Simple Start to 401k For Those That Don’t Care

Well, it’s that time again.  I’m finally eligible for the 401k at my new job.  This one isn’t nearly as terrible as the previous one.  This time we have access to the full assortment of Vanguard funds.  Vanguard is also the provider so we are sitting pretty with the ER’s across the board.

We don’t get a match, so those of you that do, be sure to make hay while the sun shines.  Throughout my career, I’ve rarely had a match in any 401k from an employer.  The only one that has had a match, I’ve set up on my own.  It’s a shame, but the benefits are still there so I continue to max them out.

I’ve come to the conclusion that the abysmal participation rates in work place sponsored 401k plans are due to a couple of factors.  I guess abysmal is a bit of a stretch, because there’s an average of ~60% of people eligible for the plans actually contribute.  As for those that actually do, they tend to contribute on the order of ~6% of their salary into the plan.

Let’s discuss some ways that we can help, so maybe you come across someone unsure you can push them in the right direction.

The Plan Presentation

Everyone in the company that was newly eligible for the plan got a meeting invite to the 401k plan presentation.  These are not typically the most interesting meetings on the planet, if you can call any meeting interesting.  Nonetheless, I attended and was quite shocked at how many young people were in attendance.  I’m sure the free lunch has something to do with that.

Side note: Why is it that grown adults will walk through the pits of hell for free sandwich at an office???  But I digress.

There were probably 20-30 folks mostly in their mid-20’s, obviously interested in the benefits of the plan.  Unlike, most of you, dear readers, these folks are not super well-versed in the ways of the market.

I was super curious to see how the presentation was going to go.

Now, the lady was nice enough.  And she was certainly knowledgeable, but there’s something to be said about knowing your audience.

She started off on the right foot, discussing how investing now will set you up for later and how time is your friend.

Then she went sideways and started showing people how to use retirement calculators on the Vanguard site.  Once you pull up a site to start putting numbers in, people start losing interest.  They want to know how it affects THEM, not some arbitrary person.

Then she made some comment about how if you only save $1,500 a month, you will have X dollars by the time you are 65.  This, of course, was greeted with snickers from the crowd.

Who can save that kind of money?

She followed up that with a display of how you can use the risk profile calculator to determine your appropriate portfolio allocation.  At this point I looked around the room, every one of those eager 20-somethings had glassy eyes and was staring at the booklet of 30 funds she proceeded to hand out, dumbfounded.

Understandably, this fell on deaf ears.  Here, you have a bunch of young folks that are interested in making their life better and you simply terrified them with unnecessary knowledge and made something more complicated and scary than it needs to be.

Somehow folks find me.  I must exude an aura, but one of my friends that was in the meeting turns to me and says,

“Mr.Wow, can you help walk me through this?”

Maybe It’s This Shirt That I Wear?

My Presentation

I said sure, I’ll help, and we promptly made plans for a lunch meeting.

I started off by asking what she thought of the presentation.  Just as I suspected:

“It was good, but I didn’t really understand it at all.”

So, here’s how I reworked the presentation:

  1. I stared by explaining the benefits of investing in the 401k.  And how investing works and how over time, these things start snowballing.  If you have $100k invested, and the market goes up 10%, you just gave yourself a $10K raise, by doing nothing.
  2. I explained to her that she needs to set up the plan now.  She doesn’t have to understand it fully, but she needs to start now.  That was her homework, go set up the account.  Today.
  3. As far as the funds, she asked about her risk tolerance and the proper portfolio allocation (in less MBA terms).  I simply told her.  When you log in they’re gonna ask you what you want.  Find the one that says “Target Date Fund” with the largest number next to it.  Then put 100% of you contributions in that.
  4. She asked should she do Roth or Traditional?  And while this is a super complicated discussion.  This is the way I look at it.  If you make over $75k, go traditional, if you make under, go Roth.  It’s arbitrary and this is a one size fits all answer, but for simplicity it makes it easy to understand.
  5. Next, how much do you put in?  I just tell everyone to start at 10% of their salary.  Usually, they balk, and say “That’s impossible.”  But then we get into a discussion about how if they don’t see it they won’t spend it.  I tell her that she won’t notice, to give it a month, and if she can’t make that work she can adjust it later.
  6. Then I always end with:  “Five or ten years from now, when you care, you can go back and adjust these things.  But you’ll be thankful you did this now.”

