Medicine Works Best When Taken

November 4th, 2010
by Jonathan Leidy

It sounds obvious.  But how many of us have taken the time to go to the doctor’s office, only to leave with a prescription that we never bother to fill.  Or worse, how many times have we fallen ill, but felt too busy to even bother going in at all.

That behavior is not unique to how we maintain our health, according to a new survey released this month by Charles Schwab & Co. entitled “The New Rules of Engagement for 401(k) Success.”  Individuals participating in their company sponsored 401ks, despite feeling a little queasy when it comes to assessing their current retirement readiness, appear unwilling to take the antidote, even when provided.

The Schwab study polled over 1,000 plan participants across 900 companies, who en masse expressed a general feeling of unpreparedness when it comes to retirement (79%).  So it stands to reason that when these same participants were then asked if they would value professional investment advice, a majority of them, 55%, responded “Yes.”  However, when employees of companies who make advice services available to their participants were polled, only a meager 10% of participants were actually using them.

Why are so many plan participants unwilling to get their “investment prescriptions” filled?

  • 27% say they are getting financial advice elsewhere outside of the workplace.
  • 26% say they have more immediate concerns, such as day-to-day financial matters.
  • 23% don’t think they have saved enough money to warrant spending time to get help.
  • 49% want to have more than $100,000 saved before taking the time to get advice.

However, this issue may be less related to the medicine, and more to the method of delivery.  Specifically, although a majority of plan sponsors surveyed are providing access to professional advice, there are still several “spoonfuls of sugar” that can be employed to potentially enhance adoption.

  • Face-to-Face Advice: “professional advice” can take on many forms, but few are as desirable as one-on-one, in-person consultations.  Of the participants polled 51% said that face-to-face advice was their preferred method of obtain advice.
  • Impartial Advice: according to the survey, 74% of participants trust personal financial advisors when it comes to obtaining impartial retirement advice.  This figure is significantly larger than the 59% who said they had faith in the abilities of major financial institutions to do the same.
  • Educational Advice: most people are not aware of how under-saved for retirement they truly are.  By increasing the education effort around the need to save for retirement, a dramatic increase in savings rates would likely ensue.  75% of those studied who procured advice subsequently increased their savings rate by ~100%, on average.
  • Compulsory Advice: making advice mandatory would ensure that participants were, at minimum, being exposed to some of the important concepts surrounding retirement.  A laudable goal for a plan sponsor might be to make sure that their employees received a 30-minute consultation at least once every 3 years.  Perhaps even associating it with a reward, like an extra day off, might do the trick.

In all, it’s clear that individuals are prone to ducking the retirement doctor.  To remedy this issue, plan sponsors need to leverage the available tools and research to their advantage.  At the end of the day, it’s far more important that participants take their medicine, than simply having it made available.