WEBVTT - How Economic Headwinds Impact Retirement Savings

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<v Speaker 1>These sees Bloomberg Business Week with Carol Messer and Tim

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<v Speaker 1>Stenevic on Bloomberg Radio. All right, so we've been talking

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<v Speaker 1>a lot. You and I talked about this just earlier,

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<v Speaker 1>the average four O one K account. This was from

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<v Speaker 1>Fidelity Law losing about a fifth of its value in

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<v Speaker 1>twenty twenty two. We know that we know what happened

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<v Speaker 1>with the stock market, certainly in twenty twenty two, we

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<v Speaker 1>talked about it never ending. We had that mly Pulse

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<v Speaker 1>survey this week Global Investors right saying that if you

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<v Speaker 1>want to retire comfortably, you're going to need between three

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<v Speaker 1>and five million dollars. We have a great guest to

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<v Speaker 1>talk about a lot when it comes to retirement, Where

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<v Speaker 1>to put your money. Yes, we are very lucky to

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<v Speaker 1>be joined in our Bloomberg Interactive Broker studio. Sorry, guys ahead,

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<v Speaker 1>trouble getting my words out there with David Musto. He's

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<v Speaker 1>president and CEO of a Census, an independent record keeping

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<v Speaker 1>services company and third party administrator of retirement plans, among

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<v Speaker 1>other things. And David is joining us now. David, thank

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<v Speaker 1>you so much for coming in to talk with us

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<v Speaker 1>about probably like the most important decision we all may

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<v Speaker 1>get how much money to say, agreed and thrilled to

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<v Speaker 1>be here. Tell us what's top of mind for you

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<v Speaker 1>right now. Well, you know you talked about people's accounts

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<v Speaker 1>being down, and that's true. But really the important takeaway

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<v Speaker 1>is we need to be consistently saving over time and

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<v Speaker 1>increasing our saving over time to really set ourselves up

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<v Speaker 1>for a successful retirement. One of the things that's been

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<v Speaker 1>great to see is that there's been a lot of

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<v Speaker 1>consistency and resiliency in the American saver So despite all

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<v Speaker 1>of the headwinds, despite everything that's going on in the environment,

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<v Speaker 1>so even through the pandemic, is even through the pandemic,

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<v Speaker 1>the average contribution to four one K plans has remained stable.

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<v Speaker 1>We haven't seen very high numbers of people taking loans,

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<v Speaker 1>we haven't seen significant increases in the people taking hardship

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<v Speaker 1>with royals. There's been some slight increases, but on the

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<v Speaker 1>margin you're talking about one to two percent of participants

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<v Speaker 1>and plans is it's because a lot of people who

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<v Speaker 1>have for one K plans through their work, a lot

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<v Speaker 1>of those people stayed employed, a lot of those people

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<v Speaker 1>stayed employed, and we've been well trained. Think about the

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<v Speaker 1>last couple of decades right dot com bubble burst, two

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<v Speaker 1>thousand and eight, two thousand and nine, financial crisis, people

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<v Speaker 1>have been learning that staying put right, being consistent, continuing

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<v Speaker 1>to save over time is the best way to see

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<v Speaker 1>through those difficult periods. So it's really good news. Now,

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<v Speaker 1>the bad news is we have twenty five percent of

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<v Speaker 1>Americans that don't have any retirement savings. Right, about forty

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<v Speaker 1>percent that would say they're not on track to a

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<v Speaker 1>successful retirement. And guess what, that number is probably low.

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<v Speaker 1>There's probably more people that truly aren't on track. It's

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<v Speaker 1>fifty five million Americans that don't have access to our

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<v Speaker 1>workplace retirement program. Well, this was going to be my

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<v Speaker 1>question for you about pandemic saving. You mentioned those of

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<v Speaker 1>us who were lucky enough to keep working and saving,

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<v Speaker 1>But I wonder if you have any insight into the

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<v Speaker 1>data about those people who were like really struggling through

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<v Speaker 1>the pandemic. Did they cut back on their for one

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<v Speaker 1>case savings or were those folks already not saving? Yeah,

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<v Speaker 1>we've seen the people that are on track and saving continue, Yeah, right,

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<v Speaker 1>buying large. We have seen people saving for other purposes

