PBS FRONTLINE - "The Retirement Gamble" 4/23

[Midpack]

It's too bad that there's no formal educational courses for personal finance in school. It's left up to the financially curious individual to figure it out on their own ... and too many aren't curious.

+1. I've always thought the same. One semester of personal finance in the HS senior year would seem far more valuable than some of the traditional subjects IMO. It wouldn't register with all (like every course), but presumably it would start some off on better footing...

 

[Bestwifeever]

+1. I've always thought the same. One semester of personal finance in the HS senior year would seem far more valuable than some of the traditional subjects IMO. It wouldn't register with all (like every course), but presumably it would start some off on better footing...

Our local high school has a required semester long elective offering called Family and Consumer Science. Maybe a class like this actually is available at most high schools. Probably not enough age-appropriate material for a full semester of only personal finance stuff.

 

[scrabbler1]

Our local high school has a required semester long elective offering called Family and Consumer Science. Maybe a class like this actually is available at most high schools. Probably not enough age-appropriate material for a full semester of only personal finance stuff.

If I were designing a personal finance course for high school students, I would start the class with how student loans for college work because that is something the students can relate to. I would surely like to see such a class be mandatory no matter what it is included in it.

 

[SumDay]

Our local high school has a required semester long elective offering called Family and Consumer Science.

This gives me great hope that someone, somewhere, is "getting it". Too many kids go off to college and get sucked into those d*mned credit card enticements, and then go home for Christmas and announce to mom & dad that they have $3K in credit card debt. Thank God mine never did that, but they had plenty of friends who did.

 

[Midpack]

Our local high school has a required semester long elective offering called Family and Consumer Science. Maybe a class like this actually is available at most high schools. Probably not enough age-appropriate material for a full semester of only personal finance stuff.

That's encouraging! I'd add some basic economics and business in the course, but I agree filling a semester might be challenging.

 

[DeborahB]

No, no, no.

the point is that there is little to zero evidence that the higher fee fund can generate returns any higher than lower fee index funds...you can get the exact same 7% yield for a fraction of the fee with index funds...so the added skim off the return is significantly greater, even if it is only "2%."

Why pay that extra money? If you could get the exact same towels for $20 or $200, which are you buying? Most people will shop around to save far less on most purchases but they buy funds with no shopping for price at all. and the extra cost comes out not once but every year for many years.

Very few funds are getting 7% returns... but I would like to know which ones!

I just feel the Frontline piece was misleading. I think people have been screwed by the company 401K plans on so many levels...

 

[DeborahB]

We've been down this road with Thinker, and he remains a true believer in the value of (certain well-picked expensive) managers. Leave him alone--entire industries are counting on him and his fellow believers!

Aw shucks, Sam.... and actually, I'm female. I'm doing fine financially following my own path but I have a lot of background in it. Mostly I rely on me. I'm not supporting that path for others.

 

[Sesq]

My collection of thoughts.

1. The Hiltonsmith dude whining about having to save 10-15 percent for years was kind of a "well, yes" moment. In general the piece seemed to ignore that the first component to a successful retirement is you must, actually, save.

2. I couldn't believe JP & Pru couldn't find better spokesmen. I mean, come on. I am sure the edits weren't kind, but you need to make the case that active management has the potential to beat the market and earn their fee. Also, discuss the compliance costs a bit, ERISA isn't easy.

3. The lead reporter, Martin, should have shown his retirement numbers. His test cases did, it would not have hurt to show some one who is in a high income, high expense world show their set of challenges.

4. Never been a Jack Bogle guy, even though I invest his way, just never seen him talk. Pretty impressive.

5. I think all the bits about "the stock market" can go down were overblown. I mean even the market of the 1990s had 1987 in recent memory. Was that not the moment to introduce asset allocation concepts?

6. I think they very quickly glossed over the key benefit of DC over DB, which is that it *much* better matches the current environment where job tenures are far short of lifetime employment. While it shifts the risk to the individuals, it also frees the individuals to make more choices.

7. On the whole, I liked it, but it needed to be a two part series to cover what to do in today's world. I would have liked to see a CFP go over each of the example people and give a plan and prognosis.

 

[Independent]

The Hiltonsmith agitprop is another rehash of Teresa Ghilarducci’s IRA collectivization scheme (she's a member of the same group). After she got shouted down, it looks like Demos.Org (a nonpartisan group, according to their literature) decided to roll out this paper that builds the case more gradually. But we still wind up at the same spot (see pages 13 and 14): Mandatory contributions, everyone puts their contributions in one big pot to be managed by the government, and payouts are made on a sliding scale based on need.
As the Hiltonsmith report says on page 3:

No, thanks. Social Security is our collectivized system. That's enough.


