Concord Investment Counsel

Would you treat your children this way?

Statistics show if all the people who fall asleep in church on the average Sunday were laid end to end starting at the Pacific Ocean, they’d be a lot more comfortable. Too bad it’s not that simple for Americans to feel so at ease about their retirement.

According to a 2007 study by BAI Research and Mercatus LLC, “mass affluent” Americans are 35-70 years old, make upwards of $92,000 per year, and have $50k to $2 million in assets. The most pressing financial priority for 59% of those surveyed is saving for retirement.

To accomplish this important goal, Americans turn to the prime means to build retirement wealth – employer-sponsored retirement plans. Yet too often when they change jobs or retire, instead of consolidating their retirement funds in an IRA, they leave their investments behind. The BAI/Mercatus study shows that 1/3 of mass affluent households have at least one orphaned 401(k) account with an average balance of $100,000.

That’s a fascinating disconnect. Why would so many people leave such an important part of their future livelihood at arm’s length? The research suggests an answer. Three-quarters of mass affluent Americans consider themselves “less confident” about their future; worried they don’t have enough assets for retirement and feeling they don’t know enough about investing.

It’s no wonder – if you feel uncertain about reaching your number-one goal and don’t know how to fix it, “less confident” may be an understatement. Pile on the S&P 500’s first 10-year loss in history from 2000-2009, America’s long-playing economic illness, and geo-political turmoil across the globe, and many investors feel paralyzed. This may explain how the estimated $1 trillion in assets languish in orphaned 401(k) plans.

Once people realize that deer-in-the-headlights image is in their own mirror, many spring into action. There are several motivators. Those who transfer assets from 401(k)s to IRAs typically recognize they:

- Are overlooking a vital piece of their retirement wealth
- Are getting no advice, yet their 401(k) and fund fees can cost upwards of 1% annually
- Are empowered by taking control of their wealth
- Prefer more investment choices and easier management than the 401(k) plan provides
- Feel liberated by cutting ties to a former employer

The BAI/Mercatus research shows most people consult a trusted financial advisor when they decide to consolidate their retirement wealth. Mass affluent investors turn to investment firms 67% of the time for their 401(k) rollovers, compared to only 18% for banks (who are more generalized, transaction-oriented, and product-focused).

A good financial advisor can be an invaluable asset for the mass affluent. With a straightforward financial planning approach and an effective, fee-based investment strategy, financial advisors can help the mass affluent investor close the knowledge gap and raise their level of confidence for retirement. That’s more comfortable than a nap in church.

Labels: 401(k) Strategy, Retirement Planning

America’s Orphaned 401(k) Plans

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