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<v Speaker 1>outside of retirement, beginning to decline somewhat. So five twenty

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<v Speaker 1>nine education savings programs where you can put aside money

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<v Speaker 1>on a tax advantage basis for your kids education, We've

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<v Speaker 1>seen a slight downtick in the contributions that are going

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<v Speaker 1>into those plans. Many Americans are saying, well, if I

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<v Speaker 1>have a choice of putting money to my long term

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<v Speaker 1>retirement or doing tax advantage savings for my kids education,

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<v Speaker 1>I'm probably going to stick with the retirement and self

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<v Speaker 1>fund the education. Is it a choice or is it

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<v Speaker 1>a case of demographics or Well, for right, like, does

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<v Speaker 1>everyone know about savings? Well, so a great question. Forty

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<v Speaker 1>percent of the people that should know about tax advantage

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<v Speaker 1>savings for education don't. I've never heard of five twenty

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<v Speaker 1>nine programs, so big upside opportunity for take advantage of.

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<v Speaker 1>Now there's Americans that have the discretionary income to be

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<v Speaker 1>able to maximize their for when K plan, maximize their

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<v Speaker 1>five twenty nine education, maximize their health savings account, which

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<v Speaker 1>is going to be increasingly important for people as healthcare

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<v Speaker 1>healthcare costs increase in retirement. There's a lot of other

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<v Speaker 1>people that do need to make a choice. I was

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<v Speaker 1>just going to say to be fair. We talk so

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<v Speaker 1>much about our economy that it is really built on

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<v Speaker 1>the backbone of a lot of small businesses, which I

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<v Speaker 1>don't necessarily assume. I mean in small businesses can be

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<v Speaker 1>a handful of people to more than a handful of people.

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<v Speaker 1>It's quite a range. But I do wonder in the

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<v Speaker 1>small business community, do you increasingly see that they're being

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<v Speaker 1>offered up for a one ks to their employees, because

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<v Speaker 1>I do feel like as a result of that, a

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<v Speaker 1>lot of people get left out. Yeah, that's because how

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<v Speaker 1>do they do it? You're a spot on. That's where

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<v Speaker 1>the challenge has been the fifty five million plus Americans

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<v Speaker 1>that don't have access to a workplace plan or probably

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<v Speaker 1>working for a small company. Companies with fewer than fifty

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<v Speaker 1>employees or so, probably only fifty percent of them or

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<v Speaker 1>fewer offer a four oh one K program or some

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<v Speaker 1>other define contribution program. So there's a lot happening right

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<v Speaker 1>now to try and create a better environment for small

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<v Speaker 1>companies to start programs. You just saw the Secure two

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<v Speaker 1>dot O Act, which was passed by Congress in December

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<v Speaker 1>of last year, which created tax incentives for business owners

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<v Speaker 1>to start plans. They can actually get a credit for

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<v Speaker 1>the full set up cost of a new four oh

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<v Speaker 1>one K plan and also get credits up against matching

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<v Speaker 1>contributions for employees. That's a big deal. That's interesting because

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<v Speaker 1>I think the cost is the match right, That is

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<v Speaker 1>a component. There's also startup costs though, are getting a

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<v Speaker 1>plan off the ground to listen in the total scheme

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<v Speaker 1>of things, No, it could be a couple of thousand

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<v Speaker 1>dollars four thousand dollars, you know, on an annual basis

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<v Speaker 1>for a very small company to be able to offer

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<v Speaker 1>a program, and they could do it considerably less expensively

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<v Speaker 1>as well. There's also in the small business community because

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<v Speaker 1>of the focus on building that business and making sure

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<v Speaker 1>that it's successful, less of an understanding of some of

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<v Speaker 1>these these opportunities, and the environment has become a lot

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<v Speaker 1>better to start up a program. I'm assuming a tight

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<v Speaker 1>labor market has something to do where companies have to

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<v Speaker 1>think about what they're offering up about you'd better believe

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<v Speaker 1>it right. So now the competition for talent, we see

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<v Speaker 1>this when we talk to our clients. They say, the

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<v Speaker 1>first question I'm getting asked, or one of the first

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<v Speaker 1>questions from perspective employees is tell me about your benefits.

