Will you have enough to retire?

June 24, 2022

Allworth Co-CEO Scott Hanson explains why there's a good chance you'll need more for retirement than you think.

Do you have a 401(k)?

I recently met a 48-year-old at a workshop who told me that she had saved just south of $400,000 in her employer-sponsored 401(k).

She was understandably proud of her hard work and discipline, and, seeing my enthusiasm, she didn’t hesitate to ask something that a lot of people ask me: “Do you think I’ve saved enough for retirement?”

I already had some idea of the answer, but first, I needed to ask her a few questions: Do you have a mortgage? Are there any other assets? Is there any debt? Is any of that money in a Roth 401(k)? Where do you hope to retire?

Her answers were “no” to each of the first four questions, and as for where she hoped to someday retire, she hadn’t settled on a location, yet.

In rapid succession, I gave her some things to consider.

First, I told her that she might have 10 or even 15 more years to save, so if she wanted to really improve her odds of maintaining her current standard of living throughout retirement, she should set a goal to double the amount she had already socked away.

Then I pointed out some not-so-fun facts. First, since 50% of people are forced to retire early, usually due to poor health, there’s no guarantee that she is going to be able to work long enough to achieve that end. (Though I strongly encouraged her to try).

Next, I explained to her that, due to inflation, her money was unfortunately worth tens of thousands of dollars less than only just one year ago.

Then we discussed the bear market’s impact on her asset allocation.

And the last point I made was to remind her that the money in her 401(k) had been deposited without being taxed. And, that once she begins tapping into it, federal taxes, as well as likely state taxes, were going to take a substantial portion of her savings.

Then I gave her my honest evaluation: That she had done some admirable work, but that I didn’t think she had anywhere near enough money saved for a possible 20-year-plus retirement.

All of these are reasons why, just about every chance I get, I explain to people that they are probably going to need to save much more than they realize to be able to afford the retirement lifestyle to which they aspire.

Because, frankly, most people don’t want to rein in their spending once they stop working full time. (At least for the first few years, they generally want to live it up and knock several items off their bucket lists.)

The celebration of a new way of life (retirement) often results in early-stage over-spending and, by extension, quickly having less money invested to draw interest and gains. (It’s a cycle. The more you spend of your nest egg, the less you have coming in from your investments, so the more you end up spending of your nest egg.)

Then, if the market hits a rough patch, like the one we are in now, any amount you have invested takes a hit.

Still, I can’t help but be appreciative of 401(k)s, which are easily America’s most popular retirement savings vehicle.¹

And yet, a little backstory: It’s something of a miracle that 401(k)s even exist.

The venerable 401(k) that we all know and mostly love wasn’t created in a drafty mountaintop investment laboratory by a bunch of mad, number crunching scientists. The fact is, that its invention (or discovery) was really something of an accident.

That’s right.

Back in 1980, a benefits consultant named Ted Benna was looking for a way to save a client money, when he discovered something new about tax deferred savings in Section #401(k) of the IRS’s Internal Revenue Code. Apparently, Congress had altered the tax code just a couple of years earlier to correct a loophole that existed in the laws that governed profit-sharing plans.

The funny thing is, that Ted Benna’s client ignored his advice. But, undeterred, Benna’s own company jumped into action and began offering something akin to 401(k) plans to its employees even before the IRS had formally acknowledge their legitimacy.

A year later, the IRS did in fact issue guidelines, and within two years, nearly half of all large U.S. companies began to offer them. (This of course wasn’t all for the benefit of employees. 401(k)s were not only cheaper for employers to administer than pensions, but they also served to shift most of the burden for retirement preparation to the shoulders of their workers.)

Fast forward to today, and Allworth Financial is a 29-year-old fiduciary advisory firm that takes the financial education of its clients, and the public at large, seriously.

To that end, some 25-years ago, my Allworth Co-founder Pat McClain and I launched what is now one of the longest-running financial topic radio programs (and podcasts) in America. Over our time on air, we’ve had numerous interesting guests (including Ted Benna), and answered thousands of questions from callers.

Because of that, we often receive messages and emails from people who want to know how to get their financial question answered on a broadcast. If that sounds like something that you’d be interest in, you can start that simple process here.

And if broadcast media isn’t your scene?

There are always loads of free financial education materials available 24/7 on our website.

And, yes, you’ll even find a retirement calculator that can help determine if you’re saving enough for retirement.

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Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

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¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.