The Retirement Gamble

[DougK62]

Wasn't directly entirely at you, just in general. I think people in general are more likely out of touch with how much they can afford to spend and how much they need to save.

I agree. If I'm good with money and finding it difficult, then it seems like the average joe would be heading for big trouble.

 

[Cookie]

I agree. If I'm good with money and finding it difficult, then it seems like the average joe would be heading for big trouble.

Subscribed so I can read links later.

I'm good with money too, and I put my 10% (give or take) away for retirement, but I have no idea whether it's put in a place that is actually doing well compared to other options right now. Figuring that out has been on my to do list for a year now and I need to start learning more about it.

 

[Tweak155]

Meaning, you asked for retirement advice (i.e. what retirement management choices would he make). No wonder you think he should have.

Further proof others should add you to their ignore list, adios!

 

[dr150]

......- That a not uncommon 2% per year fee for the accounts (the average is 1.3%) can lead to over half the money being given to Wall Street over decades.

- That while managed investment products demand higher fees that are highly profitable over time for Wall Street, they do not provide returns that justify the fees. That studies show over time index funds with low fees outperform the large majority of managed funds after fees every year, and outperform pretty much all of them over time.

For the first time in American history, the next generation not doing as well as the previous.

The show was about the retirement savings - and how people are not well informed about ther 401(k)'s.....

I haven't watched the show, but your Cliff notes expose a really sad reality.

I know extremely intelligent people (PHds, Ivies, etc) who have no oversight about their retirement accounts. It's a mess and they don't want to deal with it b/c of fear and ignorance. I know some who are broke, living paycheck to paycheck and with shyte credit. And this is an educated class who should know better.

Currently, the stats of people's savings rate is horrendous. In 30 years, it's going to be an epidemic of major proportions of senior workers...broke and with health problems (made even worse from weight issues)....many also who didn't have kids (even if they did, kids will most likely also be unemployed/broke vs. the previous generation) to have a chance of taking care of them. The government won't have the funds or motivation to take care of this issue.

You look at old generation pension schemes replaced with crap 401k accounts where unsavvy people now have to sit down and choose funds. Forget about it. They either haven't set up a 401k b/c they're broke or ignorant or if they did set it up, choose horribly into underperforming expensive funds.

Every company 401k account that I've been exposed to hide the high expense ratio fees (i.e. you have to dig in into the chosen plan....who does that when choosing?) and the returns of these funds suck when you compare it to index funds.

A shining light is that company 401ks attached to a "progressive" brokerage like Fidelity, you can set up a Brokeragelink account so you can take your 401k money and invest it more wisely outside of your company's crap selection of funds. All it takes is filling out an application. But nobody has the time/inclination to take 30 minutes of their time to make a call and fill out the form. I have yet to meet an employee who has set this up. They'd rather take it up the ass by mouse clicking the fund box with an underperforming, 2%+ expense ratio, 2 star Morningstar rated Value fund.

This is a consumption/entitlement culture (i.e. do you really need the latest 5" smartphone when you have $70 in your checking account?) that feeds the economic engine without a balanced regard to savings. It's going to bite this country in the ass. It's going to hurt big time. :hmm:

 

[Vdubchaos]

Every company 401k account that I've been exposed to hide the high expense ratio fees (i.e. you have to dig in into the chosen plan....who does that when choosing?) and the returns of these funds suck when you compare it to index funds.

How do I find out what these expenses are?

I just went online and went thru every option possible and wasn't able to find anything.

What specific questions should I ask?

A shining light is that company 401ks attached to a "progressive" brokerage like Fidelity, you can set up a Brokeragelink account so you can take your 401k money and invest it more wisely outside of your company's crap selection of funds. All it takes is filling out an application. But nobody has the time/inclination to take 30 minutes of their time to make a call and fill out the form. I have yet to meet an employee who has set this up. They'd rather take it up the ass by mouse clicking the fund box with an underperforming, 2%+ expense ratio, 2 star Morningstar rated Value fund.

But that wouldn't enable me to collect my employers match.

PS. I noticed we are limited to 15-20 funds on our plan (we have Aspire but seem to switch on yearly basis....which has given me concerns).

I'm also seeing 2% year to date return right now.......

 

[rcpratt]

How do I find out what these expenses are?

