PBS FRONTLINE - "The Retirement Gamble" 4/23

[Texas Proud]

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

Kind of like watching Frontline. Depressing.

Heck, don't get depressed... I would say a majority of people will do just fine when it comes to retirement...

Even the examples on the show, most were well on their way to a decent retirement... the teacher was doing OK (sure, the annuity was crap and should never had been offered).... the gay couple had a lot (might have had more, but not poor)... even the guy who was interviewing was well on his way to a good retirement....

I think the gist of the show is that most people who are doing the right thing by savings have an uphill battle due to fees from big banks/brokers... not that we should have an alternative way to fund retirements....

 

[nun]

I think the gist of the show is that most people who are doing the right thing by savings have an uphill battle due to fees from big banks/brokers... not that we should have an alternative way to fund retirements....

I think we watched different shows. The emphasis was DC plans and their fees and the lack of engagement of the participants. The show didn't go into the even bigger issues of lack of access to retirement plans and the total mismatch between the saving required to retire and the actual level of retirement saving.

 

[pb4uski]

.....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.

I agree with the first part that the US will have to re calibrate expectations.

On the second part I would suggest differently - people will have to keep working and begin LBYM and saving regularly and investing in no-load, low cost index funds until they retire and the membership on this forum will explode.

 

[nun]

On the second part I would suggest differently - people will have to keep working and begin LBYM and saving regularly and investing in no-load, low cost index funds until they retire and the membership on this forum will explode.

I wish I was as optimistic as you, I don't see people changing a lifetime of money habits and as they get older the incentive to save will go down; they'll just want to spend as much as they have before they die.

Even if people did save some money and eventually retire they'd have to join an LR (Late Retirement) forum.

 

[pb4uski]

I wish I was as optimistic as you, I don't see people changing a lifetime of money habits and as they get older the incentive to save will go down; they'll just want to spend as much as they have before they die.

Even if people did save some money and eventually retire they'd have to join an LR (Late Retirement) forum.

Actually, you're not as capitalistic as I am.

And you're probably right that people won't change. However, I think our kids have seen the pickle many of their parents are in by not saving and are looking to do better (or have seen the benefits their parents have reaped by saving and want to do similarly).

The opportunity to live less large and save have been available to everyone (just as they have been to you, me and others), the need to save for retirement is well advertised for anyone who is paying a little attention so they have the same opportunity as we have. They chose to live larger and not save and are paying the piper. While I am sorry for their situation, in most cases they brought it upon themselves. I remember contributing to retirement savings plans in the early 1980s and increased my contributions by half of any raise I received. I sacrificed in the past and am now reaping the benefits.

The only problem that I see is a bunch of stupid people who refuse to save and adopt a woe is me attitude.

 

[Rustward]

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

My thoughts exactly. This show was very poorly done and one-sided. If Hiltonsmith lost money in the last four years -- well that's pretty hard to believe. The show definitely had more than a hint of political agenda.

 

[nun]

My thoughts exactly. This show was very poorly done and one-sided. If Hiltonsmith lost money in the last four years -- well that's pretty hard to believe. The show definitely had more than a hint of political agenda.

The show definitely had an agenda, but it was about high fees in retirement funds and lack of engagement by savers. I don't see those as political at all. Left, center or right we want low fees and educated savers.

 

[Rustward]

The show definitely had an agenda, but it was about high fees in retirement funds and lack of engagement by savers. I don't see those as political at all. Left, center or right we want low fees and educated savers.

I guess I thought it was more about doing away with 401Ks and expanding Social Security.

Most of the interviewees had some hard-to-believe stories. The economist whos account went only down. The middle aged couple that lost half -- they must have sold at the bottom. Unfortunate, yes, but they didn't lose half to fees.

 

[nun]

I guess I thought it was more about doing away with 401Ks and expanding Social Security.

Most of the interviewees had some hard-to-believe stories. The economist whos account went only down. The middle aged couple that lost half -- they must have sold at the bottom. Unfortunate, yes, but they didn't lose half to fees.

Interesting

 

[Malcolm2]

It was an informative program. However, it was a little disappointing that it appeared to say that most people just cannot understand this by themselves, which I believe is wrong given motivation. The solution they seemed to espouse apparently was government regulation. I think there are several problems they failed to highlight that center on personal responsibility:

1. I don't have time to review my plan. Make time, it's important.
2. I want a sure thing for my retirement, someone owes that to me. No sure thing, like everything in life, you need to work at it. Nobody, in your generation or future, owes you a retirement.
3. I hope Social Security keeps me afloat. SS was never intended to be a sole source of retirement income, don't expect it to be in the future. Do not expect the government, or other people, to provide you an income if you chose not to save. I noticed most of the people profiled with problems lived in nice houses with big screen TV's, one was typing away on a $1300 MacBook - umm...

I realize it was PBS - hence push toward more government, but overall it was a good wake-up call. However, I think they could have been fairer to people as to the real solution. I posted a nice comment on the PBS/Frontline site with these suggestions, but it is still being 'moderated' after two days...