Paying a fee based on results (say, above a suitable index) would likely be bad, too. It assumes managers can add value (highly questionable), and would encourage managers to make high volatility investments for the retirement accounts they manage. Example:
Manager A: Invests just like the index. His accounts always lag the index by .1% due to trading costs, so he gets paid nothing (though his clients make gains along with the market)
Manager B: Knows how to work the system. He puts all his clients in 5 types of highly speculative investments. At the end of the year, 80% have lost most of their money, but 20% have doubled their funds. He becomes rich.

+1 (and nice example)

 

[MuirWannabe]

My collection of thoughts.

1. The Hiltonsmith dude whining about having to save 10-15 percent for years was kind of a "well, yes" moment. In general the piece seemed to ignore that the first component to a successful retirement is you must, actually, save.

2. I couldn't believe JP & Pru couldn't find better spokesmen. I mean, come on. I am sure the edits weren't kind, but you need to make the case that active management has the potential to beat the market and earn their fee. Also, discuss the compliance costs a bit, ERISA isn't easy.

3. The lead reporter, Martin, should have shown his retirement numbers. His test cases did, it would not have hurt to show some one who is in a high income, high expense world show their set of challenges.

4. Never been a Jack Bogle guy, even though I invest his way, just never seen him talk. Pretty impressive.

5. I think all the bits about "the stock market" can go down were overblown. I mean even the market of the 1990s had 1987 in recent memory. Was that not the moment to introduce asset allocation concepts?

6. I think they very quickly glossed over the key benefit of DC over DB, which is that it *much* better matches the current environment where job tenures are far short of lifetime employment. While it shifts the risk to the individuals, it also frees the individuals to make more choices.

7. On the whole, I liked it, but it needed to be a two part series to cover what to do in today's world. I would have liked to see a CFP go over each of the example people and give a plan and prognosis.

I enjoyed the show overall. Especially the weasly JP guy.

+1 on your 7 points above. Each of these good recommendaitions would have really improved the overall quality of the show.

 

[ducky911]

I just watched the program and found it somewhat misleading. There are funds that make high yields and charge high fees - for me, although not for most here, the net gain is the most important thing.
.

Higher net gain = Higher risk of your money in most cases

I had dregx (emerging markets) I was paying 1.7 % expense fee and for 5 years it was averaging nearly 40% gain ........hint I do not own it now or anything like it.

 

[bUU]

1. The Hiltonsmith dude whining about having to save 10-15 percent for years was kind of a "well, yes" moment. In general the piece seemed to ignore that the first component to a successful retirement is you must, actually, save.

I think a lot of that stems from a general disconnect between the compensation offered for a lot of jobs out there in the economy today and how much compensation is necessary to reasonably support a family plus saving. That's not the case for me, but still I am making 20% less, adjusted for inflation, now as compared to 12 years ago, and that's after two promotions. I can only imagine how some other folks are treated. (Actually, I know, because many of my friends are in that boat.) From what I've seen of it so far, I think the PBS program is aiming more so for the general case rather than depicting my experience or yours.

6. I think they very quickly glossed over the key benefit of DC over DB, which is that it *much* better matches the current environment where job tenures are far short of lifetime employment. While it shifts the risk to the individuals, it also frees the individuals to make more choices.

Choices that I bet the vast majority of them would prefer not to make; or more properly, choices that they would gladly give up in return for lifelong job tenures. And I'm not even sure I buy into the whole idea, because those folks who would significantly benefit from such choices would probably benefit from making those choices anyway, despite how that undercuts their access to DB - after all, aren't they specifically the high-fliers?

 

[ducky911]

Our local high school has a required semester long elective offering called Family and Consumer Science. Maybe a class like this actually is available at most high schools. Probably not enough age-appropriate material for a full semester of only personal finance stuff.

That's great!....hope the teacher is not try to sell annuities in the back parking lot

 

[Midpack]

2. I couldn't believe JP & Pru couldn't find better spokesmen. I mean, come on. I am sure the edits weren't kind, but you need to make the case that active management has the potential to beat the market and earn their fee.

That was very conspicuous to me too. That the Prudential "head of retirement accounts" said she had never seen a comparison of index vs active fund returns after fees was unbelievable/unconscionable. Wouldn't have surprised me if she disagreed and defended active funds, but never even seen one? Lying? Incompetent? Other?

 

[bUU]

CBS Review of the documentary.

"Retirement Gamble:" a critical review - CBS News

It also points out Christine Marcks' silliness.

 

[FUEGO]

Watched it last night on the tv (played over hdmi from my laptop). Pretty good show for a mass market audience. Definitely highlighted a lot of problems in the 401k/investing/retirement world. The one part I felt was missing was a recap on how an individual could do an awesome job with their retirement funding and investing.

