Monday, June 05, 2023

Apparently it’s not that hard to accumulate a million dollars for retirement. For example:

“If a 25-year-old, pack-per-day smoker quits smoking and puts the money he saves into savings, he can rather easily build $1 million by retirement. All he needs to do is save his money in an IRA and select a small-company, stock mutual index fund. (Remember, adjusted for inflation, this person will probably have between $3 million and $4 million of inflated dollars.)”


“Let’s say that at age 18, you decide you can save and invest $500 per year. How long will it take you to become a millionaire? If you match the average stock market return of 10.5 percent, you’ll get there by age 94.

Keep in mind, though, that you should be able to beat the stock market and become a millionaire a lot sooner. If you take the time to learn and become an excellent investor, earning perhaps 16 percent or more, on average, per year, you could be a millionaire in your 60s. And this assumes you won’t save more than $500 a year—which you will, right?”


“I just saved about 66 percent of my pay without really noticing it, and in under 10 years I woke up and realized I didn’t have to work for a living any more.”

These are actual statements from websites encouraging saving; they aren’t setups for sales pitches for a product, program or service. These “experts” are sincerely telling you, based on their observations and experience, that saving a million dollars is not only doable, but easy.

Do these conclusions inspire and motivate you? Or does this message seem a little off?

For something that is supposed to be easy, very few Americans are doing it. A 2015 report from the National Association of Government Defined Contribution Administrators, Inc. found that 45 percent of Americans have saved exactly nothing—zero, zilch, nada—for retirement. The National Institute on Retirement Security reported that median retirement account balances for pre-retirees was $14,500 (uh, that’s not even close to $1 million), with 62 percent of Americans aged 55 to 64 having saved less than one year of their annual income.

Distortions and Comparisons are Counter-Productive

When you combine mathematics and extreme behavior, the projected results are theoretically possible, but extremely unlikely. It’s questionable if anyone is better off for knowing this information.

The three examples featured above contain distortions that make them meaningless for most Americans. Two of them represent time horizons of 40-plus years of saving and compounding. One assumes an expensive bad habit can be painlessly converted to saving. Another requires investment expertise equaling or exceeding that of professionals. The other requires a Spartan lifestyle in order to achieve both a high level of saving and a low target for retirement income.

These approaches tend to produce what might be called Mr. America and Barbie financial models. They sort of resemble real life, but on closer examination, the distortions make them impractical.

Mr. America is a real person, but his physique is the product of rare genetics, pharmaceutical enhancement and a very time-consuming training regimen. Contrary to what some exercise magazines and nutritional supplement ads claim, the vast majority of American men can never become Mr. America.

And Barbie? There is research that finds Barbie’s distorted physique has a negative impact on how some young girls perceive their own bodies and attractiveness. In a similar way, these distorted financial examples present impossible strategies that could leave you feeling depressed about your own financial condition (especially if you’re older), because apparently you aren’t smart enough, you haven’t lived cheaply enough to make up for your ignorance, and now it’s too late.

Some people can detect the unrealistic aspects in these financial scenarios, and negate their potential for discouragement. But because the distorted perspective is about saving (a good thing), it can be hard to completely dismiss the message, especially if you know you need to be better at it.

An interesting new financial behavior study indicates that even “realistic” scenarios involving peers who have succeeded in saving can have a negative impact on those who feel they are underachieving. A group of researchers led by Dr. James Choi, a professor at Yale School of Management, studied workers enrolling in employer-sponsored retirement plans. To encourage saving, the researchers, acting as advisors, told one group of potential savers how much their peers were contributing. Another group was given no info on their peers, but only told the benefits of the plan.

The results were unexpected: Those who heard how much their co-workers were saving were less likely to enroll in the retirement plan. Remember, this wasn’t distorted Mr. America or Barbie financial info, but actual numbers from their peers. Why would this data discourage saving? In a September 20, 2015, Wall Street Journal opinion piece titled, “Don’t Compare Your Savings to That of Your Peers,” Dr. Choi offers an explanation:

Peer information will always contain an element of social comparison. Our findings suggest that exposing employees who are saving little or nothing for retirement to information about their higher-saving coworkers is a discouraging reminder of their low economic status, and that makes them less likely to increase their savings.

For those already struggling to save enough, the apparent success of others “just like you” doesn’t appear to help. Rather, it is discouraging.

It’s Not Too Late

So what can you do when you haven’t been saving, and don’t have decades to accumulate a substantial retirement account? While it might be helpful to disregard the distorted examples and comparisons to your peers, it doesn’t give financial underachievers a template for remedying their saving deficiencies. There have to be realistic options, especially for those with short time horizons to retirement.

Here are two key thoughts for making realistic retirement progress, no matter where you are right now:

1. Believe your situation can turn out okay. This isn’t some self-help mumbo-jumbo. Making the best of what can be starts with a better mindset.

The ideal retirement has been sold as 30 years of traveling, indulging grandchildren and playing golf. It sounds great, but for many it’s a Barbie plan, almost impossible to achieve. Yet even though their savings may not approach $1 million, plenty of older Americans have figured out how to live satisfying lives. They have retirement plans that look like them, ones that match their circumstances.

Whatever you have or haven’t done thus far, you have to believe that whatever you do now will be a step toward making the future better. People do nothing because they don’t believe anything can make a difference.

2. Get professional help. The examples at the beginning of this article featured one key action: quitting cigarettes, learning how to invest or saving two-thirds of your income. If you’re older and haven’t saved a lot, it’s unlikely that one change is going to be a financial silver bullet. As Steven L. Nelson, author of several “for Dummies” books, writes: “If you’re 50 years old, you can’t make one decision and expect that single good decision to grow to $1,000,000.” Getting to a better place financially will probably require a series of adjustments, and expert assistance.

Financial professionals can not only provide plans and products, but also offer positive reinforcement, management tools and personal service to make these necessary changes happen. Getting better financially does not have to be a do-it-yourself project.

Saving is not easy. It never has been. But it is worthwhile. No matter how poorly someone has saved thus far, any improvements will be beneficial. Look past the distortions to implement workable strategies that incrementally move you toward a better financial condition.

By Elozor M. Preil

Elozor Preil, RICP®, CLTC, is managing director at Wealth Advisory Group and registered representative and financial advisor of Park Avenue Securities LLC (PAS). He can be reached [email protected] See www.wagroupllc.com/epreil for full disclosures and disclaimers. Guardian, its subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.

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