I recently signed up for an online financial service my company offers as an employee benefit. I just couldn't get over the company's self-assessment options below!
How much of your income do you put towards retirement and savings?
A None
B 0.1% to 2.9%
C 3.0% to 5.9%
D 6.0% to 8.9%
E 9% and above
How is a 10% savings rate an A+?! What pains me is that folks genuinely trying to learn about financial independence are anchoring on this paltry rate.
I think you read too much in that question.
I guess many companies offer different options for contribution rates to their 401k plans, options in line with the answers above.
The financial advisor then needs to know which option the employee chose, or better- for most people: which option was the default, such that they can start advising you from there.
Most people choose the default option, very often the lowest rate offered. And in that case your company should be lauded for the far-sighted benefit they offer.
Thank you for your reply Panly!
For context, this financial service was separate from 401k planning. It was meant to be a holistic financial planning service.
I absolutely agree. The intent was good. Unfortunately, the impact of this unconscious bias could be massive. If someone who could save 50% was convinced by the program to save only 10%, the impact on their financials would be devastating long-term. The working years to retirement balloons from 17 to 51!
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/Assuming someone starts on this path after graduating from college at 22 years old, that's the difference between reaching financial independence at 39 and 73!
It doesn't seem like a stretch that people going through this program could lower their savings rate. If the max savings is >9%, then this "professional" financial service will never recommend saving more than that. Employees will think they're set saving 10% and prioritize other antimustachian spending. They'll rent their own place instead of continuing to live with roommates, buy a new car, wear fancy clothes, upgrade to the latest superphone, go out more for drinks/meals... Before long, they'll find themselves stuck on the hamster wheel of consumerism. Good for the employer, bad for the employee.
Come to think of it, I wish retirement plans were required to post timeline estimates like credit cards are. "If you make the minimum 10% saving payment, it will take you 51 years to pay off your retirement balance."