PBS FRONTLINE - "The Retirement Gamble" 4/23

[gauss]

Maybe Hiltonsmith (economist mutual fund researcher) ... ("my retirement plan is 'fingers crossed and pray basically' "). I mean, really? You are literally writing a dissertation on this stuff and that is all you have figured out?

In the first 5 minutes of the show when they showed the young economist, I think it was Hiltonsmith, saying basically he had no plan for retirement, I thought to myself, "What the heck type of economist is that?" FWIW you can always save after-tax if you don't like the fees/terms of 401(k)s.

-gauss

 

[gauss]

Hell, today's youth have big problems composing a grammatically correct paragraph or solving a simple algebraic problem in school today. Do you really want them to be studying about stock market works and which asset allocation is best depending on ones time horizon and risk tolerance?

Learning how to handle ones own financial situation is not a difficult task for the majority of average American citizens. All they lack is motivation.

Wouldn't need to teach them about asset allocation and stuff, but teaching and illustrating the results of compound interest would be extremely valuable.

Realizing that every year you put off starting to save comes off the steep right-hand side of the exponential curve that governs compound interest accumulation is something you want to learn as early in life as possible.

-gauss

 

[serie1926]

Was anyone else surprised that the big investment bank execs allowed themselves to be grilled like?

Very!

 

[yakers]

. Thermodynamics is difficult. Personal finance is not.

For me personal finance is difficult, thermodynamics is not.

When I worked at NASA I met vastly intelligent people a number of whom could not manage their finances. Sitting at the lunch table one had a block of properties & investments and the next in debt over his head. The permutations of the market are more difficult to calculate and especially predict then nuclear reactions.

 

[Midpack]

On the other hand, I think it's useful to go part of the way and expose people to the idea of saving for retirement as part of their formal education. I agree it may not be effective, but I think it goes together with the reason we include other items like civics and history in our mandatory curricula: it helps people function as citizens and productive members of society. And, if we all are on the hook to bail out people who fail to provide for themselves financially (and we apparently are, nothing I see happening today makes it look like that is going to change) then it is good for the "ants" that everyone be exposed to the information: the more voters who join the colony, the better.

+1, well said!

 

[Midpack]

I don't know, I hear this from time to time. There are some things that we citizens should be able to learn on our own without official state sanction.

Hell, today's youth have big problems composing a grammatically correct paragraph or solving a simple algebraic problem in school today. Do you really want them to be studying about stock market works and which asset allocation is best depending on ones time horizon and risk tolerance?

Learning how to handle ones own financial situation is not a difficult task for the majority of average American citizens. All they lack is motivation.

I'm not sure kids who "have big problems composing a grammatically correct paragraph or solving a simple algebraic problem in school" can always be blamed on the school. In many (but not all) cases, the school is not the primary problem.

Many subjects that are taught could be "learned on your own."

And IMO, having knowledge of basic personal finance seems as important as history among other subjects. I don't think anyone was proposing kids should study retirement planning, asset allocation or the mechanics of the stock market. To me personal finance is topics like:

• Wage income and occupations
• Expenses and budgets
• Taxes
• Credit cards
• Loans and banks
• Savings and savings instruments
• Life, home and auto insurance
• Buying a home
• Basic investing
• Basic economics

 

[bluztuzumab]

Quantum Theory is hard - Thermodynamics is not.

I just saw 'The Retirement Gamble' on-line - thanks for the heads-up.
It made me go back and look at the fees for my 401k - I guess we have a pretty good plan - my work 401k plan has more than $4.5 billion under management and is the 63rd largest in the US.

I have my 401k distributed as such:

Fund​

US Small/Mid Eq​

US Large Eq​

Non-US Eq​

2020 Target​

US Bond​

​

[TR][TD]Percent[/TD][/TR]
[TR][TD]%Fee​

[/TD][/TR]

​

[TR][TD]34.0%[/TD][/TR]
[TR][TD]0.73%​

[/TD][/TR]

​

[TR][TD]34.0%[/TD][/TR]
[TR][TD]0.03%​

[/TD][/TR]

​

[TR][TD]13.4%[/TD][/TR]
[TR][TD]0.13%​

[/TD][/TR]

​

[TR][TD]12.9%[/TD][/TR]
[TR][TD]0.35%​

[/TD][/TR]

​

[TR][TD]5.7%[/TD][/TR]
[TR][TD]0.04%​

[/TD][/TR]

So it looks as if I only have one that is relatively high.

