How Much Is That $1 Coupon Really Worth?

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Retirement success may not be as easy to achieve as many think.   I attended a conference and heard one speaker relay a story about one company’s 401(k) enrollment meeting where 100% – yes, everyone – said they wanted to enroll in the company’s 401(k) plan.   They all were going through the materials and even choosing allocations they felt were appropriate – and all them were excited about starting to save for their retirement!

Would you like to guess how many actually followed through and actually participated?   3%.  That’s right; only three in one hundred actually did it.

Education didn’t seem to help, at least in that particular case, despite all the glowing post-meeting comments.  Benjamin Graham, the ‘dean’ of value investing who taught Warren Buffett at Columbia University, once said that behavior, more than investment choices, represent the largest impediment to financial success for most Americans; and the data seems to bear that out.  Poor savings habits, poor investor performance due to behavior, and paralysis often due to too many choices create roadblocks many have trouble overcoming.

Maybe the best gauge of investor success (or failure) might be whether they are ‘on track’ to a successful retirement, which some define as replacing 75% of preretirement income at age 67.

According to one study – I think it was conducted by Mass Mutual – revealed that only 15% of American workers are ‘on track’.   Even without my HP12-C, it’s obvious it obvious then that 85% are not.

It’s not rocket science.  It’s about three simple components:  time, savings rates, and return.   But, time is the only component that constantly declines; and, as it does, it creates pressure on the other two to outperform.  That’s when mistakes are likely to happen.

When procrastination behavior reduces the available time, most of the pressure then falls on investment return, simply because most people feel limited regarding how much they can save.

This may be why some people reach a point where they begin making the risky choices they soon live to regret.   Investment mistakes can be committed by anyone – I even once met a CPA who didn’t know the difference between gain and yield.

But then, you wouldn’t want me doing your taxes, either.

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Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.

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