How to overcome the ‘financial vortex’ to save for retirement

According to the Goldman Sachs report, retirement savings and investment advice are consistently valued by all types of investors, from do-it-yourselfers and passive investors to investors who rely on advice.

For those with access to planning resources and tools, Ceder says it’s a matter of ensuring plans take into account an employee’s unique circumstances. How do we take into account the different aspects of an individual’s life? For example, do they have a spouse, other assets, or family members they are responsible for? According to Ceder, all these elements play a role.

Ceder also said that creating a plan is not a one-time exercise.

If you’re 25, it may make sense to start with a basic plan. But as you reach the height of your career, juggle family responsibilities, or find yourself part of the sandwich generation caring for both children and older family members, it becomes critical that that plan adapts and grows with changing circumstances.

“What’s most important to me is having that planning mentality,” Ceder said. “I almost think of it as a behavior that will really evolve and grow as your life changes, but always keep an eye on what you need to do for the future.”

Ceder noted that 401(k) plan sponsors often do not have a comprehensive, 360-degree understanding of the employee’s overall financial situation – such as additional assets, accounts, liabilities and related factors – beyond the basic details.

“401(k) plans, as great as they are, are generally limited to what they know,” he said. “They actually know the account [they] have access.”

Ceder said employees need to learn more about alternative investment options, such as private equity, private credit, private real estate and managed accounts.

There is a growing focus on personalization and diversification, he said, noting that target-date funds are useful, but they are designed for averages. Ceder explained that alternative investments and managed accounts better tailor portfolios to individual needs, which can help maximize returns and ease savings pressures.

For some, a target date fund may be enough if their financial journey is on track. But “if they get off course, if they fall behind, maybe [they] need a more personalized solution to get them on track.”

Read more: 401(k) vs. IRA: The Differences and How to Choose Which One Is Best for You

The rule of thumb, Ceder said, is that a person saves 15% between the ages of 25 and 65, and that, plus investment returns, is what gives you enough savings for retirement. But achieving an additional 50% return on a multi-asset portfolio essentially equates to a 1% savings, he said.

“This underscores the importance of plan sponsors and advisors doing more to create portfolios that are designed for the long term,” Ceder said. “We know that it is necessary to help reduce some of the pressure on the savings side.”

Technology will continue to play a major role in helping employees save for retirement. Digital tools can ensure that everyone has access to quality service, allowing advisors to intervene for unique scenarios.

And artificial intelligence may be able to help plan participants understand their investment options or answer questions. However, current regulations make it difficult to determine whether AI can be used to provide financial advice to 401(k) participants, Ceder said.

Some companies are moving toward offering services that represent an employee’s complete financial picture. But that’s the “holy grail of retirement,” Ceder said. It is the challenge that companies are working on.

Every Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan your future Decoding retirement. You can find more episodes on our videohub or check your favorite streaming service.

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