PBS FRONTLINE - "The Retirement Gamble" 4/23

[nun]

WADR, I think you are seeing instances where people have failed to prudently save for retirement as a failure of the system. There are many instance of folks of relatively modest means and income who saved regularly and have accumulated substantial wealth and can ER. To me these successes prove that the problem is the people, not the plans. Can plans be improved? Surely! But the means are there for those of even modest means who have the discipline to save regularly and invest prudently to build wealth beyond their dreams.

And conversely people who do as they are advised can fail. The system is fine for us on here because it has worked. I applaud those of modest means who saved and succeeded, but there are plenty who saved and failed and more who just didn't or couldn't save enough and so the system has failed them. I like your optimism of looking at the successes, but we have as much to learn from the failures and need to modify the system to reduce the possibility of failure and increase the amount saved, and that should fall on both the employee and the employer.......so if we stick with the DC arrangements all plans should offer a minimum range of funds that must include low cost index funds, then you can add actively managed stuff for those dumb enough to buy it. The 401k plan should pay for a fiduciary advisor to consult with each employee and set up an investment plan. Finally there should be mandatory minimum employee and employer contributions.

 

[scrabbler1]

I watched it. Nothing new really. Discussed the hidden and high fees associated with most 401k plans and how much that eats into a persons returns. And that most Americans will be working for years to come because not enough has been saved.

I just watched it, too. These were my thoughts as well.

One thing I thought the show was going to discuss more (and it appeared for a moment they were heading that way) was those "life cycle funds" which are horrible IMHO when it comes to expense ratios. I don't know why anyone would invest in one of those.

 

[NanoSour]

Sorry, thought the show was pretty much a waste of time. That 32 year old teacher is well on her way to a secure and comfortable retirement. Already had 120K saved for retirement on 70K salary. They should have emphasized how she was doing it right.

 

[clifp]

I thought it was pretty good show. Obviously ain't nothing knew for the folks on this forum, but even a documentary like frontline reach many many times more people than this forum. I had some quibbles mainly about the glorifying the golden age of pension which never really existed. But really I thought it did it a good job, and if gets a few people to investigate their 401K fees, and either find lower fee alternative within their 401K or put pressure to find lower fee providers, than it is good thing.

I enjoyed watching the bank managers squirm trying to answer Jack Bogles points.

 

[frayne]

I thought it was a pretty good and informative program. Can't say I learned much except how supposedly smart people take no interest in owning their retirement future because it is either too boring or too complicated or both. The program should be required veiwing for anyone signing up for their repsective 401K program.

I also enjoyed watching the guy from JP Morgan and the blonde gal from another another financial firm lie through thier teeth but you don't think they are going to bite the hand that feeds them, do you ?

 

[pb4uski]

And conversely people who do as they are advised can fail. The system is fine for us on here because it has worked. I applaud those of modest means who saved and succeeded, but there are plenty who saved and failed and more who just didn't or couldn't save enough and so the system has failed them. I like your optimism of looking at the successes, but we have as much to learn from the failures and need to modify the system to reduce the possibility of failure and increase the amount saved, and that should fall on both the employee and the employer.......so if we stick with the DC arrangements all plans should offer a minimum range of funds that must include low cost index funds, then you can add actively managed stuff for those dumb enough to buy it. The 401k plan should pay for a fiduciary advisor to consult with each employee and set up an investment plan. Finally there should be mandatory minimum employee and employer contributions.

I would agree with many of the reforms you outlined (a requirement to include some low cost index funds, access to retirement planning resources, etc.). I couldn't support the idea of minimum employee and employer contributions - this is the USA, not the UK. Here, the unfortunate consequence of not saving for retirement is that you have to try to make do on SS - you make your bed and lie in it.

 

[scrabbler1]

I also enjoyed watching the guy from JP Morgan and the blonde gal from another another financial firm lie through thier teeth but you don't think they are going to bite the hand that feeds them, do you ?

Those interviews with the execs reminded me some of those interviews you see on "The Daily Show" when John Oliver or one of the other secondary characters interviews people in a satirical segment.

 

[SumDay]

One thing I thought the show was going to discuss more (and it appeared for a moment they were heading that way) was those "life cycle funds" which are horrible IMHO when it comes to expense ratios. I don't know why anyone would invest in one of those.

I dunno, I just checked ours in DH's Fidelity account: Pyramis Active Lifecycle 2020 Commingled Pool Class F:

Exp Ratio (net) 0.35%

And my Blackrock Lifepath Index 2025 in my 401(k): Annual Gross Expense Ratio 0.16%

Neither makes me too squeamish.

 

[heeyy_joe]

Wow! I sure wouldn't want to be that gal from Prudential or that guy from JP Morgan this morning. Empty suits both. You're supposed to be an expert at advocating an actively managed approach to mutual funds? Very scary!

Ol' Jack Bogle is smilin' this mornin"!

