt, then you need to look at your spending something.
00;07;46;08 - 00;08;21;01
Unknown
You know, something needs to be worked out there. Because if that pattern persists, then you will not have money for retirement and you won't be able to afford retirement. So if you feel like, well, I wish I could participate in my 400 and K, but I've just got these big credit card bills that I've got to pay. You really need some deep reflection on that because that is a that is a signal that things are out of control and it brings back, you know, brings us back to a principle that I learned early in my financial planning career about pay yourself first.
00;08;21;03 - 00;08;41;25
Unknown
That when you when you get your when you get paid, the first little bit should be going to saving for things like retirement and for in one case facilitate that. You can you know because they'll take out the taxes before you get your paycheck and they can take out the 41K contribution before you get your paycheck. And then you just have to make your expenses conform to what's left.
00;08;41;27 - 00;08;59;16
Unknown
And if you do that, you can accumulate stuff and you can have enough for retirement. But if you've got too much credit card debt and you, that means you can't participate in your retirement plan, then you need to figure out how you're going to pay yourself first and how you need to rework your budget so that you can make sure you're doing that.
00;08;59;19 - 00;09;20;26
Unknown
It's, it's one of those things that have that has plagued my thoughts for, for many, many years. And that idea that if, if all you did was if you if you took that and said, this is where I'm starting and it's already taken out, the the money for the retirement is already taken out. Just don't even assume it's there anymore.
00;09;20;27 - 00;09;43;08
Unknown
Now don't even look at it. Right. So take it that long and to not do anything is just a it's a sin. It's just such a sin. And then that's why things like 400 and K's are so great, is because you can set it up so that it comes out before you see it. And then, you know, it used to be, you know, when I was younger that you just figured out how to live on what you had in your bank account, right?
00;09;43;08 - 00;10;15;06
Unknown
Yeah, we've gotten away from that. And, you know, first, that sets up all kinds of bad dynamics financially, but also if that means that you can't participate in your retirement plan, then you're just really you're you're going in a direction that where you're going to have bigger problems down the road. I think I think it's a it's definitely an issue for the school systems to try to incorporate some sort of financial language, financial just thought, just basics, right.
00;10;15;08 - 00;10;36;05
Unknown
Just to tell people like, no, you growing up credit cards are not necessarily bad, right? But you have to know when to use them, when not to use them, how to use them. All the things that you've been saying on this podcast since I've been working with you, you know, it's it's it's scary to see these two, these stats.
00;10;36;05 - 00;11;01;26
Unknown
And I really feel I feel bad for the for the people who didn't know that they were, you know, all that money is just God. Yeah. You know, alcohol's not bad, but it can be abused. Sure, cars aren't bad, but they can kill you, right? So it's the same thing. Yeah. We have I mean, it's it is it is really, you know, it's a tragedy in this country that you can go you can go to get you can get a terminal degree.
00;11;01;28 - 00;11;23;08
Unknown
You can get your PhD or your or a doctorate. And at no point during your educational experience will anybody ever show you how to write a check or how to balance a checkbook, or especially now, any of that kind of especially now. Exactly. And people you can't get behind the person who's writing a check in the grocery store, you're like, come on, what's going on here exactly?
00;11;23;12 - 00;11;36;24
Unknown
Go back to 1975. That's right. And we won't even talk about subscriptions. You know, about all those things that because that's the new thing we've we've we've talked about you talked about that on other episodes. That's right. Anyway.
00;11;36;27 - 00;12;11;21
Unknown
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00;12;11;23 - 00;12;33;04
Unknown
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00;12;33;04 - 00;13;02;13
Unknown
So go to Focused Wealth advisors.com/webinars and find out more and sign up right there. Even if you're not planning to retire for the next 5 or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.
00;13;02;16 - 00;13;24;19
Unknown
So what's your what's your 30 minute action item? Check your pay stub and see how much is going away to your retirement plan. All right. And I hope that, you know, whether or not you're you're enrolled in your 401 K. Thanks for listening and watching. Two 30 minute money. You can catch us on all the platforms like share, subscribe, tell your friends three zero minute dot money.
00;13;24;21 - 00;13;45;13
Unknown
We will catch you on the next episode. We'll see you then.