Then I handed her a copy of A Simple Path To Wealth and left it open to discussion later.

Here’s the secret that most people lose sight of:

The key is actually putting money away.

People get so wrapped up around expense ratios and which funds have the greatest returns.  This is all semantics if you aren’t saving at all, worry about that later, when you actually care.

One of the biggest issues with 401k participation is the intimidation factor, so make it simple.  Even with crappy ER’s and stuff, just start saving, and it doesn’t really matter into what.  Get the folks building the savings habit, then let them make adjustments.

So let’s recap:

The WoW’s Simple 401k Presentation For People Not Interested:

  1. Start Now, Start Yesterday, if you can.
  2. Invest in the furthest away target date fund that you have access to. If you don’t have access to one, pick something close to the SP 500, preferably with a low ER.
  3. If you make more than $75K, go Traditional, otherwise go Roth, access permitting.
  4. Start with 10% of your paycheck, move it up if you can.
  5. Forget you have the account and money coming out of your check.

That’s my 401k presentation.  I’ve been pretty successful with it.  I’ve convinced multiple young people to start their plans this way.  It’s simple, It’s actionable, It gives direction.  Hopefully, keeping it super simple will help some folks get on some solid financial footing.

What say you?  Did I miss anything?  I know I missed a lot, but remember, this is for someone who doesn’t care.  

18 Comments

  • 5 AM Joel July 11, 2018 at 6:29 am

    Dude you should work for the benefits company, giving presentations to others.
    5 AM Joel recently posted…6 Tips for Waking Up Early and CRUSHING IT

    Reply
    • Mr WoW July 12, 2018 at 3:16 am

      Side Hustle … maybe??

      Reply
  • wendy July 11, 2018 at 6:45 am

    Go Mr.Wow! They really do need to make it more like an elevator pitch, short & sweet.
    Glad you get to help a couple of coworkers- hopefully they’ll spread the news and the rest of them will slide in.
    I’m surprised that your company isn’t doing the auto-enroll with opt out… it’s been proven to increase enrollment.

    Reply
    • Mr WoW July 12, 2018 at 3:20 am

      Oh the enrollment thing is something I’ve been trying to push. Apparently, they have an issue with the HCE’s getting money returned to them. So I’ve been pushing for a safe harbor plan as well. I’ve tried to push the management since that they are the ones being hurt by the compliance testing. Quite frankly, I think they are shocked at how much I know about this stuff… HA!

      Yes, if it were up to me, we would default everyone into the exact plan that I laid out. 10% into a Target Date Fund. It would just be part of your on boarding paperwork, and then you would really never know the difference.

      But, I have yet to win either of those battles. I think the management gets it, kind of.

      Reply
  • freddy smidlap July 11, 2018 at 8:02 am

    you hit it out of the park with “just start saving.” when i first opened our roths around ’05 i made a couple of bad investments that lost maybe 30-40%. apart from the life lesson not to get cute with it i reasoned that i still has 60-70% more than if i had spent it all like earlier in life. you gotta be in it. with a 401k you can also fund a roth if you can afford it. i love that.
    freddy smidlap recently posted…What’s Your End Game? I’m Selling!

    Reply
    • Mr WoW July 12, 2018 at 3:22 am

      Yes, this is a fundamental thing. Just start saving. Don’t worry about the details, until they actually matter. For most folks that’s probably going to be never. They will just be happy to have a retirement account they can see growing.

      I feel like it’s almost like anything else in life.

      “I can’t ride my bike to work.”

      “Why?”

      “I don’t have a road bike.”

      “Don’t you have a mountain bike? Just ride that”

      I’ve had that discussion before as well. Don’t worry about it… GET STARTED!! Then worry about the little details.