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<v Speaker 1>Tell me about your four O one K plan. How

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<v Speaker 1>big is your match? Yeah? Have you done that as

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<v Speaker 1>you've popped around to different companies? Yeah, I mean before

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<v Speaker 1>you came to us and then they were like, whoa, well, yeah,

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<v Speaker 1>I came here my forever home of course. But before that,

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<v Speaker 1>you know, I was working in media and I've worked

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<v Speaker 1>at places where there they think it's hilarious that someone

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<v Speaker 1>would ask for a match, you know what I mean.

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<v Speaker 1>But it's really hard because how to stay at a

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<v Speaker 1>company then is as employees, you know, start to grow up,

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<v Speaker 1>We're like, you're forcing me to quit, you know. So

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<v Speaker 1>it's it's such a critical thing, the retention aspect. I

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<v Speaker 1>would imagine they save on retaining talent. Yeah, for sure.

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<v Speaker 1>People are saying that significantly. And you know, another point

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<v Speaker 1>here is particularly for younger workers, people entering or starting

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<v Speaker 1>their careers, get on the right path to saving inertia

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<v Speaker 1>is a powerful thing and it's and it's a very

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<v Speaker 1>negative thing if the inertia is in the wrong direction.

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<v Speaker 1>So a big thing right now in our market is

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<v Speaker 1>auto features and plans. When someone joins a company, they're

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<v Speaker 1>automatically enrolled in the four oh one K plan, and

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<v Speaker 1>their contributions are automatically escalated each year, and the individual

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<v Speaker 1>can say, hey, listen, I want to stop. But once

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<v Speaker 1>people are exactly and once people are on that path,

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<v Speaker 1>eighty percent of the people stay on the path. This

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<v Speaker 1>is something that my friends and I have talked about

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<v Speaker 1>a lot. With inflation being what it is, and especially

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<v Speaker 1>in New York City, with apartment rents being what they are,

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<v Speaker 1>a lot of my friends said, I have to decrease

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<v Speaker 1>my four oh one K contribution to be able to

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<v Speaker 1>afford my groceries right now. Are you seeing that, particularly

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<v Speaker 1>in the millennial age group like twenty to thirty is decreasing. Yeah,

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<v Speaker 1>we see, Um, we see that younger cohortum challenge with

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<v Speaker 1>that kind of a decision. Yeah right, um. And our

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<v Speaker 1>advice right is to yes, you need to provide for food, clothing,

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<v Speaker 1>and shelter, but if you're going to make sacrifices and compromises,

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<v Speaker 1>that's probably the place to do it, not starting the

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<v Speaker 1>proper path to long term savings, because it's gonna have

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<v Speaker 1>a tremendous impact on your life and on the financial

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<v Speaker 1>security of your family longer term. It is amazing. My

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<v Speaker 1>mom was like, pay yourself first. But there is something

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<v Speaker 1>about teaching kids so they start early because if you

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<v Speaker 1>really start early, over time, it's amazing how it grows

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<v Speaker 1>and it makes it easier. The discipline is important. We

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<v Speaker 1>have a app, as many companies do, and when we

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<v Speaker 1>have a participant in a four when K program go

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<v Speaker 1>in to decrease a contribution rate, we will show them

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<v Speaker 1>a projection of what that extra couple of hundred bucks

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<v Speaker 1>means in terms of income. Right when when you're fifty

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<v Speaker 1>five or sixty and guess what, thirty percent of the

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<v Speaker 1>people who thought they were going to reduce their contribution

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<v Speaker 1>don't do it. It's very motivating to see what a

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<v Speaker 1>bad decision it is. Right, it's amazing you play around

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<v Speaker 1>the numbers. Ours does the same thing and you're like,

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<v Speaker 1>oh okay, so really part important. This is such an important,

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<v Speaker 1>you know topic because I feel like we've been talking

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<v Speaker 1>about financial literacy for such a long time, but it

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<v Speaker 1>is really important in terms of, you know, a person's

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<v Speaker 1>financial future, especially when you don't have companies offering a

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<v Speaker 1>pensions anymore. You bet, And that's why workplace programs are

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<v Speaker 1>so important because I hate to say it, education doesn't

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<v Speaker 1>work all right, David, we gotta run, come back soon.

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<v Speaker 1>David Musto, President CEO of a Census, joining us in

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<v Speaker 1>studio