A fundamental problem with most 401(k) plans is that they are not “retirement” plans. They stop when an employee retires or leaves employment.
While plan sponsors and their consultants have the resources and knowledge to craft post-retirement solutions, they rarely do so for a variety of reasons.
This leaves the employee with no clear path to a successful retirement.
If plan sponsors don’t step up, then the government ought to step in with recommended post-retirement default options. The government, together with plan sponsors and employee groups, need to give as much thought to the retirement stage as to the enrollment stage.
With the lead story in the personal journal section of WSJ, a story in the Economist, and many trade stories like this one, it’s hard to avoid reading about so-called “robo-advisors.”
Here’s my take:
It’s a positive development for individual investors (like you and me), and probably a poor investment for investors in these companies – at least in the short run.
Lower fees with reasonable asset allocation models and tax harvesting are positive things for consumers with taxable savings.
However, it doesn’t do much for Baby Boomers approaching retirement with most of their savings in 401(k) or IRA accounts.
Wealthier clients with wealth transfer objectives require a “hybrid” model that employs both trained advisors and more sophisticated algorithms.