Realistic Dream Starter Workshop Project

The retirement industry’s approach to 401k education – presented to millions of employees for 40 years – is the largest failure ever of adult education.

What does failure look like?

Half of 401k participants
age 65 and older
— graduates of 401k education —
can count on 
less than $200 a month income
from their 401k “retirement” plan.

That’s because their account balances are below the mid-point (median/halfway point) of the account balances of other participants in their age group. (Fidelity’s age 65+ median account balance in 2022 of $55,300 times 4% [withdrawal rule of thumb] is $2,212 a year…$185 a month.)

Failure From the Start

I’ve been a critic of 401k ed since the early 1990s because:

• It provides no realistic, understood, and believed future account balance target participants want,
• It lacks essential adult-learning principles and competency definitions,
• It is delivered by un-trusted “experts” who tell financially inexperienced adults what to do (telling is a terrible adult-teaching approach), and
• It does not motivate participants to make the sizeable contributions necessary to pay for the future financial lifestyle they want.

A Better Approach?

I’m familiar with basic education principles – but I’m not an expert. Yet I’m creating the Realistic Dream Starter Workshop as a “rough draft” of how 401k ed could be improved.

The first principle of the Dream Starter is to eliminate for future retirees the biggest regrets existing retirees have of using a 401k – starting too late, contributing too little, and taking money out before retirement.

The Workshop consists of:

• Competencies – statements of specific knowledge and behaviors that enable young employees to begin the career-long purchase of the future financial lifestyle they want – this is the foundation of the program’s curriculum,
• Invitation – the meeting announcement and a contest entry form designed to get employees thinking about their future financial dreams,
• Learning Materials – a 90-minute, “live” interactive meeting conducted by someone they likely trust – using the scripted presentation, “Do You Really Want to Work Forever?”
• Personal Future Lifestyle Price Worksheet – a future income projection employees complete individually to discover the realistic price of the largest purchase they will want to make – their retirement. (Something 80% of adults do not know.)
• Questionnaire – a short, multiple-choice test that helps indicate which employees have – and have not – started acquiring the competencies.

The Dream Starter program addresses three critical questions:

• What is the minimum knowledge employees must have to start using a 401k successfully?
• How will ed providers determine if employees have this knowledge?
• How do plan sponsors select and manage 401k ed providers to ensure they help employees acquire this knowledge?

Dream Starter is intended to turn young employees into future income consumers who – throughout their careers – will want to learn more about how to buy the future financial lifestyle they want.

High Trust – No Telling, No Selling

The program is delivered by a known, trusted person (either a current employee or recent retiree) so employees know they are not being “sold” something. The program does not use a funny computer character or other cute animation to disguise the ineffective approach of telling employees what to do. Instead, the program uses thought-provoking questions and proven learning techniques to help employees discover the realistic price of the future lifestyle they want. They also discover what they need to do to have an account balance that will pay for it. The program does not use “black box” calculations for the “illusion of precision.” For young employees, personally meaningful, understandable, and realistic concepts are more effective than seemingly sophisticated, assumption-laden “calculations” of amounts 30 or 40 years into the unknowable future.

Simple-to-Understand Concepts

Dream Starter is designed for “non-numbers people” – the 50% or more of US adults who struggle to calculate a tip, miles per gallon, or interest on a loan. It is not for the numbers-loving finance and investment pros who are unlikely to attend this “basic 401k” meeting.

The program is jargon-free. And, there’s no mention of “retirement” – something young employees may wrongly believe they can postpone preparing for until their 40s. And because it’s for young employees for whom contributing is currently more important than deep investing savvy, there’s no mention of the efficient frontier, smart beta, market capitalization, or other investment lingo. An investing ed program will become more important as employees build their accounts.

It’s Only an Example

I’m investing some of my spare time in developing the program. It is currently paper-based, but future iterations would likely become electronic media.

Certainly, there’s room for improvement in my draft of the Dream Starter program. But unlike existing programs, it hasn’t yet been proven to be a failure.

Perhaps Dream Starter will nudge the retirement industry to action. The industry should gather leading authorities in adult education, instructional design, cognitive science, and other learning-related academic fields to create and test more 401k ed demonstration programs.

Employees deserve an education program that works!

More information about the Dream Starter program is HERE.