I just went online and went thru every option possible and wasn't able to find anything.

What specific questions should I ask?

I'm also seeing 2% year to date return right now.......

I believe it's now a requirement to disclose the overall expense ratio. They're usually on the fund prospectus.

 

[Vdubchaos]

I believe it's now a requirement to disclose the overall expense ratio. They're usually on the fund prospectus.

Yep, that's what I'm reading. I have to check my statement.

 

[Craig234]

So what would you invest in / how would you manage your money? Just curious.

And yeah his post was worthless.

Hi Tweak, here's my basic view.

First, there's a big question what to do with the money at all - but let's talk 401(k)/stocks rather than 'start a pizza parlor' or 'real estate investment'.

One thing to be aware is that the really big money makers are limited to high-value accounts - you need net worth in the millions and big investments, a la Mitt Romney.

These are the big 'venture capital' funds you read about, who can put billions into very profitable things.

That's not an option for most.

That means you can pick largely from cash or a variety of mutual funds mostly, sometimes stocks.

Generally, individual stocks are not the way to go. There are two ways to invest in them if you do want to - short term a la day traders or long-term holds.

Well, most day traders lose money as I understand it. They can have all the systems they like - but the people who make money are the big firms who speed trade (where microseconds matter), which is a majority of all the trading done on the market now, with supercomputers who pay big bucks to locate next to the market and suck up a lot of the nation's Ph.D's in math and physics to design how to make money, you can't do that.

This gets to mutual funds and there are a couple basic options. Managed and index, which are higher and lower fee respectively.

Studies show, as the documentary points out, that on average the unmanaged index funds with low fees make more. A small percent of managed funds do better in the short term.

This doesn't make a lot of intuitive sense - how can the experts not be able to pick better stocks enough to pay for a 2% management fee - but those are the facts.

Thing is, those index funds with low fees just don't make all that much are aren't as satisfying as 'gambling'.

You can try to beat the odds and pick managed funds. Most of the 'financial commentators' seem pretty useless. Investigations have trashed Jim Cramer, for example. One I've found to seem better is the radio host Bob Brinker (he's had John Bogle on as a guest and highly recommends him as well). He has a newsletter that costs $185 a year to recommend mutual funds for various profiles. I haven't verified how well it does carefully but my impression is a lot of people feel it's worth it.

I think if you have enough to invest to justify it, getting his newsletter for a year to get set up isn't a bad way to go. He does offer a free sample about 4 months old.

I'd say beware the sexy looking retailers. There's one with massive marketing wih ads that ask if you have $500K to invest, and ifyou do, they have a 'free' set of information designed just for you to help you - Fisher investments. I was curious to look at them just to see how bad it was, and talked to them - very aggressive sales, very big hype on the fortune they'll make you. They pitch their service as this highly personalized pick of investments for you.

The investigation found a very high level of complaints among those who signed up, poor investment picks, and investors comparing notes finding that there was basically one set of investments given to everyone, with very minor variations - it was hot air and fluff, but very expensive with fees. He made a fortune by effective marketing. He had made one right call pretty much ever I could find, which they hyped a lot in their marketing - and missed the rest costing people a lot.

You can't do much worse than things like a newsletter I got hyping a stock, making claims what an incredible find it was, and how it could make 10 times, 100 times or more if you get in now! Nice smooth sales pitch appealing to your greed - the small print informed you it was 'sponsored'. I checked back for fun - and the recommends stock was down9 90%. Oops.

In fact, that's not a bad idea - look at all these recommendations, they sound great - get one year old recommendations and magazines, and see how they did.

I find they are usually mixed, with a lot of big losses, just not good.

The documentary advised getting advice from someone who is your fiduciary - not a salesperson. I think that's pretty good advice - you pay them, because if you aren't, and they're making their money from the products they're recommending, that's going to cost you a lot. There are good books you can read even cheaper including Bogle's, Bob Brinker has a web site with a list of books:

http://www.bobbrinker.com/books.asp

I'm actually not going to say 'this is the recommendation', both because I don't feel I can give a well researched enough answer and one size doesn't fit all.

But it sounds like index funds, with some eye on broad trends, aren't a bad start. For example, maybe you think real estate is coming back and want to concentrate there.

Or maybe just get a broad index like the Wilshire 5000.