 

[racy]

+1
I was in academia and said this for 40 years. No one with any swing paid attention. On occasion when the time was right I would take an hour from regular class time for discussion and examples.

Cheers!

Good for you. Likewise, I would meet with all new employees in my mfg department and show them a personalized forecast of wealth (using their age & wage, etc.) if they participated in our 401k. Mid-20's, even on manufacturing wages, could easily become millionaires. Many of these new employees, even after going through HR orientation, were not aware of the 401k program. You can lead a horse to water but you can't make him drink.... too many just don't have the financial curiosity, I fear.

 

[nun]

I have posited that one of the problems where I work is actually the pension system. It retains all the good for nothings that want nothing more than to chill for 30 years then collect a permanent paycheck. Meanwhile all the ambitious talent leaves to take a chance in private industry for potentially bigger reward.

Do you work in the military?

 

[nun]

Quantum Theory is hard - Thermodynamics is not.

I just saw 'The Retirement Gamble' on-line - thanks for the heads-up.
It made me go back and look at the fees for my 401k - I guess we have a pretty good plan - my work 401k plan has more than $4.5 billion under management and is the 63rd largest in the US.

I always found thermodynamics difficult.

But the bigger point from your post is the 10% employer match in the 401k.....most people are lucky to get 3% or 4%, if they get any match or even have a 401k.

 

[bUU]

To assert that some people just are not capable of mastering the skill seems a bit condescending and insulting.

It isn't actually. Ask the people who are in that situation. There are several right here in this thread (myself, among them). How about asking us how we feel about having these matters labeled "difficult" instead of assuming how we would feel about it?

Again: This is hard stuff, no matter how much the people who find it easy try to convince other people otherwise.

Is it really harder than filing income taxes, casting an intelligent vote, or effectively serving on a jury (other things we expect of citizens)?

Yes. It is. Annuities. Whole Life insurance. Backdoor Roth Conversions. 12b-1. Asset Allocation. Coupon. I-Bonds. TIPS. Tax-managed. Umbrella policy. Revocable Trust. Long term care (something for which even folks here cannot provide an answer straight enough to be operational for most Americans). And so on.

Now I learn that one of the states actually charges income tax on ostensibly pre-tax contributions to 401(k) plans. That throws yet-another wrench into the machine, for my friend living there (and makes some of the advice I've given her in the past somewhat suspect).

No: Not easy.

Let's trust people to succeed and make it clear that this is in their own hands--yes, that means accepting that some will fail.

If it was so easy, given how motivated everyone is in this regard, why would they fail? Sorry, but this whole "those who fail financially are lazy" line of reasoning is offensive.

 

[FUEGO]

Do you work in the military?

I do work for a couple of generals but not in the military. And I do frequently work in a military installation (like today). I'm a civilian and don't work in the defense industry at all.

 

[FUEGO]

Fantasy football picks are hard.

Thermodynamics, quantum mechanics, and personal finance/investing are easy.

What if the government (SEC? DOL?) had a key indicator for mutual fund efficiency like the EPA does for fuel economy? Something that took expense ratio and annual turnover into account.

For example, have a scale where each fund receives a numeric score from zero to 100. Mutual Fund Efficiency = 100 - (ER%
* 100) - (% Turnover)

So for Vanguard's 500 Index Fund (Admiral Class) VFIAX: Mutual Fund Efficiency = 100 - (.05 * 100 ) - 4
Mutual Fund Efficiency = 91

Take a fund that has ER's over 1% and crazy turnover (many actively managed funds), and they get a zero lol.

Of course having some kind of "efficiency score" will never happen given money management's strong lobby and deep pockets.