 

[LRDave]

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

 

[hausfrau]

Those interviews with the execs reminded me some of those interviews you see on "The Daily Show" when John Oliver or one of the other secondary characters interviews people in a satirical segment.

Ha, ha- that's what I thought too.

I watched it too. I'm surprised they made no mention of Roths, but I guess maybe they had to narrow the focus of the show.

I'm always a little puzzled by the all the talk about the 2008 crash. Unless you were unemployed and had to pull the money out, why would it matter so much?

 

[nun]

I'm always a little puzzled by the all the talk about the 2008 crash. Unless you were unemployed and had to pull the money out, why would it matter so much?

Well that's exactly it. The point was that most people don't understand the basics of investing and certainly don't have the skills to weather downturns. They often choose inappropriate asset mixes with high fees and then panic when they see their balances fall. Many people did the worst possible thing of borrowing from their funds after the 2008 crash. So they bought high, sold low and also incurred penalties. You might say "caveat emptor", but when you're saying that for the majority of people with 401ks I tend to blame the products and the salespeople rather than the customers.

 

[samclem]

...but tapping 401ks to pay bills etc might not be classed as a choice if it's your only option to pay for an operation or the mortgage.

The 401K rules allow people to assess their situation and make choices consistent with their life circumstances. Would it be better for Ms Smith to have only untappable DB plans and social security when she needs $1000 for one month to keep from being evicted from her house? Is it better that she not have that operation?

The 401K plans haven't failed. They are a tool. People can buy annuities if they want to protect themselves from themselves.

SS is useful because it provides enough to live on. If not for SS, people who refuse to take responsibility for their financial lives would be depending on taxpayers. Well, they still >do< depend on taxpayers (the payers of present SS payroll taxes), but at least they helped pay for the earlier generation of retirees.

 

[dtbach]

Well that's exactly it. The point was that most people don't understand the basics of investing and certainly don't have the skills to weather downturns. They often choose inappropriate asset mixes with high fees and then panic when they see their balances fall. Many people did the worst possible thing of borrowing from their funds after the 2008 crash. So they bought high, sold low and also incurred penalties. You might say "caveat emptor", but when you're saying that for the majority of people with 401ks I tend to blame the products and the salespeople rather than the customers.

Why would you blame the products? They are doing exactly what the prospectus spelled out, which are presented to the employees before they pick the products to invest in. And who are these "salespeople"??

In all the jobs I had, a presentation was given by an HR person once a year who just put the funds up on a PowerPoint sheet and gave a short explanation (i.e. X fund is a short term bond, Y fund is an S&P 500 index, Z is yada, yada). There was no sales push whatever. Then you were given a sheet with info on all the funds and told to select what you wanted with percentages. They even showed sample portfolio's for conservative, moderate and aggressive mixes. And generally they showed what happened to them in good years and bad.

How much hand holding do we want the companies and government to do? Its always a tradeoff. You can be smothered with rules and regulations so that everyone comes out with the same result, or you can let people be free to make their own decisions with good or bad results. Myself, I'm glad I was able to freely choose.

 

[ShortInSeattle]

I enjoyed it. I thought it was great seeing the "big bank" retirement people squirm. I did wish that they had at least a short section on how to do it right. A novice might have been left with a feeling of doom and gloom, but no action steps. Perhaps they didn't want to venture into the "how to" business.

SIS

 

[steelyman]

I watched the show and did not think it was a waste of my time (can't say the same for the Hearst program that preceded it, though...).

It seems to me, as others have pointed out, that employee education really needs/needed to be improved with respect to saving for retirement. I don't remember what they provided us when I was first hired out of school, probably informational packets prepared by the fund companies offered and optional seminars given by representatives of those same companies. Then, there were day-long workshops given by my employer (state/academic) targeted for people who were not long from retirement. Good idea, and I signed up/attended, but for many the investment train has already left the station by that time, and only a portion of the day covered investing/finance. Other topics were other post-retirement things: health insurance, Social Security, pension plan, etc.

Thinking about it, one thing I never saw covered is high on the radar here at e-r.org lately: withdrawal/decumulation issues/strategies. That's unfortunate, since it's important, and I think would have been good for me to learn and think about earlier on.

Anyway, the PBS show had a little about that one guy who had to do his own research to investigate things like expense ratios and fees (good for him).

Other things about the show: yeah, those JPM and Prudential people were a real trip: I kept thinking "snake oil".

I also noticed that they interviewed briefly two guys in the middle of the show who I think are the two guys who wrote a book that ducky911 posted about: http://www.early-retirement.org/forums/f28/free-book-today-only-64235.html

I read this book recently, thought it was good although probably (like the PBS program) somewhat basic for people on e-r.org, but would be good for people just starting out to read about saving for retirement.