      Reply
  • Dads Dollars Debts July 11, 2018 at 1:07 pm

    I like the plan. Simple and straightforward. They are lucky you work there! Keep up the good work.

    Reply
    • Mr WoW July 12, 2018 at 3:24 am

      I’m trying… I’m still fighting with the management to get a safe harbor plan in place, but that requires some matching, so we have to get the NHCE’s to contribute so we meet some of the compliance testing. BLAH.

      Hopefully there will be more.

      Reply
  • Ms. Fiology July 11, 2018 at 7:48 pm

    Aren’t you anonymous, lol? And yet they find you! It might be the t-shirt 😉

    Brillant advice! Simple. Start. Adjust later.

    I’ve had a couple colleagues ask me to advise them on our Vanguard funds (which I consider quite an honor) and I typically steer them towards a TRF too.

    I have a colleague, much like you, who helped me when I was still just paying off debt and understood very little about investing. He turned me onto the FIRE movement (knowing I tend to jump all in) and talked to me about investments in a simple way.

    You are making a difference, Mr. WoW.
    Ms. Fiology recently posted…Budgeting For The Future

    Reply
    • Mr WoW July 12, 2018 at 3:31 am

      Well, I’m anonymous IRL.

      I just happen to be the weird guy in the office that knows all the ins and outs of 401k plans. I talk to our controller all the time about different things since he was a benefits accountant in a previous life. I’ve also gained a bit of a reputation as the guy who has like 30 credit cards.

      I don’t discuss FIRE or leaving work early, but I definitely have a vastly different point of view of employment as well. One that management can’t quite grasp and doesn’t know how to handle.

      So, while they don’t know that I write all this garbage on the internet, they most certainly know I’m an odd duck.

      Good on you for helping people and paying it forward. I know some folks that I talked to before have actually paid it forward as well. Which is good. FIRE and the hardcore stuff isn’t for everyone, but solid financial footing in the future certainly is.

      Reply
  • Cubert July 13, 2018 at 4:08 am

    Well-played, sir! This would’ve been helpful when I started my 401K a number of year (a-hem) back. Course there weren’t target funds back then… But I at least managed to squirrel away 8% and let it ride.
    Since then and within the last five years or so I’ve opted to reduce my contribution to reach the employer match and nothing more. That’s so I could put more money into real estate.

    Reply
    • Mr WoW July 15, 2018 at 9:02 am

      You and me both. I think I’ll dial it back here shortly so we have more access.

      But that’s the beauty. Start then figure it out.

      Reply
  • Mr. Tako July 16, 2018 at 9:45 am

    Wow, you have a 401k at your new job? Lucky duck!

    Reply
    • Mr WoW July 16, 2018 at 1:01 pm

      Yeah… we at least have access to it. No match, but c’est la vie. At least I can take advantage of the out of sight out of mind aspect.

      Just let that do it’s good work.

      Reply
  • Josh Jensen July 17, 2018 at 5:41 pm

    I like this simple approach, and have helped some of my colleagues at work to “just get started.” On point #5 (save 10%) I also get some people balking. One thing I point out is the money is pre-tax (if done traditional, not roth) so while you may have $300 going into your 401k, the take home difference in the paycheck will only be $240 less approx. (for example). People like the feeling of Uncle Sam getting less of their dollars too!

    Reply
    • Mr WoW July 17, 2018 at 8:27 pm

      This is a great way to look at it. I’ve used something similar but a lot of times people just hate math.

      Not sure if they hate taxes or math more!!

      Reply
      • Josh Jensen July 18, 2018 at 8:51 am

        People come around to math a little bit when you tell them you get to keep more of your paycheck instead of it going to Uncle Sam! Depriving the government of your money today is more exciting than paying “future you” 30 years down the road.

        Reply
        • Mr WoW July 19, 2018 at 9:18 am

          I guess that’s true. It’s more fun to say “FU uncle sam” than it is to say… here’s some money future self.

          Reply

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