I think this type of score would do wonders for helping the average person pick the better choice for mutual funds in their 401k. It will never make them the next Warren Buffett, and won't ever allow them to pick high flying mutual funds. But we aren't talking about minting billionaires here. We are talking about allowing people to save in a reasonably diligent manner for their own retirements. You could do a lot worse than picking funds with high efficiency scores as I have laid out. I'd lobby for regulations or legislation requiring these scores to be prominently displayed all over the mutual fund info in 200 point font.

 

[samclem]

Of course having some kind of "efficiency score" will never happen given money management's strong lobby and deep pockets.

I think this type of score would do wonders for helping the average person pick the better choice for mutual funds in their 401k.

The ERs have to be disclosed and the fees/turnover of funds are very clearly displayed in the prospectus and online. The illustration showing the effects of fees for each $10K invested couldn't be clearer. This illustration and other language in the prospectus is included due to mandates from DC, so don't be so sure legislation can't change things. And, despite the very clear portrayal provided, many people don't pay it much attention.
I think in this regard (giving info on costs) there's little to be gained by mandating more or making it still simpler. The "consumers" aren't paying attention to the info. I don't think they'd pay attention to car mileage ratings, either, if they believed the car model with the most chrome would drop a $100 bill out of the tailpipe each morning.

 

[poorcarver]

A required course in personal finance will as all the required courses do. You can have the required course, it can have the required information available in that course. A few will learn and grasp the information, most will cram for the examination to pass knowing nothing and the rest will slide through by the skin of their teeth. I gave our children "The Boglehead Guide to Investment", they read it, said oh that makes sense, who knew it was so easy, and proceeded to live their lives and progress as humans, saving and investing being a small (albeit important) part of life.

To MickeyD's point, there are required course in English (grammar and composition), mathematics, history, etc. Yet, all too many graduates cannot compose a paragraph in standard English, are innumerate and cannot place the Civil War in the correct decade. Based on an adult lifetime of working with youth, the general outcome of our educational system seems to be a contempt for learning.

 

[Texas Proud]

It isn't actually. Ask the people who are in that situation. There are several right here in this thread (myself, among them). How about asking us how we feel about having these matters labeled "difficult" instead of assuming how we would feel about it?

Again: This is hard stuff, no matter how much the people who find it easy try to convince other people otherwise.

Yes. It is. Annuities. Whole Life insurance. Backdoor Roth Conversions. 12b-1. Asset Allocation. Coupon. I-Bonds. TIPS. Tax-managed. Umbrella policy. Revocable Trust. Long term care (something for which even folks here cannot provide an answer straight enough to be operational for most Americans). And so on.

Now I learn that one of the states actually charges income tax on ostensibly pre-tax contributions to 401(k) plans. That throws yet-another wrench into the machine, for my friend living there (and makes some of the advice I've given her in the past somewhat suspect).

No: Not easy.

If it was so easy, given how motivated everyone is in this regard, why would they fail? Sorry, but this whole "those who fail financially are lazy" line of reasoning is offensive.

I think that you are doing what most people are doing...... looking at all your items listed and freezing because they are so 'difficult'....


Break them down and it is not as difficult as you think....

First, make a decision to SAVE for retirement.... easy....

Now, determine if you want to save in a tax advantaged account or a taxable account... easy... (especially if you get matching!!!)...

Now, start saving at least 10% of your money into this account... easy (but, this is where a lot of people fail as they do not do this)...

But, you have to decide on a fund or group of funds to invest.... (OH NO, what do I do.....AAAARRRRGGGGGHHHHH, I will do nothing..... ) this is also where a lot of people fail.... but that are some good basic funds or groups of funds you can invest and get a good return.... heck, if you have a problem just pick a retirement fund.... again EASY....


If everybody did the above, which IS easy..... they would be a lot better off for their retirement than where we stand today....


One of the problems is that people are greedy.... they want to beat everybody they know... they swing for the fences (like the person who put all their money in gold futures)..... this is stupid... because other people hear how bad they did with investing, they do not do it themselves..


