A Retirement Case Study

Have you heard about the 401k 1 percenters? People whose employers match dollar for dollar up to 18000?! It is hard for me to even imagine!

Then there are the top 50 percenters who have a 401k with a with a 3-6% match. This is where I am.

Hubs is neither of these.

He works for a small employer with a 401k plan and a sometimes match.

His company is small enough that it started its 401k plan within the last 5 years. Before that, they helped employees sign up for an IRA. The details of the old plan are unclear. I was only a girlfriend at the time and I didn’t have access to good stuff.

Every year since the plan started, my darling Hubs has a 401k meeting at work. His company requires attendance for all enrolled employees. Representatives from the 401k administrator come in and give a little pep talk about retirement. Sometimes the group pep talk comes with a 1-on-1 chat with the rep.

Last year, Hubs decided to meet with the rep. During the meeting, the rep expressed concern over whether Hubs was living today and not simply saving for tomorrow. At the time, Hubs was contributing 16% of his paycheck to his 401k. 16% should not shock a retirement guy. He’s since increased his contribution.

When I got word that he had his annual 401k meeting this week, the PF nerd in me got way too excited. I wanted numbers! I wanted to ask questions! I wanted to share it all with you fine folks.

Here are some observations based on my tiny retirement case study.

  • The company employs roughly 40 people between 2 locations.
  • Only 27 people or 67% of the employees are signed up for the 401k.
  • The 401k plan operates as an Opt-In program.
  • The 401k plan has a discretionary match. Sometimes it’s 0%, this year it’s 1%.
  • 1 out of the 27 people enrolled in the 401k plan logged into their account during the last year. That person logged on 46 times. That person was Hubs.
  • The average annual contribution for the 27 people was $2500.
  • The presentation included a mock portfolio to show how to navigate the website. The mock portfolio had an annual return of 20.21%.
  • Most of the people working for the company are over 40 years ago.

Three things stuck out to me.

First, 20% return is an irresponsible return projection. That may happen once or twice after a big down turn, but it is no where near reality in the long term. It is especially misleading after a year like 2015 when returns were essentially flat. Publishing a return of 20% implies that everyone else is investing it wrong. 20% encourages risky behavior. 20% needs to be stopped. *makes note to have Hubs challenge the projection next year*

Second, a 67% participation rate is a bad sign. 1/3 of the employees are turning their back on the plan, intentionally or unintentionally. Opt In programs require action and don’t attract plan participants. To fix the retirement crisis, it would go along way if 401k plans operated as Opt Out programs. My employer auto-enrolls new employees into the 401k plan with a 2% contribution. With an Opt Out program, at least then employees would have to make the conscious choice and take action to avoid the plan.

Finally, a $2500 average contribution isn’t going to get you anywhere, especially with a low or no match. Never mind the fact that Hubs is skewing the average high with his contributions. In addition, many of these employees are older. Most of them are in their 40s, many are in their 50s. These aren’t savers with time on their side. Saving $2500 every year for 10 years with a (realistic) 6% return only leaves $35,000 for retirement! Even saving $2500 for 20 years at 6% doesn’t get you over $100,000. It’s time to hope and pray for the mythical 20% returns. Over 20 years, $2500 at 20% gets you too $720,000 for retirement.


Based on this snapshot of a small employer in the midwest, the U.S. is going to be in a world of hurt in the upcoming years.

The retirement crisis is upon us.


13 thoughts on “A Retirement Case Study

  1. Oh my goodness, this is SO interesting. And so strange. I can’t believe they’re citing returns of 20%!

    And I do wonder why some people aren’t contributing. I wonder if it could be partly because the employer match is small? I also have a small employer match for my 403(b) — 25% of my contribution, up to 1% of my total salary. And for this reason, I’m contributing only 4% (to max out the employer match) and am then putting a portion of my take-home pay into my Roth IRA each month. And if I were making more or didn’t have student loans to pay back, I’d probably max out the Roth and open an index fund in addition, rather than bothering with the 403(b) above 4%. However, if the employer match were higher, I’d definitely put more into the 403(b). So I’m just wondering if that could be an issue here for some people.

    • They could use using IRAs outside of the 401k. I’d like to give them the benefit of the doubt, but I don’t think that’s what’s going on here. Part of it is cultural – Hubs works with a large group of asians that live communally. What they earn is used to take care of their parents and grandparents. Their children and grandchildren are supposed to take care of them when they are older. Contributing to a personal retirement account is kind of like stealing from the family. But what happens when you don’t want to have kids and don’t want to live communally anymore? (like a few of his coworkers are planning to do).

      The bigger part of the problem is momentum and education. If you don’t have a 401k and haven’t for your entire time at your job, why would you sign up to lower your paycheck? There’s also the tricky part that Yes, the employer has a mandatory 401k meeting every year, but it’s only mandatory if you are already enrolled in the plan. So if you are blissfully unaware, you remain unaware. Further still, people are incredibly financially illiterate. I had an otherwise bright friend tell me he invests in an IRA, but avoid his company’s 401k (with a 5% match!!) because 401ks are too risky. He’s low 30s now and told me he was being conservative today, but plans to take on more risks when he’s 40 or 50. No friend! That’s not how that works!!

