Ben Stein - More doom and Gloom on Retirement............

[Cut-Throat]

Ben Stein makes a few big blunders on this one.

http://finance.yahoo.com/columnist/article/yourlife/3679

This I thought was the biggest:

Third, these calculations are complex. It's the rare citizen who can do them in his or her home. I can't overstate the importance of having a financial advisor from a reputable firm. Trying to make these calculations by yourself is just plain beyond most of our ability.

 

[youbet]

Well...........  I generally agree.  Ole Ben and his financial advisor buddy do suggest a 4.25% SWR which is hard to argue with.  And he does suggest getting started early to be able to save/grow a nest egg large enough so that the 4.25% SWR is enough income for an enjoyable ER.  No arguments with those basics......

But, his stance that you can't figure it out yourself is pretty lame and obviously directed at promoting business for FA's.  What a surprise that Ben would do that!   

 

[jj]

He does admit that he's paid to speak by financial advisers....

 

[astromeria]

I liked the essay with a few disagreements:

-- Assuming one needs an advisor salesdude. With free online calculators like FireCalc and ORP, and free forums for discussing asset allocations, why does one need to pay an expensive guru?

-- Assuming one needs 85% of peak income. Most of the retirees I know are happy campers living on considerably less.

-- Recommended portfolio seems a little top-heavy (large-cap, developed mkt). I've seen other portfolio recommendations from him. One was something like DVY, generic international, REITS, and TIPS. Maybe he's a Myers-Briggs P and changes his mind a lot!

But Stein's major point about needing to save beaucoup de bucks starting as early as possible is right-on. And presenting a "typical" middle class person helps non-conceptual folks to visualize stark reality.

 

[TromboneAl]

These calculations are complex: FALSE
It's the rare citizen who can do them: TRUE

Mathematically challenged people are screwed.  

Talked with sister #1 last weekend.  She's been paying an advisor 1.5% per year to put her in load funds with high expenses.  I explained the problems of that, and suggested some reading, and I think she got it.

Sister #2 would never be able to understand that stuff.   The only recourse for someone like that is to waste his/her money on a financial advisor.

 

[unclemick]

Yep

As usual for the 'better' media articles Ben is half right on and half totally full of it.

I briefly entertained the thought of sending him an e-mail.

But then I got in touch with my INTJ side.

heh heh heh heh - I doubt he reads our ER forum.

 

[youbet]

It's the rare citizen who can do them: TRUE

Apparently, and sadly, this is true.  Even worse if you change it to read "it's the rare citizen who is willing to and is doing them."

 

[Dawg52]

Theres that 85% pre-retirement income % again.  :

 

[youbet]

Theres that 85% pre-retirement income % again.  :

I'm pretty comfortable with that estimate, although I could see it being a lower percentage if it had to be.

I think lots of folks believe this is too high because they don't realize the income refered to is income net of current savings.  If a couple has a joint income of $100K and both fund 401K's, they have $60K left to be taxed and then spent.  85% of $60K is $51K.  Sounds reasonable to me.

 

[Dawg52]

I'm pretty comfortable with that estimate, although I could see it being a lower percentage if it had to be.

I think lots of folks believe this is too high because they don't realize the income refered to is income net of current savings.  If a couple has a joint income of $100K and both fund 401K's, they have $60K left to be taxed and then spent.  85% of $60K is $51K.  Sounds reasonable to me.

The article states "85% of pre-retirement salary". I have even seen some articles state 85% of gross income. True, if it is 85% of net after savings and all deducted........that may not be too far off.

 

[youbet]

Well.....  it does seem like jargon and terminology are a real problem in discussing RE, here on the board and in articles and publications.  Whenever I see the 85% estimate, I always assume they mean 85% of what you spend now.  Anything else is silly.  "Salary" or "income" just don't have enough consistency from person to person to be meaningful.  As long as these guys are encouraging folks to save and invest, I'm OK with it.  It's underestimating what you'll need for retirement, especially when you're still young and early in the accumulation phase, that will get you in trouble.

 

[TromboneAl]

Right, the 85% figure is silly because it's based on income rather than spending.  Yes, many people spend every penny they get, but it's still a dumb "statistic."

If you want to know how stupid most of the people in this world are, watch Jay Leno's Jaywalking segments.

For example:

Q: How long does it take the earth to go around the sun?
A: 24,000 times.

 

[maddythebeagle]

As usual for the 'better' media articles Ben is half right on and half totally full of it.

I briefly entertained the thought of sending him an e-mail.

But then I got in touch with my INTJ side.

heh heh heh heh - I doubt he reads our ER forum.

No time for emails, you got wood floors to put in and grass to mow

 

[cute fuzzy bunny]

It's the rare citizen who can do them: TRUE

I think its the rare citizen that makes the attempt. I think a lot of people figure if there are these whole armies of 'experts' and you have to pay them handsomely to manage your money and retirement, it simply must be too complex for the average person to grasp.

