No ‘Magic’ in These 401(k) Retirement Numbers

  Last week, a new report claimed to find a big jump in a so-called “magic” number for retirement, based on what survey respondents said they thought they’d need. As though they’d know.

It garnered quite a bit of coverage, including an article in The Wall Street Journal (and a comment from none other than Teresa Ghilarducci). While the “magic” number of $1.46 million didn’t seem astronomical (Professor Ghilarducci even commented that people often OVER-estimate their needs), that number jumped dramatically from $1.27 million a year ago—something the authors attributed to concerns about inflation.

There are many problems with reports like this—none of which the breathless reporting of the conclusions acknowledged:

(1) It’s an average—while we get some breakdown on age brackets, we know nothing about their incomes, where they live, their health, etc.  What someone needs (or thinks they need) living in New York City is (or should be) considerably different from the projections of someone living in Dubuque, Iowa.   

(2) It’s based on what people “think” (who have probably not given this any real thought).

(3) It’s surveying completely different groups of people a year apart, so drawing a trendline is a predictable, but dubious reality.

The good news is—this time—most industry “voices” pushed back on this “magic” number, albeit for different reasons. Mostly they cast shade on the notion that any one number would be right for everyone, and/or they preferred to rely on a percent of pay gauge. But those struck me as “nibbles” around the edge of the report; valid criticisms to be sure, but more about the result than the process used to produce it. 

Meanwhile, stories like this serve mostly to fuel the concerns that responsible human beings already have as they try to look ahead to a future decades ahead in a time of tremendous uncertainty. If they weren’t nervous before they saw these headlines, they surely are afterwards.

Now, those of us in this industry see—and produce—reports like this all the time. We look at those gaps (even the misperceived ones) as a challenge, an opportunity, a goal to strive for, a gap to close.  And thank goodness we do.

But while I wouldn’t for a moment suggest that those gaps don’t exist for some, nor would I advocate obscuring those realities, it would be naïve to think that those who want to shut down or “defund” private retirement plans don’t see these types of reports as an admission of failure, if not guilt. 

There are plenty of good stories to tell—and every day there’s an individual (perhaps many individuals) who confidently step off into retirement, buttressed by a history of consistent saving and encouraged by the support and guidance of a qualified retirement plan advisor. It’s a story that nobody seems interested in covering, but one in fairness that we don’t spend much time sharing, either.

I’d ask today that, in the future, you pause before sharing this kind of “the sky is falling” headline with your networks. Let’s start sharing the realities of the plans you work with, the retirement successes of the workers you support, the impact that holistic focus on financial wellness is having on the finances and emotional stress of those you serve… 

It may not be “magic”—but it sure matters.

- Nevin E. Adams, JD