Millennial retirement
Posted by: Howard Dvorkin, CPA
Date of post: October 5, 2015

Automatic savings plans like a 401(k) have helped millions of Americans, but are they hurting them, too?

Sometimes a poll can reveal an amazing trend you’ve never contemplated before. Other times, it simply confirms a long-held belief.

A recent retirement survey falls squarely into the latter for me.

New York Life polled nearly 1,000 “pre-retirees,” which it defines as workers between the ages of 50 and 62. Many had some sort of “automated vehicle” to save for their upcoming retirement.  Typically, that was a 401(k). So what did pollsters announce as the major finding?

Nearly half of pre-retirement Americans find it difficult to save anything beyond what they’re automatically putting away.

I’ve spent the past two decades counseling Americans to save — in person as clients, on network TV, and in newspapers like The Wall Street Journal. Like my peers, I’ve encouraged automatic deductions for everything from retirement to college savings. However, I long ago realized the downside to this major upside. Namely, once most people start saving this way, they’ll convince themselves that’s all they need to do.

I call it Set it, forget it, and regret it.

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Most employees who take advantage of a 401(k) contribute around 6 percent, while most experts say you need to save and invest  around 10 percent of your income to retire comfortably. Automatic deductions are a great way to force you to save, because you don’t miss the money you don’t see in your paycheck. It’s not enough, however.

Even worse, I’ve often seen otherwise intelligent adults setting aside 4-6 percent in a 401(k) while charging thousands on their credit cards — and carrying huge balances month to month. Whatever they’re earning in that 401(k) is being wiped out — and then some — by massive interest fees.

In a way, both the 401(k) and the credit card balances are out-of-sight, out-of-mind. You don’t notice the 401(k) savings, but you don’t notice the credit card balances until the issuers cut you off. You simply keep charging and making minimum payments until it’s too late.

Don’t let Set it, forget it, and regret it get to you. Debt.com is here to turn regret into success. You can call one of our certified credit counselors for a free debt analysis. Please don’t forget to do it!