For many individuals, their house and retirement plan represent their largest assets (aside from human capital, the ability to produce income). Financial mistakes, particularly mistakes later in your working life, can have long lasting impacts on lifestyle choices. The philosophy and approach towards managing these assets can make all the difference. In this article, we will discuss retirement plans and then review financial issues with your house in part 2.
“Chocolates or Banana?”
Pioneering research on human behavior and messaging in retirement plans by Professor Shlomo Benartzi at UCLA present us with some interesting insights. His TED video on “chocolates or banana” is funny, yet true. As the video describes, many investors confront difficulty with decisions that bring “tomorrow into today”. Our 3 decades of experience in working with individuals in the run-up period before retirement, ( the 5-15 years prior), echoes his findings that good intentions don’t necessarily equate into actions.
There have been thousands of articles written about the shortcomings of 401(k) plans (and their cousins 403(b) and 457 plans). In many of these plans that we see, plan sponsors often confuse more choices with better results. Actually, because of “the choice paradox”, if the number of choices is too large, many individuals can’t decide. Costs can also be an issue. Despite all these problems, tax-deferred savings plans can represent a smart way to prepare financially for retirement.