Maybe Hiltonsmith (economist mutual fund researcher) or Jack Bogle could have said "Focus on low expense ratio funds with low turnover and make sure you are saving enough to reach your goals. Start early." Perhaps the reporter didn't want to cross the line into editorialism from investigative reporting. I thought Hiltonsmith's closing words were a little disappointing as that is when he could have given some clear, concise, and useful advice instead of leaving us feeling like it really IS a big mystery and that he had little hope ("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? Although that may be editing by the reporter and not a lack of quotable material from Hiltonsmith.

 

[bUU]

I haven't gotten through it to the end yet, but I did hear very clearly "If you don't start before you're 40 it's too late" or something to that effect. Sure, it would have been nice to turn the statement around, "Start saving for retirement as soon as you start working, even if you have to live in a hovel and wear torn clothing to be able to afford the cost of living, raising children, saving for their college, and saving for your retirement, all at the same time." But I think what you've attributed to Hiltonsmith is the actual reality for most people "big mystery ... little hope". I've been working very hard for going on seven months now, trying to learn this stuff, and I'm still in the "big mystery" category (though not necessarily with little hope, but still...)

 

[Sesq]

I think a lot of that stems from a general disconnect between the compensation offered for a lot of jobs out there in the economy today and how much compensation is necessary to reasonably support a family plus saving.

We have all read stories of folks who have managed to save despite modest means. The fund company's make a big effort to get people to save (so they can take a cut), but that is where it has to start.

Choices that I bet the vast majority of them would prefer not to make; or more properly, choices that they would gladly give up in return for lifelong job tenures.

I have changed jobs five times in the eighteen years I have worked since college. Each time, it was time. If I was in DB plans exclusively I'd have only vested in two or three, and they would be stuck in time in terms of their 1% times years served times old rate of pay, most likely w/o any inflation adjustment.

 

[bUU]

We have all read stories of folks who have managed to save despite modest means.

We all also realize that each of those cases are unique anecdotes, with numerous comparable anecdotes which are exactly the same until fortune fails the folks and leaves them further and further behind their fortunate cohorts. That's really the biggest reason why people are confused, I think: The same actions often lead to completely different results.

I have changed jobs five times in the eighteen years I have worked since college. Each time, it was time.

But you seem to be one of those who benefited from job changes, so you're not one of the folks I was referring to.

 

[mickeyd]

+1. I've always thought the same. One semester of personal finance in the HS senior year would seem far more valuable than some of the traditional subjects IMO. It wouldn't register with all (like every course), but presumably it would start some off on better footing...

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.

 

[bUU]

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 sorry but I don't see any reason to believe either of these assertions. It is difficult for the "majority of average American citizens" - and that's because it actually is a difficult realm of knowledge to understand - and that's despite quite extreme motivation. I think we really need to be a bit more compassionate toward those who fail to meet our own expectations regarding financial skills and knowledge, and not regard them in such a prejudicial manner.

 

[FUEGO]

I have changed jobs five times in the eighteen years I have worked since college. Each time, it was time. If I was in DB plans exclusively I'd have only vested in two or three, and they would be stuck in time in terms of their 1% times years served times old rate of pay, most likely w/o any inflation adjustment.

+10000000!

As I was watching this Frontline documentary, I told DW "Thank goodness I'm not stuck with a pension!" Then I realized my current job does have a pension but there is no way I place any positive value on it because it is just an anchor. I prefer the ability to jump ship when the time comes (due to my goals and interests, or due to the organization's increasing suckdom).

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.

 

[tryan]

The bold face lies by the loaded fund reps are no different from the daily BS our politicians tell us. We are conditioned to being lied to ... really no surprises here.

 

[mickeyd]

I'm sorry but I don't see any reason to believe either of these assertions. It is difficult for the "majority of average American citizens" - and that's because it actually is a difficult realm of knowledge to understand - and that's despite quite extreme motivation. I think we really need to be a bit more compassionate toward those who fail to meet our own expectations regarding financial skills and knowledge, and not regard them in such a prejudicial manner.

I stand by my assertion that the great majority of my fellow citizens are very capable of learning simple investing techniques and financial theory and are capable of applying it to their own special situation. For example, this entire ER community is full of everyday folks who have done it and continue to learn.

You are selling them short by indicating that it is too difficult. Thermodynamics is difficult. Personal finance is not.

I fail to see what compassion/prejudice has to do with any of this.

 

[samclem]

I think we really need to be a bit more compassionate toward those who fail to meet our own expectations regarding financial skills and knowledge, and not regard them in such a prejudicial manner.

Providing for one's own retirement through prudent saving is not hard. To assert that some people just are not capable of mastering the skill seems a bit condescending and insulting. Is it really harder than filing income taxes, casting an intelligent vote, or effectively serving on a jury (other things we expect of citizens)? 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.

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.