But, bottom line, the basics of retirement investing is very very easy....

 

[bUU]

Now, start saving at least 10% of your money into this account... easy

Okay; I give up.

 

[Hamlet]

The thing is, you can get alot of the hard stuff "wrong" and be okay. The issue isn't that people are saving enough but managing it badly, for the most part.

The big issue is that people aren't saving to begin with.

Simply reading "The Wealthy Barber" gets you 90% of the way to where you need to be. Steadily save a good chunk of your money, put it in a few low-cost equity mutual funds, and in 20-30 years you will be in pretty good shape.

Don't buy an investment you don't understand (which throws out annuities, whole life, and the other stuff you listed for most people). Sometimes those things would have been a little better for some people, but it won't be the difference between financial security and poverty.

Yes, you might miss out on some tax advantages along the way. Almost no one gets it perfect.

But if you save the money consistently each year, you can make plenty of mistakes and still be in pretty decent shape.

It isn't actually. Ask the people who are in that situation. There are several right here in this thread (myself, among them). How about asking us how we feel about having these matters labeled "difficult" instead of assuming how we would feel about it?

Again: This is hard stuff, no matter how much the people who find it easy try to convince other people otherwise.

Yes. It is. Annuities. Whole Life insurance. Backdoor Roth Conversions. 12b-1. Asset Allocation. Coupon. I-Bonds. TIPS. Tax-managed. Umbrella policy. Revocable Trust. Long term care (something for which even folks here cannot provide an answer straight enough to be operational for most Americans). And so on.

Now I learn that one of the states actually charges income tax on ostensibly pre-tax contributions to 401(k) plans. That throws yet-another wrench into the machine, for my friend living there (and makes some of the advice I've given her in the past somewhat suspect).

No: Not easy.

If it was so easy, given how motivated everyone is in this regard, why would they fail? Sorry, but this whole "those who fail financially are lazy" line of reasoning is offensive.

 

[nun]

The thing is, you can get alot of the hard stuff "wrong" and be okay. The issue isn't that people are saving enough but managing it badly, for the most part.

The big issue is that people aren't saving to begin with.

Simply reading "The Wealthy Barber" gets you 90% of the way to where you need to be. Steadily save a good chunk of your money, put it in a few low-cost equity mutual funds, and in 20-30 years you will be in pretty good shape.

Don't buy an investment you don't understand (which throws out annuities, whole life, and the other stuff you listed for most people). Sometimes those things would have been a little better for some people, but it won't be the difference between financial security and poverty.

Yes, you might miss out on some tax advantages along the way. Almost no one gets it perfect.

But if you save the money consistently each year, you can make plenty of mistakes and still be in pretty decent shape.

Conceptually the foundations of investing are very easy.

1) Save 10% or more of your gross income

That is probably the biggest hurdle for most people....they either don't earn enough or spend recklessly so that can't save that much.

2) Save 6 months income into your bank account.
3) Get into company retirement accounts and invest in a 33/33/33 mix of US equity, International Equity and Bond market low cost index funds. This might be impossible because of bad fund choices in the plan.
4) Open a Vanguard account and start to make automatic investments in the same 33/33/33 fund mix.
5) Rebalance and don't panic sell!
6) Fund your ROTH, again using the 33/33/33 fund mix.

 

[Midpack]

Now, start saving at least 10% of your money into this account... easy (but, this is where a lot of people fail as they do not do this)...

Okay; I give up.

If we can't at least expect people to save 10% if they expect to retire reasonably comfortably, what can we assume?

 

[nun]

If we can't at least expect people to save 10% if they expect to retire reasonably comfortably, what can we assume?

The fact is that most people don't save even close to that amount and they will face a difficult time in retirement living off just SS. I think we can assume people will have to work longer and longer. The numbers show that most people won't save enough without greater incentives or legal mandates. Of course that gets us into the tension between personal responsibility and societal responsibility. The UK when faced with a similar lack of retirement saving passed legislation mandating that every employer and employee must contribute certain minimum amounts to a DC plan that meets minimum standards. Whether or not you agree with this approach, I'm sure we can all see the difficulty of imposing such forced saving in the US.

