Broker Check

The Easy Road to Riches!

| December 14, 2015
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"Getting people to build a nest egg is simple," Professor Thaler says: "Make it easier."

We are approaching the New Year when many of us take time to reflect on the past year and plan for the future with an eye toward long-term goals.  Two top goal-setting categories every year are health and wealth.  Many of us have a pretty good idea at a high level HOW reach these goals (diet, exercise, budget, saving, etc) yet they still show up on the list, year after year.  If we know how to reach these goals, and agree that they are very important, why do we continue to struggle to accomplish them?

Achieving long-term success often involves passing up on immediate rewards for longer-term ones.  To succeed, we often need to make good decisions consistently over a long period of time, and the more choices we have to make, the longer our odds of success become.  There are entire industries built around making it as EASY as possible to achieve instant gratification.  Think about how easy it is to make a credit card purchase:  we exchange our worthless-looking plastic cards for something valuable (which we get RIGHT NOW) and then we even get the card back!  We get what we want, and the eventual day of reckoning (monthly credit card bill) is somewhere off in the future.  And with Amazon’s “1 Click®” feature you literally only have to click on a single button and your item is on it's way to you!  What if you could make planning for your retirement savings that easy?

When you renew your driver’s license, in addition to self-reporting your weight, you also have the opportunity to register yourself as an organ donor.  Many of us are not familiar with the practical implications of becoming an organ donor, and lacking that knowledge, we decline to enroll.  In 2009 only 38% of Americans were registered as organ donors which compares to 12% of Germans and 99% of Austrians.  Germany and Austria share a border and a language and are culturally very similar which makes this gross disparity surprising at first blush.  As you likely suspect, the difference is a structural one.  In Germany you need to “opt in” to the system and actively register to become an organ donor and in Austria you need to actively “opt out” of the program - if you take no action you will be enrolled by default.  Many of us delay taking action when we are faced with a difficult decision, so helpful default options can be extremely beneficial.

In late November, Robert Powell of the Wall Street Journal (WSJ) interviewed Richard Thaler, a well-known Behavioral Economist at the University of Chicago Booth School of Business.  Richard provided profound advice for retirement plan providers - the best thing you can do to help your employees prepare for a successful retirement is to make it easier!  He went as far as laying the blame for poor employee outcomes: “For top management, if the employees at your firm are not saving enough for retirement, realize that it is your fault.”

Professor Thaler stated three key ingredients to a good defined-contribution (ie 401k) retirement plan:

  1. Automatic enrollment (automatically enrolling empoloyees)
  2. Automatic escalation (automatically increase savings annually)
  3. Good default investment vehicles (provide excellent default investment options for the employee who don't specify)

 According to Thaler, if HR departments would incorporate these features into their retirement plans, most employees would have a much better chance at a comfortable retirement.  "Getting people to build a nest egg is simple," Professor Thaler says: "Make it easier." 

A common strategy that is endorsed by popular financial pundits is to save 3-5% of pay and hopefully get another 3% of employer match money.  Sadly, this will typically NOT enable a worker to achieve financial independence throughout retirement.  In that WSJ interview, Thaler recommends automatically increasing employees' savings levels each year until they hit at least 12% of pay.  If your employer does not offer the EASY features mentioned above, you can do it yourself in minutes.  Just start at 5% (or less if your budget dictates) and sign up for your annual contribution to increase by 1% every year up to a maximum of at least 12%.  And pick the target date fund that matches your planned retirement date – DONE.

I agree with Professor Thaler that a primary reason we often do not act in our own best interests is because it is just not easy enough to.  I specialize in helping clients consolidate, simplify, and optimize their finances at all stages of life, and make it as easy as possible for them to achieve their financial goals.  I can help you put together a strategy to balance your competing financial priorities including college funding, debt elimination, saving for retirement, creating an income you cannot outlive in retirement, gifting your assets in a tax-favored manner, and protecting your family against financial risks that you cannot accept.

If you would like to come in and pick our financial brains for an hour over a complimentary cup of coffee, please call Jenny at 303.900.4018 to schedule a conversation or visit us at to learn more.

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