      Just to clarify with you, are you saying you want to use taxable investments before you max out your pre-tax space? (fill Roth IRA, then taxable index funds) Because you will be better served by filling your tax advantaged space, in whatever order you choose, before using solely taxable accounts. So fill your 403b to the match, then rIRA, then go back to the 403b. Then when that’s filled, you can do taxable investments. You can buy index funds within your IRA/403b.

      I only have a taxable investment account because I invested in it before I knew any better and so far I haven’t found a way to convert it that makes sense.

      • Ah, interesting. And to answer your question, I hadn’t thought quite that far ahead. Definitely I would max out the Roth first (which is not going to happen this year, unfortunately), and then, yes, now that you mention it, it would be better to then max out the 403(b) (ha! also definitely not going to happen!) before going to the taxable index fund. Thanks — this is good for me to think through, even though it’s just a thought experiment at this point. 🙂

  2. Oh my gosh, this is my favourite sentence ever:

    “1 out of the 27 people enrolled in the 401k plan logged into their account during the last year. That person logged on 46 times. That person was Hubs.”

    Major props to you guys, and also, I want to shake some sense into your rep. I can’t WAIT for the upcoming benefits fair at my work where they’re bringing in financial “advisors” who charge ridiculous fees. I’m going to crush them.

    I mean… have a reasonable discussion about MERs.

    • I’m thankful that no one is counting how many times I log into my accounts. I have a problem. With 46 log ins, he also might have a problem.

      Good luck crushing the “advisors!”

  3. Every time we have a team meeting (it’s supposed to be every two weeks, but realistically it happens once per month max), my manager ends the meeting with the question, “Does anyone have any announcements or unsolicited advice?” I’ve started giving unsolicited personal finance advice like, “Bonus time is coming, now is the time to up those 401K contributions.” Or, “If you aren’t a smoker, be sure to elect non-smoker on the health insurance, and review that the policy matches your needs.” or “When was the last time you searched for new car insurance?”

    People laugh about it, but honestly, almost every single one of my coworkers has said they’ve taken my unsolicited advice at one time or another (and as a special bonus, it’s usually about the 401K).

    I don’t think my coworkers are particularly great with money, but we all have time on our side and maybe we won’t be as bad off as we’re all predicting.

    • I LOVE THIS SO MUCH! You are awesome.

      we just had bonus time and there were rumblings to lower your 401k contribution. I guess that’s only good if you contribute a lot. Confession: I lowered mine, but it was so I could save more for a house!

  4. I can’t believe they divulge so much of that info! When we get our annual 401(k) meeting with Fidelity, they definitely don’t give company-wide numbers. (Which means I have stopped going, since they give dumb advice, like how you should invest in high-fee target year funds.) But so fascinating. And sad. Though (sadly) not surprising. So many people are either expecting never to retire or are banking on Social Security. Or they don’t understand compound interest math, and think it’s impossible to save what you need anyway, so don’t bother trying. But, hey! At least your husband is the outlier in a good way!

  5. 20% returns are abnormal in any market, and it’s this kind of misleading marketing that makes people lose their hard earned money. Instead of constantly encouraging people to invest in such ‘profitable’ retirement schemes, there should also be a lot of emphasis on controlling your spending habits pre and post retirement.

  6. Where can I subscribe to this retirement savings plan? It sounds so good.

    As such, it is not bad to not login to your account, especially if it is fully automated. logging in 46 times is quite a lot. Why is this?

    • I know, right? I would love 20% returns, especially when most of the funds have an expense ratio > 1%!

      You are right about the logging in. Setting and forgetting can be a good thing. He’s logs in a lot, though some of that is due to him learning more about the markets. I’d rather have him log in a lot, see the balance and do nothing about it. He also has to re-log in when I ask questions about what he saw. I’m part of the problem. ha!

  7. oh man. Yes, we get the same presentation each year. The same (Ha!) guy comes each year (I know since I have been at the same job for 5 years now). He does the same exact presentation every time! I attend each year since we have free lunch then so may as well just sit through it.

    Fun facts?
    We have 62 employees on payroll
    12 are contributing to 401k
    There is 0% march 😦
    2 people are maxing out (I am one of them)
    We are a young team (mostly below 40) there is a VERY little concern about retirement. Lots of concern about where to go out for a happy hour drinks on a Friday, though.

    • You’re stats are worse than Hubs’! Only 12 contributing?? I don’t think anyone at Hubs’ work maxes, but we are working to change that. This year maybe, next year for sure.

      It’s a bummer to see young people who don’t care about retirement, because it is our responsibility. It also doesn’t have to be a bummer. Maybe they wouldn’t max, but they could certainly contribute 5-10% without changing their lifestyle much.

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