401(k)s Make Me Feel Stupid

It’s open enrollment season in corporate America and that means benefit elections and changes.  Last week my wife greeted me with a 123 page retirement program briefing book from her employer and told me I had one night to make our allocation decisions.  I didn’t bother to ask how long she had been sitting on this information because I’m afraid to show anything but extreme confidence in the face of my 401(K) elections.  For this is the time of year when I boldly select the magical combination of stocks and bonds that will ensure our golden years are secure and peaceful.  I do it every year; I have an MBA, so I must know what I’m doing.  And now I have an additional 123 pages of expert guidance and 12 full hours to ensure our geriatric bliss.  I’m all set, right?

No way.  I feel stupid.

The first reason why I feel stupid is math.

Not regular math like I had in high school where an equation was presented for me to solve.  I have to actually figure out the math problem first and then the solution.  There are probabilities to estimate, fees to add and subtract, percentages to rationalize.  I would feel stupid if someone asked me that question ‘where will two trains meet if one leaves Chicago at 9pm going 70 MPH and the other leaves New York at 8pm going 50 MPH.’ I’m out of practice.  But with the 401(K), I’m asked to calculate my retirement date, project a growth rate based on my risk tolerance, add and subtract fees that are rendered in fractions (without the same denominator!) and then I have to adjust it all for inflation which means I’m multiplying fractions.  This is harder than train math.  So I feel stupid.

Now, if you know me or my wife, you are wondering why I’m doing this at all – I married a math whiz.  My wife is an engineer and honors grad from Carnegie Mellon. She is great at adding fractions and actually enjoys it.

But that gets to the next reason why 401 (K)s make me feel stupid: words.

English is a language I know well: I read it, speak it, write it.  I really like reading English words.  My wife does too.  But it sure can get confusing sometimes, especially when it comes to financial services words.  To start, I have to get comfortable with the use of terms like, ‘time horizon, risk tolerance & liquidity needs,’ which are the same words I use to explain why I don’t run marathons.    Then I have to reason through terms like ‘active global equities portfolio’ and ‘passive inflation-linked bonds portfolio,’ which leaves me nostalgic for lighter reads like War & Peace or the closing documents of a real estate transaction.


So we feel stupid.  Five diplomas packed in the basement, two management careers, above average business savvy and we are both looking at this 401(K) information like it’s written in ancient hieroglyphics.  So we reason through some decisions, assure ourselves they are the best ones, and try to forget the entire experience until next year.

So here’s my question to you: if we feel stupid, how do other people in your company feel?  The ones who work for you or you are responsible for?  I’ll give you some hints.  70% of Americans live paycheck to paycheck.  80% of Americans have no access to financial guidance or basic financial literacy. 16% think that winning the lottery is the best retirement strategy for all Americans.  And 56% of workers report that they have not attempted to calculate how much money they will need to have saved for a comfortable retirement.  So what percentage do you think are prepared to add and subtract fractions and decrypt brokerage fee English as they consider their 401 (K) choices this year?  I think you can probably assume that your employees feel stupid too.

So what are we supposed to do it about?  Start by being honest with yourself about this stuff. It’s ok to admit you feel stupid too. You can’t possibly understand it either – the math and reading is designed principally so the financial engineers profiting from 401(K)’s can understand it.  So don’t assume your people can understand it.  When managers of people and benefits presume it makes sense, workers assume it should too and then they make financial mistakes.   Once we recognize that 401(K)’s make us feel stupid, we can start to solve the problem for people who really need help planning for retirement.  And one day we may all be relieved of the burden of adding and subtracting fractions with different denominators.


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