One spring, I took a course in business administration (not my field) just so I could learn something. It was divided into a number of topics, each led by a professor in that area. The Finance guy handed out copies of A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Tenth Edition): Burton G. Malkiel: 9780393340747: Amazon.com: Books

That's a book that I thought/think is excellent, and changed my mind about several things I'd been doing with respect to saving for retirement. But the reader has to come to it already motivated to learn.

 

[Texas Proud]

I started to watch it, but fell asleep a couple of times... so will go back and watch it later...


One of the things that I find interesting is that there is a lot of complaint on fees of US based funds... I would like to point out that even or high cost funds are 'cheap' compared to funds in other countries... when I was in the UK, there were people who kept asking me how they could invest in these funds because they were so much less than what they had.... I would think that this would be the same across the EU...


Not trying to defend the high fees, just pointing out that it is all relative...

 

[HighRoller]

I tried to find an earlier post on this, but didn't find one so thought I'd give a heads up as I suppose the subject matter is of interest to many who are attending this E-R.org party. It's the premier next week of a new FRONTLINE episode called "The Retirement Gamble". My DVR is set.

The Retirement Gamble | FRONTLINE | PBS

Thanks for the heads up. I watched it this morning since I was “out” last night. (you've got to love DVR's) The show just helped to re-enforce my belief in DIY investing.

 

[nun]

I started to watch it, but fell asleep a couple of times... so will go back and watch it later...


One of the things that I find interesting is that there is a lot of complaint on fees of US based funds... I would like to point out that even or high cost funds are 'cheap' compared to funds in other countries... when I was in the UK, there were people who kept asking me how they could invest in these funds because they were so much less than what they had.... I would think that this would be the same across the EU...


Not trying to defend the high fees, just pointing out that it is all relative...

+1. I agree with this, the UK makes the US look like a paradise for the investor when it comes to fees. Even the UK's new Government mandated scheme "NEST" has a 1.8% contribution charge, ie front loaded, and a 0.3% annual management fee. The IRS makes it very inconvenient and expensive for US citizens to invest in UK based mutual funds, but why would you given the costs. When I return to the UK all my money will stay in Vanguard ETFs or US based retirement accounts that are tax efficient for the US and the UK

 

[nun]

Why would you blame the products? They are doing exactly what the prospectus spelled out, which are presented to the employees before they pick the products to invest in. And who are these "salespeople"??

I blame the costs incurred by selling of funds to the brokers who design the plans and the excessive fees on actively managed funds. Many 401k plans are just plain expensive and not designed to even give the employee the choice of a low cost option. DC plans can work, this forum is an example of that, but we are investment and retirement nerds, and many of us also have pensions and other sources of income. The current DC jungle needs some serious weeding if it is to work for the majority of people.

 

[SumDay]

The current DC jungle needs some serious weeding if it is to work for the majority of people.

+1

 

[Texas Proud]

+1. I agree with this, the UK makes the US look like a paradise for the investor when it comes to fees. Even the UK's new Government mandated scheme "NEST" has a 1.8% contribution charge, ie front loaded, and a 0.3% annual management fee. The IRS makes it very inconvenient and expensive for US citizens to invest in UK based mutual funds, but why would you given the costs. When I return to the UK all my money will stay in Vanguard ETFs or US based retirement accounts that are tax efficient for the US and the UK

Sorry, my first post must not have been clear...

These were people from the UK, Australia, and NZ asking me how THEY could invest in a US mutual fund to get the low fees... I had zero interest investing over there....

I told them you cannot without a US address.... one guy even asked if he could use mine!!!

 

[HFWR]

I blame the costs incurred by selling of funds to the brokers who design the plans and the excessive fees on actively managed funds. Many 401k plans are just plain expensive and not designed to even give the employee the choice of a low cost option. DC plans can work, this forum is an example of that, but we are investment and retirement nerds, and many of us also have pensions and other sources of income. The current DC jungle needs some serious weeding if it is to work for the majority of people.

I know a fair number of relatively intelligent people, who absolutely refuse to learn and get involved in managing their money, thus they are at the mercy of FPs who may or may not have their best interests at heart...

 

[FinanceDude]

The demise of the DB plan took enormous amounts of money out of employees pockets and gave it to the employers and to the mutual fund industry in fees. After seeing a recent post about an awful 403b plan with restrictions, poor investments and sky high fees no wonder Americans are failing to save adequately for retirement.

Uh..no.........

 

[rodi]

The current DC jungle needs some serious weeding if it is to work for the majority of people.

+2

And for an example to prove my point - see this post about my husbands horrible 401(k) plan.

http://www.early-retirement.org/forums/f28/wwyd-husbands-craptastic-401k-plan-63390.html

Additional, anecdotal proof... My division was just bought - we're in process of enrolling in the new company's 401(k). Old company had low cost index funds - highest expense ratio was 0.18%. New company has mostly funds with expense ratios much higher. (The one and only vanguard fund is getting 100% of my new contributions.). Many of my coworkers are clueless as to why this matters. And they know math - they're engineers.