Communication Science: Investing Is Easier,
But Saving Is Still Difficult

By Scott Dingwell

Picture a good looking, older couple walking on a beach in the blazing sun. The well-dressed woman has her shoes in her hands; the good-looking gentleman has a sweater draped over his shoulders. They're flying a kite, or maybe sitting on a blanket looking out over the waves. You've seen this picture before, haven't you? We all have, on the covers of myriad DC brochures. These youthful retirees, frolicking in the wild with ample resources are the cheerleaders of America's 401(k) revolution.

But there's a catch to this lovely picture. Sure, you can have this sort of retirement lifestyle (when you're young enough to enjoy it), but much like a jeweler's display case, the price tag is rarely in view.

Although the industry has made great strides making the savings process easy, the practice of accumulating enough money to retire comfortably at age 65 continues to be a daunting challenge for most participants, especially so for those who got a late start, or who have not been able to maximize their contributions. In these difficult economic times, saving a substantial portion of your income is near impossible.

Despite these challenges, our brochures, pamphlets and websites are full of inspirational imagery, but rarely tell participants that achieving these goals will be a challenge. We typically say things like, "Saving for retirement is easy with our plan" or "Our selection of funds will make it easy to save for retirement." This is true for the 20-somethings that allow auto features to take them the distance, but for the rest of us who got started later, were defaulted into a stable value fund and haven't raised our contribution rates, we need a stick, not a carrot.

Given that most participants are NOT on track to meet their retirement goals, implying that saving is easy and that a comfortable retirement is our birthright gives participants the wrong impression. We need to motivate them to get started as early as possible and to contribute a healthy percentage of their paycheck.

It's not only the contributions that are painful. Weathering market volatility is never fun, but it's a necessary condition for capturing long term equity market returns. Rather than allowing participants to let their subjective feelings for risk drive their investment decisions, we need to remind them that if they are long term investors, they need to learn to tolerate the pain that comes from price fluctuations.

Telling the truth doesn't have to mean a radical change to your messaging. Many plan sponsors worry about discouraging participants, but it's better that we get them started on the right track now versus letting them live the high life without alerting them to the cliff fast approaching.

It may just be a matter of reinforcing the importance of time and contributions. Let's continue to let auto features (auto enrollment, and auto escalation) and premixed funds make the process easy. For those who will not be impacted by auto features, targeted communications, or better yet, a reenrollment campaign can get them back on track.

And for all participants, let's be sure they understand that a comfortable retirement IS achievable, but it will take time and discipline. Much like a good exercise regime, getting started is the hard part, but the long term results will make it all worthwhile.

Let's Get Real: Straight Talk On Saving for Retirement

Topic Old Understanding New Understanding
Saving for retirement - Saving is easy! Soon you will be walking on the beach enjoying a comfortable retirement. - We've improved the process to make saving easier, but it will still involve some pain, both from high contributions and from enduring volatile markets.
Drivers of overall success - You need the right investments - Getting an early start. - Contributing the maximum. - Increasing contributions whenever they can. - Having an appropriate investment strategy.
Drivers of investment success - You need a manager who can outperform the benchmark. - Choose a mutual fund with name brand recognition. - Having the right asset allocation is the most important component of your . - Everyone wants a high return but havin an appropriate risk level for your portfolio is critica. - Find the most efficient vehicles for your plan.
Long term goals - Focus on building up a lump sum - How much monthly income can your account generate? - Do you have money set aside for flexible spending?

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