Although most employees realize the benefits of participating in their employer's 401(k), many fail to act because they simply don't know what to do. They want a clear retirement strategy they can easily implement; one that has a realistic chance of achieving their personal retirement goals. K4 Plan Goals uses a different approach to address the retirement savings problem. Rather than calculating the results of the participant’s trial strategies, K4 Plan Goals actually solves for the complete, optimal retirement strategy for each participant, eliminating frustrating iteration and time-consuming inputs.
THE RETIREMENT STRATEGY EFFICIENT FRONTIER
|Each puzzle is a complete solution combining savings rate, expected retirement age, expected income replacement, and investment risk as weighted by one particular participant. K4 Plan Goals solves for the strategy with the highest level of satisfaction and at least a 75 percent probability of success (the highlighted combination).|
There are thousands of combinations of savings rates, retirement age, retirement income, and investment risk. When weighted by importance, each combination has a probability of successfully achieving all goals. If you plot all the possible combinations based on probability of success and the participant's satisfaction, you would have a series of points as illustrated by the chart. Each puzzle icon represents one complete strategy for retirement age, income, savings rate and investment portfolio. Those nearest the red line are the ones with greatest satisfaction at the various levels of probability, forming an "efficient frontier" of retirement plan strategies. The combination that comes the closest to meeting all of the participant's weighted objectives -- particularly those with the highest priorities -- is the preferred choice. In this case, the one highlighted in red is this participant’s optimal strategy.
TRADITIONAL RETIREMENT CALCULATORS FALL SHORT
Participants are often given calculators to help with their retirement strategy. They input their current savings rate, investments, and goals and the calculator returns a probability of success. Others assume a particular probability and return how much needs to be saved or how it should be invested. However the results are expressed, it is up to participants to come up with trial solutions, run the numbers, and then estimate their satisfaction with the results. If not pleased, they can test other combinations until they find one they can live with. They are, essentially, searching through all of the various possibilities illustrated on the chart. Given enough time and patience, they may find an efficient strategy, but even if they do, they can't be sure. In many cases, frustrated participants either abandon the process or lack enough confidence in the results to take action. Frustration with this process is not surprising, but it can be eliminated with K4 Plan Goals..
K4 PLAN GOALS SOLVES FOR THE EFFICIENT STRATEGY
K4 Plan Goals starts with the same participant inputs, weights them by the participant's priorities, and couples them with the available investment options to run hundreds of Monte Carlo simulations. With K4 Plan Goals, each strategy combination is analyzed for both satisfaction and success based on the participant’s unique set of objectives and priorities. The result is the participant’s optimal solution -- the one complete strategy with greatest satisfaction and acceptable probability of success (i.e. the highlighted strategy on the chart). No additional trial and error is needed because this is the participant’s best, complete strategy.
PARTICIPANTS TAKE ACTION
Because K4 Plan Goals solves for the participant's optimal strategy with the precise actions needed to make it happen, it eliminates the need for iteration and guesswork effectively removing these barriers to action. Participants are willing to act because they have a clear action plan leading to outcomes that meet their personal goals and priorities..