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The 401k Race is a Marathon
You Can’t Sprint Your Way to Retirement
To succeed in the 401kRace, it takes consistent savings activity over an extended period of time. It is a marathon, not a sprint.
100 Meters is a Straight Line Sprint; Retirement is at the Finish of a Winding Road Marathon
The 401kRace is a marathon – a distance race, decades in length. Unlike a 100-meter sprint, you can’t see the finish line when standing at the start. And, the retirement race is never run in a straight line.
Can you imagine your retirement? Imagination is the ability to envision in your mind what you cannot at present see with your eyes. To succeed in most races, including the 401kRace for retirement, you must run it twice - first envision it in your mind, then execute.
I started my own retirement race in December 1973. My new employer offered a defined benefit pension plan. I left there in June 1978 – before vesting. Then came a series of positions, one for 15 months, the next for 4 months, and then one for 3 years. Starts and stops, stops and starts.
Most American workers have had and will continue to have a similar career journey. It has always been the exception where an individual works his or her entire career for a single employer. In 2016, the median tenure of all American wage and salary workers age 25+ was 5.1 years. This has remained mostly unchanged over the prior 33 years (5.0 years in 1983).1 Median means middle – an equal number of workers had tenure of less than 5.1 years as those with tenure of more than 5.1 years. However, medians may be misleading. Most workers, myself included, have had a succession of employers with less than 5 years - I left twelve of my thirteen employers before completing five years of service. So, prior to 1989, my accrued, vested savings were next to nothing. It was “churn baby churn.”
However, times change. These days, if your employer sponsors a 401k plan, you are more likely than not to be automatically enrolled, to receive an employer match or safe harbor contribution, and to vest in the employer contribution as soon as participation starts. Further, even with a modest or slow start, today’s 401k plans more often than not include provisions to pick up the pace of savings (escalation) as employment continues.2 In other words, many successfully run the 401kRace even when their working career is a succession of short periods of employment with many different employers.
Begin With the End in Mind – Early Money Is Pure Gold3
If you are saving in a 401k plan and/or an individual retirement account (IRA), success is much more likely if you can envision the race and if you start early. Consider the following comparison:
If you start saving earlier, you generally won’t need to save as much. Here is a comparison – someone who starts at age 25, saving $10,000 a year for 15 years compared to another who delayed, and didn’t start saving until age 35, saving the same $10,000 a year, but for 30 years. Both calculations assume a 6% earnings rate.
Many Start Slowly, Then Accelerate. Keep Moving – No Matter What!
As noted above, in the retirement race, it is best if you start early. But, some start slowly with a modest level of savings and, as the 401k Race continues, workers often increase their savings rate.
A trick I learned in preparing for my first marathon was to start further back, not to sprint out of the gate, and, as the race progressed, to focus on the runner in front of me, then increase my pace to gradually catch and pass them – to “reel ‘em in.”
Ever see someone run the wrong way? If you ever do, I guarantee you’ll never forget.4 In the 401kRace for retirement, too many people actually turn around and run back towards the start. We call that leakage. It happens when people take hardship withdrawals, or pre-retirement, post-separation distributions. Believe me, a distance race, a marathon, is far enough even when people don’t turn around and retrace their steps.
My race “team” also taught me to always keep moving – even after finishing the race. If you can’t maintain your pace, slow to a jog or a walk, but don’t stop. You’ll run into challenges along the way such as unanticipated bills, employers who don’t sponsor a plan, etc. If that happens to you, use the Individual Retirement Account to keep moving and keep saving.
Finally, for most of us, we will be a retirement fund saver for 30 or 35 years or more, and we will be a retirement fund spender for 20, 25, or 30 years or more. But, we will always be a retirement fund investor – investing doesn’t stop when retirement starts. So, keep moving and keep investing.
PSCA is a sponsor of the 401(k) Race for Financial Fitness. Plan sponsors and 401(k) professionals interested in running should consider participating. Click here for more information.
1Craig Copeland, Employee Tenure Trends, 1983–2016, Employee Benefit Research Institute, September 2017. Accessed 20180325 at: https://www.ebri.org/pdf/notespdf/EBRI_Notes_v38no9_Tenure.20Sept17.pdf
2PSCA, 60th Annual Survey, 2018, See: https://www.psca.org/PR_2018_60thAS
3James R. Covey, The 7 Habits of Highly Effective People. Habit 2: Begin with the end in mind.
4 Jim Marshall, Minnesota Vikings, October 25, 1964, Accessed 20180325 at: https://www.youtube.com/watch?v=PWrUiRvvBmw