How Not to Run Out of Money in Retirement
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This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen with Anne-Marie Fertoli in New York. There's more to saving for retirement than just contributing to your 401k account at work. There's a responsibility on the part of the saver to have goals and specific numbers in mind so they don't run out of money early in retirement. Here with us to discuss is Frederick Exeter, Wells Fargo's Asset Manager, Head of Strategic Business Segments. So, Frederick, you learned a lot about the instincts of working people saving for retirement in the latest Wells Fargo Gallup Investor and Retirement Optimism Index. And some of it was a bit troubling. In fact, about half said they would simply stop saving if tax-deferred 401k programs were to end.
Yeah, that's right. I mean, I think that this highlights first, the importance of DC plans in terms of moving from more of a supplementary savings vehicle to really a primary savings vehicle, but also the vulnerability for these investments. 46% of investors said that they would stop investing or invest less in 401k plans if the deferred nature of their taxes were was taken away. So I think it's a call for action for all of us to, if anything, try to strengthen the 401k system.
And respondents to the survey made it clear that they want a guaranteed income stream in retirement. Who doesn't want that? But they also said that the path to achieving that was sort of unclear to them.
Yes. We call it the retirement sieve, that in terms of how do we get to those objectives? I So it's only 53% of investors that have some kind of long-term money goal, kind of a nest egg objective. And it's only 19% of investors that have a combination of having that goal and also some idea of kind of what income in retirement can they have to last throughout their hopefully long retirement period. And we estimate that kind of a reasonable level is to be up to 5% annually of your retirement nest egg.
So, Frederick, let's say an investor wants to reach a target of a million dollars or more in savings for retirement. That's a number that comes up in the Wells Fargo survey. What steps should they take to help to get them to that goal?
I think, first of all, it's the importance of starting to save early. You can kind of look at – if you're retiring and you're age 65 and you can look back in your lifetime, it's a surprisingly large amount of that money is coming from the early savings, just the power of compounding. The other thing I think is – I mean, back to 401K plans, I think they're really important. And plan sponsors, organizations are now pushing the envelope to help people save more earlier. There was a great article in today's Wall Street Journal from Richard Thaler that was speaking to exactly this point.
So you talk about the early savings, the importance of that. Even though that's a time in someone's career when they're not making as much as they might down the line, that is a key time period to put away money.
That's right. The other thing that's coming up is to, in a way, be creative and meet people where they're at. I mean, there is a tradeoff here between, let's say, paying off student debt and saving more for retirement. And it's just be smart and thoughtful and really thinking, as Taylor was pointing out, of that longer-term objective and having that in mind all the time.
To that point, the survey results that Wells Fargo Asset Management put out suggest that the industry could also do a better job in, as you say, meeting people where they're at or at least steering people toward setting appropriate goals.
That's right. I mean, I think of the 401k plan right now as it's really a savings vehicle. And sometimes we even call it the, you know, here's the savings plan. It should be a retirement vehicle to help people save and also to make that money last throughout their retirement. And we need to move away from that retirement sieve and think of how can you make it just easier for people to have a higher and a more clear view of what income they can have that lasts them throughout their retirement.
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