Overconfidence Can Kill Your Retirement Planning

A new survey of retirement plan participants finds that being overconfident in one’s financial knowledge may be hazardous to retirement planning.

Jul 12, 2014 at 11:04AM

Eight in 10 millionaires fully expect to have sufficient income to live comfortably during retirement, according to a 2013 Spectrem's Millionaire Corner wealth level study of households with a net worth between $1 million and $4.9 million (not including primary residence). This confidence may in part be tied to the premium millionaires place on financial knowledge.

Nearly nine in 10 millionaires (88%) surveyed by Millionaire Corner stated that financial knowledge was either "extremely important" or "important" to them, compared with 82% of those with a net worth between $500,000 and $1 million and 74% of those with a net worth of less than $100,000. The wealthier the millionaire, the greater the confidence in his or her financial knowledge. Those with between $5 million and $24.9 million consider themselves very knowledgeable about financial products, compared with 22% of millionaires with up to $5 million.

But a new survey of 5,000 defined contribution plan participants by the National Association of Retirement Plan Participants finds that being overconfident in one's financial knowledge may be hazardous to retirement planning.

Retirement Income

The NARPP survey found nearly equal measures of confidence extremes, with 20% overconfident and 23% underconfident about their ability to secure a sound financial future. On the plus side, those who are overconfident in their financial knowledge were found to be more likely to take decisive steps to determine how much they will need at retirement compared with their underconfident counterparts. The survey also found that these retirement-plan participants were more likely to contact their plan provider or sponsor for guidance.

On the downside, though, retirement-plan participants with an excess of confidence in their financial knowledge were found to have less money set aside from their paychecks for retirement and have smaller plan balances than their underconfident peers.

The survey found that men are more likely than women to fall into the confident camp. More than half (53%) of men have calculated what they need for retirement, compared with 39% of women, the NARPP study found. Almost one-third of men (32%) are confident they will have enough money on which to retire, compared with only 24% of women.

The survey also found that younger retirement-plan participants tend to be more overconfident than older employees in their retirement readiness expectations and in taking decisive action regarding their retirement savings moves.

This is consistent with a 2013 Spectrem's Millionaire Corner retirement plan participant study that found younger participants significantly more confident than their older counterparts that they will not outlive their savings in retirement.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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