Broker Check

December 2019: 401K - Do It Yourself Retirement

December 20, 2019

401k - Do It Yourself Retirement

It’s not that 401(k) plans are necessarily bad, it is just important to understand that if you are counting on them to provide you with a reliable, consistent, lifelong retirement income you are going to have to do-it-yourself.

When it comes to how the money in your plan is invested, it is your responsibility to try to pick the best options from those offered. If you want this money to provide an income, in a certain amount and for the rest of your life, it is you who must find a way to make that happen.

  • Social Security and Employer Pensions mean: protected, lifelong income.
  • 401(k) type plans mean: do-it-yourself investments that are either protected or unprotected depending you your choices.

How much income they provide, and for how long is unprotected and based on your skill as an investor and money manager.

Baby boomers are the first generation that has been forced to deal with the widespread transition from the once common protected pension plans to the do-it-yourself 401(k) type plans.

Unfortunately, when it comes to do-it-yourself investing, there is a great deal of evidence showing that many people haven’t done so well.

DALBAR Inc., a respected market research firm located in Boston, has been reporting the annual results of its Quantitative Analysis of Investor Behavior research for almost two decades, and the results always indicate that individual investors consistently underperform both the equities and bond markets by a wide margin. And this is true during both good and poor economic periods.

Their report covering the 20-year period ending with the particularly devastating investment year of 2008 is even more disturbing, saying, “Equity fund investors lost 41.6% last year, compared with 37.7% for the S&P 500 Index.”[1]

So, during a year when the stock market was down 37.7 percent, the individual investor actually lost an even greater 41.6 percent.

How does the individual investor do during years when the stock market performs better?

DALBAR Inc., found that from 1986 to 2015 the average investor substantially underperformed compared to the S&P 500. Over 30 years, the S&P 500 returned 10.35%, but the average investor return was just 3.66%.

What is responsible for this underperformance?

There is much evidence to support that the challenge of do-it-yourself investing is that our emotions can easily get in the way. The emotions of the typical individual investor cause him or her to buy and sell at the wrong time.

But being a good investor is only half the battle. Once retired, the participant must now also figure out how to turn what she has accumulated in her do-it-yourself 401(k) type plan into reliable, consistent, lifelong income.

Few things will be more important than your future retirement. And the way time flies, it will happen before you know it. We can help you plan for the inevitable.

I’ll teach you what you need to know about the cornerstones of building a secure and enjoyable retirement.

  • Maximizing Social Security
  • A Tax Wise Retirement
  • Implementing Guaranteed Lifetime Income streams
  • Legacy Creation

Retirement could mean decades without a paycheck. Will you be prepared? How much will you need to save? Could taxes, inflation and rising health care expenses derail your plans for a secure and enjoyable retirement? Our personalized retirement analysis can help you get answers to these and other important retirement questions while you still have time to address the challenges.


Gary Pevey, CLU ChFC