I also think that the fund shops do a lousy job of marketing their lifestrategy/lifecycle/target retirement type funds. The idea that "you dont have to know" would be very popular with a lot of people, if couched properly to them.

 

[d]

am reminded of a line: "the average person is a little bit below average" ... but I'd attribute it to most folks incredibly short time horizon coupled with unreasonable and inordinately high discount factors. 

 

[yakers]

am reminded of a line: "the average person is a little bit below average" ....

Sort of the opposite of Prarie Home Companion, where everyone is above average?

 

[cute fuzzy bunny]

I like "think of the most average person you know, and then realize that half of the people on earth are dumber than he is."

I doubt its intelligence. I think its fear and lack of motivation. Plus if you give your money to someone else and it "goes away", you have someone to blame.

 

[audreyh1]

I think its fear and lack of motivation. 

I think people are easily intimidated by managing investments, and "experts" and "planners" prey on this fact. It's easy to dazzle a novice with BS.

Some folks may think they don't know what they are doing money-wise, but they are street-smart enough to realize that a financial advisor is in the position of taking advantage of their naiveté. There is a serious conflict of interest between a financial advisor and his/her clients. So they realize they had better learn how to do it themselves, because otherwise who is going to check up on their advisor? Once they realize that if they know enough to watch their advisor they know enough to do it themselves, then they might as well cut the advisor out of the loop.

Not too many people are willing to take this path. It seems too hard. They just really hope to find someone trustworthy.

I remember that I wasn't thrilled about becoming an investment manager - seemed like a lot of hard work and it certainly was at first! But I could never get past the fact that no one else would care as much about our financial security/wellbeing as I would. So, I tackled the learning curve.

Gosh, I read so many horror stories of how people have been burned by putting their trust in a financial advisor who really didn't have their best interests at heart. I haven't heard any good stories to balance them out either.

Audrey

 

[alphabet soup]

It's interesting to me that most retirement advice comes from "experts" who are still working twelve months a year.

 

[modlair]

A pretty powerful reality is a statistical tidbit that, in effect, warps our perception of "average".

The Bell Curve presented an argument that was lost in the rush by academe to slam it because of 20 pages out of a 600 page book. The core argument of the book was that modern society is stratified not by wealth, not by race, but by IQ. The authors presented a tidbit that goes something like this:

Think of 10 people you know. Just 10 people randomly picked from your circle of friends. How many have college degrees? How many have graduate degrees?

If you answer (I forget the number) 4 or higher to the first question the odds are thousands to one that this would be so for a random distribution of friends. For the second question if you answered 2 or higher, tens of thousands to 1 for a random distribution of the US population.

The point being, smart people hang out with smart people. It affects their perspective of what is "average".

 

[Eagle43]

Well, I might need 85%, but I sure am not spending it.  I guess I am getting it, but reinvesting all dividends keeps me way below any pre-ordained 85 percent.  So, he's wrong about that. 

And nobody wants to own up to being average! I have met a few average folks, but they sure don't admit it.  I mean, Jarhead, are you average?? REW?? Couldn't be, huh? 

 

[Jarhead*]

And nobody wants to own up to being average! I have met a few average folks, but they sure don't admit it.  I mean, Jarhead, are you average?? REW?? Couldn't be, huh? 

Eagle43: Can you be average if you're suave, sophisticated, handsome, and intelligent?

Cuz Bubba and me am all that.

 

[REWahoo]

Cuz Bubba and me am all that.

Jarhead, thanks much for including me in your response. And while I've got your attention, hold my beer and watch this...

 

[haha]

am reminded of a line: "the average person is a little bit below average" ... but I'd attribute it to most folks incredibly short time horizon coupled with unreasonable and inordinately high discount factors. 

Isn't this true. Ever time some psychologist or economist studes human decision maiking, very high implied discount factors is one thing he finds.

Ha

 

[LOL!]

How about this: Even so-called above-average folks can't make the right decision about which index fund to purchase.

In the NYTimes April 9th is an article by Mark Hulbert entitled either "Same Portfolio, Higher Cost. So Why Choose It?" or possibly  "Avoiding High Cost Funds Takes More than Intelligence".  http://home.flash.net/~factoids/fact6/fact.htm (scroll down to get to the article in the digest).

The researchers wanted to find out whether the students would be able to assess how returns are affected by funds' fees. In the first simulation, the professors asked undergraduates and M.B.A. students to allocate a hypothetical $10,000 among four S&P500 index funds that would be held for one year. All four funds invested in the same 500 companies, and matched the index's allocation for each stock, so the only significant difference in the funds' returns would come from their fees — their front-end loads, or sales charges, and their management expenses. And because of the way the professors designed the experiment, these four funds had relatively high fees, ranging from 3.09% to 5.89%.
...
The rational response, the professors argue, would have been to allocate all the money to the fund with the lowest fees. Yet fewer than 20% of either group of students did so.