 

[nun]

1. I don't have time to review my plan. Make time, it's important.
2. I want a sure thing for my retirement, someone owes that to me. No sure thing, like everything in life, you need to work at it. Nobody, in your generation or future, owes you a retirement.
3. I hope Social Security keeps me afloat. SS was never intended to be a sole source of retirement income, don't expect it to be in the future. Do not expect the government, or other people, to provide you an income if you chose not to save. I noticed most of the people profiled with problems lived in nice houses with big screen TV's, one was typing away on a $1300 MacBook - umm...

with you on 1 & 2, but you start to loose me on 3. People obviously pay for their SS insurance and it provides diversity in a portfolio. I expect it to be around for a long long time.

 

[explanade]

If Vanguard funds are offered as a 401k choice, is it a guarantee that there are no hidden fees? Can Vanguard also have paid the administrator?

When you hear that trillions will be extracted by the financial services industry from 401k accounts, you wonder how big a boondoggle private accounts for social security would have been.

 

[samclem]

When you hear that trillions will be extracted by the financial services industry from 401k accounts, you wonder how big a boondoggle private accounts for social security would have been.

There's this: Every bit of the siphoning off would have been discoverable, the participant can shop smartly to minimize those costs, and the dollars remaining would be the personal property of the person who contributed them. With government benefits, there's absolutely no claim to ownership. When the time comes and we need the money, we'll get whatever the folks in power decide to give us. Visibility on the dollars that get siphoned off to other accounts/uses? I guess you find out when a change is made.

The "basic collective benefit" of SS does have merit, primarily as a foundation that allows all of us who chose to do so the freedom to move beyond it.

 

[explanade]

Because most people are doing a good job of picking investments in their 401k now?

So they would be wise about choosing low-cost index funds versus the sea of actively-managed instruments which are marketed heavily to them, along with "financial advisors" pushing them towards these vehicles?

 

[keegs]

Even for those who have the wherewithal to put some money aside, I think some just make poor financial decisions, whether about risk, either too much or too little, decisions based on fear and emotion, pulling out at market bottom, jumping on the bandwagon when the markets up.

I'm not sure the main thrust was to suggest more government regulation but rather changes to what is essentially an ad-hoc arrangement of government incentives into something that produces better outcomes.

If what I just said was already suggested..my apologies for not reading through the thread.

 

[gerntz]

with you on 1 & 2, but you start to loose me on 3. People obviously pay for their SS insurance and it provides diversity in a portfolio. I expect it to be around for a long long time.

Actually, we don't pay for SS, at least sufficiently, or it wouldn't be in danger of needing to reduce benefits and/or increase its tax rates down the road. Per usual, pols overpromised. I don't expect it to go away either, but it's not completely sound as is. The earlier you got/get in, and the less you put in, the better the deal for you personally.

 

[veremchuka]

Allan Roth's column "Retirement Gamble:" a critical review - CBS News

 

[mickeyd]

Allan Roth's column "Retirement Gamble:" a critical review - CBS News

Thanks for that.

I do need to point out, Frontline, that you neglected to include a very critical segment in your documentary -- the vital role that active managers play. Seriously, who do you think keeps markets efficient and allows us indexers to profit? Without the expensive active managers, indexing wouldn't work.

Is his statement re: "expensive active mangers" true? Are they actually good for us indexers?

 

[sengsational]

Is his statement re: "expensive active mangers" true? Are they actually good for us indexers?

A straw-man, I think.
I would say that some people need to pay close attention to "the fundimentals" of each publicly traded asset "out there", or the indexers would indeed be in trouble. But that's not a realistic scenario. We don't need high-dollar Wall Street types to look at a P/E ratio and snap-up an undervalued stock, we have Fred the day-trader in his basement that will take over if the Wall Streeter quits.

 

[samclem]

Is his statement re: "expensive active mangers" true? Are they actually good for us indexers?

Yes, they are. But that goes for every analyst that tries to find bargain stocks--including those who work for pension funds, insurance companies, etc. Without these guys keeping prices efficient, indexing absolutely would not work.
Occasionally there are articles published indicating that indexing has become >too< popular, so that prices are getting out of whack. I don't think we're at all close to that point, and if indexing ever does account for a vast majority of the market, the stock-pickers will be rewarded with some well-earned bucks.

 

[traineeinvestor]

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...

This is why I have more of my equity allocation in individual equities than in funds - there are very few genuinely low cost funds available to me out here (and most of the ones which are available are synthetic).

 

[clifp]

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.

This week I attended the first (and possibly the last) 401K committee meeting for the medium sized non profit I am on the board of directors.

Our adviser, a large bank who handles are nearly 8 digit investment portfolio, provided us with options of different 401K providers. The four choices all had average ER for the mutual funds ranging from 1.3% to 1.48% including a few with decent choices like American funds. Conspicuous by their absence was an option to use Vanguard as 401K provider.

