A video from James Altucher—entrepreneur, blogger, hedge fund manager, among other titles—was posted on Business Insider with a message practically guaranteed to raise the ire of the retirement industry. The title? “Why investing in a 401(k) is a complete waste of money.”
Unsurprisingly, journalists and finance experts have rushed to attack Altucher and his line of thinking, but Jeffrey Snyder, vice president and senior consultant at Cammack Retirement Group, believes Altucher’s video brings up some good points. “I am not sure of Mr. Altucher’s experience in our industry, or in a 401(k) plan, or his motives for this video, but I always appreciate the perspectives of individuals outside the field of retirement/financial services,” he tells PLANADVISER. “Their input is essential to building a better and more successful U.S. retirement system.”
Snyder points out that while saving for retirement in itself can be straightforward—contribute enough money over a long period of time in a diversified portfolio, while keeping an eye on fees—the average retirement saver must also juggle a number of other concerns at the same time. Health care costs in retirement, housing and longevity are among the items an individual must think about for his own future, he notes, and procrastination is common.
Modifying people’s financial and savings behaviors is challenging. “We all procrastinate, whether it be adopting a more healthy lifestyle, doing domestic things around the house like painting the room, or saving for retirement,” Snyder says.
During the one-minute, three-second video, Altucher claims people have no idea what retirement plan providers are doing with their money. “They’re doing whatever they want, they’re paying themselves salaries… marketing fees,” he declares. Snyder takes the statement in stride, acknowledging its importance as well as its focus on recordkeepers, Federal regulators, plan fiduciaries, and advisers and consultants like Snyder himself. “It is considered a best practice for employers of all types and sizes to regularly benchmark their plan in the market to seek to reduce recordkeeping and asset management fees,” he says.
Benchmarking was the point of the fee disclosure rules in 2012, Snyder notes, adding that to some degree it has been effective in raising awareness that fees in a defined contribution (DC) plan actually exist. “Mr. Altucher references 12b-1 or ‘marketing’ fees,” Snyder explains. A good takeaway from the video for plan sponsors is how necessary it is to have greater oversight of their plans, and for participants to be better consumers. “It is a shared responsibility between both to help the individual arrive at a good place for retirement,” he says.
Next: Conspiracy theory?
Snyder is even less swayed by Altucher’s statement that the average mutual fund returns one-half of one percent per year, and that Millennials are better off stashing their cash in a bank account, given current Treasury yields. “I do not believe that is appropriate over the long term,” he says. “A diversified portfolio, a mix of equities and fixed income, may be a better alternative. It is always best for the individual to understand their financial goals and objectives, to plan accordingly, and determine where they should invest.”
Others are more forceful. Josh Anderson, a financial adviser with Raymond James, believes Altucher's argument comes across as a cavalier conspiracy theory, riddled with inaccuracies and lacking in common sense. “Understanding that he is a serial entrepreneur, I get the sense that part of his argument is to help individuals understand that there are other ways to invest in one’s financial future,” Anderson tells PLANADVISER, among them starting a business, improving skills or looking for multiple sources of income. Snyder agrees that people need to invest in themselves to grow and develop, both personally and professionally. “Life is a balancing act, and we need to think about ourselves today as well as our future self,” he says.
But Anderson calls out Altucher, who did not respond to repeated requests for comment, on inaccuracies and inconsistencies, especially his statements about investment returns, which “appear misleading.” Anderson notes that the number of variables inside workplace retirement plans can make it quantify average investor returns. However, Anderson points out, Vanguard’s research on the topic details rates of return for participants across its book of business.
“According to Vanguard’s data, five-year participant total returns averaged 12.7% per year or 82% cumulatively,” Anderson says. “Personalized total returns rose 13% per year or 84% cumulatively.”
Altucher doesn’t identify the “they” he refers to in his video, Anderson observes. “Who are ‘they’? Plan sponsors? Record-keepers? Consultants? Investment managers?” Nor does he acknowledge the economic benefit of employer contributions, matching or otherwise, which are often contingent upon employee participation and salary contributions,” Anderson says.
One element of Altucher’s argument Anderson finds himself in agreement with centers around the inability of younger professionals to conceptualize retirement. “Imagining or planning for something that is 25 to 35-plus years away is tough, to say the least,” he acknowledges. “But you really can’t start saving too early, and you generally can’t invest yourself out of a savings problem later in life.”
“I don’t agree that we should sacrifice our financial future and well-being (in the future) today,” Snyder says. “I think saving matters, whether that savings is in a 401(k) plan, individual retirement account, pension or bank account.”
If the video has some redeeming value, Snyder says he’s glad Altucher provided his thoughts around saving in a 401(k) plan: it could elevate the issue and inspire people to save more, while at the same time reinvesting time, effort and some money into themselves, and ensuring their financial independence.
The 401(k) plan might not be for everyone, Snyder says, “especially someone like Mr. Altucher, who is a successful entrepreneur and chess prodigy, among other things. But even with some of the loan and age restrictions on taking money out, this approach seems to work for many Americans with access to these plans.”