Retirement Savings Regrets

I’m sure we all have done things in our youth that we regret—or things we didn’t do for which we’d love to have a second chance. 

It may seem a small thing, but I’ve long regretted discarding some 18 months of piano lessons in my youth. It was just one of those days when my desire to play ball (and/or my reluctance to practice piano), and my mother’s repeated pressuring me to practice came to a head. She threatened to cancel the lessons—I basically dared her to do so—and (this wasn’t the first, nor only such confrontation) she (finally) called my “bluff.” It wasn’t all for naught—during those 18 months I had learned how to read music, and later applied that knowledge in band. But that was it for me and the piano, and to this day—when my kids return home and sit down to play—I wish that I had stuck with it.

I was thinking about that the other day, when I came across an article that expressed some regrets about retirement savings—but not the usual kind. Mostly when we read about retirement savings regrets, it has to do with things like not starting saving sooner, or not saving more—or both. But the young author of this particular post actually regretted the act of saving in a 401(k).
 
The author acknowledges that, “A 401(k) is a useful tool for many people to save for retirement, but it wasn’t the best choice for me at the time.” So, what were her regrets? 

First off, she began saving in a 401(k) that didn’t offer a matching contribution. It’s so common that employers do offer those matches it’s easy to forget that some don’t. In fact, according to the 62nd annual Plan Sponsor Council of America survey, the vast majority (82%) do—and those employer contributions add up. (The PSCA survey also found that the average company contribution in 401(k) plans is 5.1%.)

While not getting an employer match is surely disappointing, that’s not the only benefit to saving in a 401(k)—but this author figured (after checking in with a certified financial planner) that she might have been better off saving in a IRA, which would offer “a nearly unlimited universe of investment options,” and “much lower fees.” Now, we don’t know anything about the menu she had access to, nor what those options cost—it’s hard—though not impossible—to imagine she’d have been better off on her own. However, she apparently hadn’t focused on the pre-tax opportunities of that 401(k)—nor on the higher contribution levels available there.

Of course, she wouldn’t have bumped up against those limits—apparently she contributed “only about $1,000 to $1,500 a year”—a number that she now acknowledges wasn’t enough, though it hardly seems the fault of her 401(k).

The last mistake she made—was forgetting about it. Laid off shortly after opening that 401(k), she proceeded to find employment as a freelancer, then a small business owner, and—well, five years later when speaking with a friend, she “remembered” her 401(k) and that she “needed to do something with it.”

Now, as a small business owner, she’s now (wisely) opened a SEP, and rolled that 401(k) balance into it where she can manage all her retirement money in one place.

Ultimately, though, while it doesn’t make for quite as “snappy” a headline, it seems to me that the real regret might not be that she opened a 401(k) in her twenties—but that she opened that 401(k)—and didn’t stick with it.