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Are you a Saver?  How the 401(k) changed the Saver's World - February 13, 2017

By Cindy Mueller, CFP®

Financial Planner

I loved saving money as a little girl.  One of my favorite toys was a coin bank cash register.  It wouldn’t open until it reached $10 dollars.  With a small allowance, it took months until I could dump out all the change, organize and count it by nickels, dimes, and

quarters.  My Mom would take me to our local credit union to deposit all the coins into my passbook savings account.  Remember those?  So easy and simple.   This was the 60s, 70s, and 80s.  A simple time for our parents and grandparents. Between pensions and social security, most of their income sustained their desired lifestyles through these sources.  In addition, their homes were paid off and the cost of health care was in control.  They lived within their means.  Saving for the future would be for splurges like travel or even a vacation property. Savings accounts were paying 5.75% in 1986¹ and Certificates of Deposit 8%².  There were many options to save without taking any risk.


Now fast forward to today.  There is a savings crisis with 1 in 3 Americans saving $0 for Retirement, according to a GoBankingRates survey³.   How did our society morph from care-free to ill-prepared?   I would say it is from the creation of the 401k.  A little history; the 401k was part of a IRS code passed in 1978⁴.  Nothing was really made of it until the 80s when a benefits consultant wanted to use it for executives to shield income from taxes.  It took years for the 401k to become popular as a savings option, helped by the bull run of the 90’s as employees wanted to take part in the biggest stock market growth in history.  By 1996, assets in 401(k) plans surpassed $1 trillion, with more than 30 million participants⁵.  At the same time mutual funds took off because 401k’s needed investment options, which made it even easier for companies to implement and administer 401k plans.   For executives, this was one of the only ways that they could defer taxes on their income.  


The IRS didn’t want only the high income earners to benefit from tax deferral on the 401k contributions.  Safe harbor rules such as company matching and vesting periods were created to encourage the rank and file to also participate.  Those who were nearing retirement were feeling confident that nothing could derail their lifestyle.  Tack on the dot-com boom of the late 90s and the “irrational exuberance” as Alan Greenspan said, savers were starting to feel giddy about their investment prowess. ⁶


The rapid rise of technology in the 90s also changed the saving in retirement landscape. Many of the new IT companies didn’t need a pension plan to attract talent.  Instead, stock options became all the talk around the water cooler.   With the rapid rise of the stock market, even companies with a pension found it not necessary to take on all the risk of a defined benefit plan, but instead shifted the risk to employees with defined contribution plans, namely 401(k)s. 


The roaring bull market came to a quick end with the dot-com bust of 2000-2003, and then again with the Great Recession of 2008-2009.   A wake-up call that having too much at risk in the stock market could derail retirement, or worse, having to go back to work.  These concerns were not around in our parents and grandparents generation where market fluctuations only impacted the rich.  Now they impact anyone with a 401k – and especially those who have little else for income sources.   


The advent of the 401k not only benefitted the Mutual Fund industry, it also attributed to the growth of the Financial Planning profession.  Questions needed to be answered, such as “How much income can I take?” or “When can I retire?”  Savers with 401(k)s have sizable wealth that not only needs to be managed, but now needs to be methodically distributed back to the saver for the rest of their life.  Income, portfolio management, estate distribution, asset protection, and tax minimization are now the cornerstones for a financial plan.   


Whether you do-it-yourself, or hire a Certified Financial Planner ™ to help you, it is necessary now, more than ever, to have a plan in place.  Having your head in the sand and hoping for the best might work if you had retired in the 90s, but would have been devastating if you had retired in 2000.  You were told to save using your 401(k), and now that companies have eliminated pension plans, it has put retirement success in your hands. The difference between success and hope for the best is Activity!  Activity = Success.  Create a plan!




  3. See section 135(a) of the Revenue Act of 1978, Pub. L. No. 95-600, 92 Stat. 2763, 2785 (Nov  6, 1978).
  5. Said in a speech to the American Enterprise Institute:











Calculating Retirement - January 10, 2017

Yogi Berra once said, “You’ve got to be very careful if you don’t know where you are going because you might not get there.”1

When it comes to retirement, plenty of people get there — but it may not be what they expected because they either didn’t plan, or their financial strategy didn’t help keep them on the path to their goals. The difference between a satisfying retirement and one with financial concerns may be correlated with how early and how well you plan.

In some ways, what you may hear about creating a financial strategy for retirement can sound similar to the advice high school graduates receive when applying to colleges: Develop a strategy for your dream retirement, one that you are most likely to achieve, as well as a fallback option or two. And remember that retirement planning is personal, so you’ve got to do what’s right for you.

That means taking into account all the people you’ll need to provide for, your assets, your income and savings rate from now until retirement, your investment goals, your timeline, your tolerance for market risk … there’s a whole spectrum of things to consider. That’s one reason why it’s important to develop a relationship with a financial advisor who can help not just to develop a financial strategy, but to adapt that financial strategy as your circumstances may change. We can help you with that by creating a financial strategy that can help you work toward your long-term financial goals.

One of the first steps to retirement planning is figuring out how much income you’ll need once you stop earning a paycheck. Based on data gathered by the Bureau of Labor Statistics in 2014, the average retired household spends $40,938 per year.2

There are calculators on the internet that may help you determine if you are on track to have enough savings to provide for your retirement. If you’re trying to figure out how much your investments may possibly earn by the time you retire, try this Return on Investment calculator.

Want to figure out how much you would need to save to become a millionaire? This calculator lets you adjust your monthly savings to find out how much and how long that could potentially take, based on your savings and a hypothetical average return.

Once you’ve established how much you can potentially expect to accumulate by retirement, use a withdrawal rate calculator and required minimum distribution calculator to help determine approximately how long your nest egg may last.

Retirement planning is a complicated process because there are so many unknowns, like not knowing how long you’ll actually live. However, there are many tools available at your fingertips, and we are just a phone call away. Remember, it helps to figure out how much savings you may need to retire, so you can create a well-thought-out financial strategy.

These financial calculators are designed as informational tools to help you estimate answers to common financial questions. They are not intended to predict future returns or results, nor do they represent the performance of any specific investment or product.

Content prepared by Kara Stefan Communications.

1 Nate Scott. USA Today. Sept. 23, 2015. “The 50 greatest Yogi Berra quotes.” Accessed Nov. 7, 2016.
2 Emily Brandon. U.S. News & World Report. Nov. 3, 2014. “The High Costs of the Retirement Dream.” Accessed Nov. 29, 2016.

This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

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