 

[JoeWras]

The fact is that most people don't save even close to that amount and they will face a difficult time in retirement living off just SS. I think we can assume people will have to work longer and longer. The numbers show that most people won't save enough without greater incentives or legal mandates. Of course that gets us into the tension between personal responsibility and societal responsibility. The UK when faced with a similar lack of retirement saving passed legislation mandating that every employer and employee must contribute certain minimum amounts to a DC plan that meets minimum standards. Whether or not you agree with this approach, I'm sure we can all see the difficulty of imposing such forced saving in the US.

Our Social Security was supposed to be that forced savings.

I think the absolute center of the problem is no saving. It is worse than no saving, much of the US population lives in negative saving. They look at their credit card debt limit as some sort of savings account balance they can access. It is bizarre in my mind.

Sure, once we get beyond no saving into actual saving, then we can press on the problem of fees, asset allocations, etc. But most of the time we don't even get there.

 

[bluztuzumab]

I always found thermodynamics difficult.

But the bigger point from your post is the 10% employer match in the 401k.....most people are lucky to get 3% or 4%, if they get any match or even have a 401k.

Yes - I do color myself lucky to work at a corporation that reasonably looks out for their employees (less so now, than pre-2009, but another story...). They match well now because it is a Global corp and their ex-US employess get pensions.

However, in the vain of this thread, I also started saving the maximum I could 20 years ago (pre-2009 we got just the 4% match), and started the 50+ catchup 401k contributions when I turned 50. I also took full advantage of the 15% discount ESOP that did very well over the years. Luckily I was taught early by my parents about finances, learned about good and bad debt, and most importantly saving using a simple method - 'Take it out before you see it', and then you learn to live without it. This method worked well for me, and I thank my Mom for this when I can.

I was just listening to an Albert King interview (famous old Blues guitarist) who was talking about the time when Bill Graham (Rock promotor) had him play at the Fillmore (famous rock venue) in the late 60s with the Rock Stars of the day (Jimi, Janis, etc). He was discussing the kids (Hippies) acting like they were poor and had no money and how times were tough - yet had cars, hung out at the beach, had food, had shelter... etc. and he was talking about how they had no idea what it was to be poor, and sleep in homes with no heat, no electricity/plumbing, and sleeping watching the stars thru the roof and when it rained moving the bed around... you get the point... (hopefully)

And it reminds me a lot of today's situation supposedly we are doing awful economically, but people are at Shopping Malls, have cars, have Smart Phones, tattoos/piercings, HDTV with game consuls, cool clothes/shoes, etc - BUT saving nothing for the future. I see this all the time - I think most of us do.

I realize that this doesn't hold for many people - but that is a good place to start with the concept of saving 10%.

 

[JoeWras]

The more I read this thread, the more depressed I get about the state of our society.

Kind of like watching Frontline. Depressing.

 

[nun]

Our Social Security was supposed to be that forced savings.

I think the absolute center of the problem is no saving. It is worse than no saving, much of the US population lives in negative saving. They look at their credit card debt limit as some sort of savings account balance they can access. It is bizarre in my mind.

Sure, once we get beyond no saving into actual saving, then we can press on the problem of fees, asset allocations, etc. But most of the time we don't even get there.

Even as the scope and size of SS has grown it has never been intended to provide the whole of someone's retirement income. While the middle class had safe DB plans to add to their SS everything was fine......nobody worried about the poor who had to continue to work in retirement because they didn't have much of a voice in Washington. The poor have always had a retirement crisis ie. no retirement at all. But now that comfortable employer provided retirement plans have gone and been replaced by DC plans that require the middle class to actively save for retirement we see the crisis. Whether it's because of stupidity or lack of spare income to save the middle class is now facing the same retirement fate that the poor have always had ie no retirement.

IMHO the US will have to re calibrate expectations. People will have to keep working, some until they die, and the membership on this forum will dwindle to zero.