However, it is pretty clear that customers, the organizations employees don't really care. Attempts to provide to retirement seminars have resulted in low to no attendance. The bank had geared up to provide detailed answers about cost that new 401K disclosure on expenses were expected to generate.

In organization with just over 50 employees and almost 30 participants in the 401K (we provide a 5% match) not a single employee had a single question.

Who ever made up the saying about horse and water, obviously was really talking about retirement saving and the US public. :-(.

 

[Texas Proud]

This week I attended the first (and possibly the last) 401K committee meeting for the medium sized non profit I am on the board of directors.

Our adviser, a large bank who handles are nearly 8 digit investment portfolio, provided us with options of different 401K providers. The four choices all had average ER for the mutual funds ranging from 1.3% to 1.48% including a few with decent choices like American funds. Conspicuous by their absence was an option to use Vanguard as 401K provider.

However, it is pretty clear that customers, the organizations employees don't really care. Attempts to provide to retirement seminars have resulted in low to no attendance. The bank had geared up to provide detailed answers about cost that new 401K disclosure on expenses were expected to generate.

In organization with just over 50 employees and almost 30 participants in the 401K (we provide a 5% match) not a single employee had a single question.

Who ever made up the saying about horse and water, obviously was really talking about retirement saving and the US public. :-(.

Vanguard is not that interested in small plans.... I work at a small company and I choose our provider a few years ago.... Vanguard would not even talk to us at all...

We went with Fidelity's pre-packaged plan and were able to pick from a group of about 600 funds... there were many funds that had expense ratios of less than .20%.... we do have to pay $40 for each participant and fees for the tests and tax returns.... but not too bad....

 

[Malcolm2]

with you on 1 & 2, but you start to loose me on 3. People obviously pay for their SS insurance and it provides diversity in a portfolio. I expect it to be around for a long long time.

Of course it will be around. It will just provide much less than people think it should. There will also be increasing pressure to means test it. SS is an entitlement, not a personal investment, and can be changed by the government at any time. Due to obvious demographics, the current 20 something can not be expected to pay enough SS taxes to provide benefits to all the baby boomers that failed to save. Just won't work.
If someone has that as their main retirement plan they are headed for disaster and disappointment!

 

[Rustward]

This show was just an attempt to depict the 401K in a poor light.

HiltonSmith, the 31 year old "economist" who can't seem to understand why his 401K does not go up: "ROBERT HILTONSMITH, Economist: I have a 401(k). I save in it. It hasn’t seemed to go up. It’s awful. I kept checking the statement and I’d be, like, “Why does this thing never go up? This is weird.” I mean, the stock market I knew was up and down but I was, like, “I still should be seeing some returns.”"

This 401K was, "like", started SINCE 2008. Now, if he invested in MM or stable value funds, I can see how this could happen, but there is no way a diversified portfolio would have lost money between 2008 and 2013.

Crystal Mendez, 32 year old school teacher with savings of $115K. In reality, she is doing pretty well. She says she is worried and stressed.

Mark and Laura Featherston, 54 and 48. He is unemployed. The article says their portfolio went down in 2008. Who's portfolio did not go down in 2008? They must have made some gross mistake like investing in the wrong things, or selling at the bottom. Then they bought an annuity. Then Mark lost his job and when they tried to cash out of the annuity, they learned about the surrender charges.

Quotes from the Featherstons: "LAURA FEATHERSTON: —not only have you now lost half of your 401(k), but your house is not worth anything anymore, either. So anything that you thought you were going to have there is gone. And now half of your 401(k) is gone.

MARK FEATHERSTON: You know, if it took 13 years to accumulate $80,000 and one year to lose half of that, and then try to get that back in another 13 years, and only be at the $80,000 that you were 13 years ago?"

Are there any 401K success stories? I think there are a lot of those right here. Why didn't Frontline present any of those? They are trying to show how dangerous the 401K is. This is a thinly veiled attempt to convince us that we are too stupid to manage our 401K's and this money should be managed by the government.

Here is a link to a transcript of the broadcast: Transcript | The Retirement Gamble | FRONTLINE | PBS

Teresa Ghilarducci, who was on the show, advocates converting the 401K to a government run program administered by the Social Security Administration. From wikipedia Teresa Ghilarducci - Wikipedia, the free encyclopedia
"In her book When I'm Sixty-Four: The Plot against Pensions and the Plan to Save Them, Ghilarducci proposed mandatory participation in a government-run savings plan to which each worker and his employer would supplement his Social Security pension by contributing 2.5 percent each of her or his salary.[4][5][8][9][10][11] The plan would be administered by the Social Security Administration, but would be separate from Social Security records. In turn, a refundable tax credit of $600 would go to each participant, regardless of his contributions. The account would have a guaranteed interest rate equal to the government's official inflation rate plus three percent.[2]
Videos of lectures given by her and interviews with her can be found on YouTube."

This is even better. Listen to her describe how this would work: 401(k) Foe Teresa Ghilarducci, the Most Dangerous Woman in America - Capital Commerce (usnews.com)


Shame, shame, shame on Frontline.