Retirement chatbot tells the real story about investors' greatest retirement questions

When it comes to 401(k)s, investors need more help with the basics

Dec 6, 2018 @ 1:37 pm

By Ryan W. Neal

If clients could ask any single question about retirement without any fear of judgment or embarrassment, what would it be?

Contrary to what many advisers think, or hope, investing advice is far from their top concern. What people really want is help understanding the basics of how a 401(k) works, according to data collected by Dream Forward Solutions, a turnkey retirement plan provider.

Dream Forward analyzed three years' worth of questions that plan participants asked its online retirement chatbot. The majority of questions were about how 401(k) accounts work, such as "how does my money get from my paycheck into this account?"

(More: Fintechs aiming AI at advisers)

The chatbot also received a lot of questions about financial planning, tax rules and financial jargon.

Inquiries about investment options available in plans accounted for 10% of questions received, the lowest rate of any category tracked by Dream Forward.

Rollovers and understanding employer matches were frequent questions, but the topic causing the most confusion appears to be the process of withdrawing money from a retirement account. Investors struggle to wrap their heads around the differences between in-service withdrawals, 401(k) loans, early withdrawal tax penalties, hardship withdrawals and in-kind distributions.

"We assumed a lot of the questions the AI would get would be around investing, financial concerns and priorities," said Grant Easterbrook, a Dream Forward co-founder. "Actually, the complexities and headaches of managing your own 401(k) is a much bigger burden that people give credit for."

Even investors with a more advanced understanding of finance can have trouble navigating plan documents. They are often 150 to 200 pages long, written in language like, "For the period designated in AA 6-4 below, the employer will make the following employer contributions on behalf of participants who satisfy the allocation conditions designated in AA 6-7 below."

For the sophisticated its tedious, for the layman it's completely overwhelming.

(More: Why in the world isn't the 401(k) industry entirely digital?)

Along with macroeconomic forces such as the decline of pension benefits and stagnate wage growth, Mr. Easterbrook said this disconnect between financial literacy and overly complex 401(k) plans is a driving factor behind the growing retirement crisis.

"There's so much nuance in each plan … it becomes complicated to understand the options available to you," he said. "How can we make the system work to get the average Joe to save?"


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