There's a lot of money to be made from the market fluctuations - if you could time them, but only those big firms with Ph.D's have shown they can on average.

Just knowing to get out of the market to cash before a crash could have saved you huge amounts, if you knew when to do it - but how do you, really?

Here's a story that might be helpful. Very few people saw the real estate crash of five years ago coming, especially to make money by shorting it.

But there was one guy in the industry, who had the numbers, and determined it just had to crash. He borrowed from friends and family enough to spend a big investment in shorting the market, not long before the crash. But a bit too long before - he lost it all. Somehow then he did it again - and this time, he ended up one of the biggest money makers fromthe crash, making billions, there's a book about him. But he was rare - and had a diaster trying to do it.

Consider the index funds, if you want more aggressive the books and maybe the newsletter.

And be aware that nearly all the sexy sounding sales pitches from financial firms are based not on making you money but on making them the billions they do.

I do have to say overall the stock market is generally attractive, giving people a tiny taste of the big profits of public firms. The vast majority of financial wealth in the country is owned by the top 1%, and by far more by the top sliver of the top 1%, but you can get access to some of that by owning stocks. You're not going to get all the big gains the top investors do, but with wages flat, it's better than that.

That's why although I mentioned cash above as an option, it's mainly a terrible one, with a huge opporutunity cost, mostly useful for simply having some savings protected from a crash.

To answer your question what I would do I have to admit that I have not resisted the temptation to try individual stocks, with varying results. It's hard not to get excited about some companies.

But it's also hard for people not to get caught up in the gambling psychology - especially because on average, the odds are in 'your favor', not the house's like in a casino.

I've had stocks go up a lot, lose nearly all their value, and stay flat for years. I'm looking at a medical device company now, pondering.

Finally I have to include a plug that in my opinion, one of the better things people can do for their own finances is to vote for 'good government' - the type that elects Elizabeth Warrens to fight for the people and not the scumbags like the retiring Max Bachus (or Phil Gramm) who serve the financial industry. The government has a massive effect on wealth. Vote well.

 

[JM Aggie08]

Most 20-30 year olds nowadays will probably never invest in retirement, due to the delusion of being able to make a living with a fine arts degree.

That's fine...mo money for me.

 

[Mark R]

I think you might be out of touch with wages and expenses for a typical person in their 20's/30's. I'm quite educated in financial matters, but just don't make a salary that permits me to sock away huge sums of money every month.

And this is the problem.

The vast majority of people now in their 20s and 30s will never be able to save for a retirement. They'll be working until they drop.

 

[Vdubchaos]

Finally I have to include a plug that in my opinion, one of the better things people can do for their own finances is to vote for 'good government' - the type that elects Elizabeth Warrens to fight for the people and not the scumbags like the retiring Max Bachus (or Phil Gramm) who serve the financial industry. The government has a massive effect on wealth. Vote well.

Little problem

There isn't a good option to pick. hehe

And as long as lobbying aka bribery remains legal.....this country will only sink deeper.

 

[Tweak155]

<wall of text saver>

Thanks for the long and detailed reply, didn't mean to take up your afternoon

 

[Craig234]

Little problem

There isn't a good option to pick. hehe

And as long as lobbying aka bribery remains legal.....this country will only sink deeper.

Wellllllll since you ask, the progressives Bernie Sanders, Elizabeth Warren, Sherrod Brown and their ilk.

 

[Craig234]

Most 20-30 year olds nowadays will probably never invest in retirement, due to the delusion of being able to make a living with a fine arts degree.

That's fine...mo money for me.

That sort of cynicism is an excuse for a quote reminding there's more than dolllars:

"Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product ... if we should judge America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.


"Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans."

- Bobby Kennedy

 

[Tweak155]

That sort of cynicism is an excuse for a quote reminding there's more than dolllars:

Nice quote, never heard it. Sad but true.

 

[Craig234]

And this is the problem.

The vast majority of people now in their 20s and 30s will never be able to save for a retirement. They'll be working until they drop.

Before Social Security, the elder poverty rate in the US was 90%. If Wall Street gets their way, we'll move back that direction, as they get to extract that also.

 

[stlc8tr]

I love the Frontline series, but they are complicating an issue thats not that complicated. Many 401ks default you to a target year retirement fund. These funds typically have fees between .65% - 1.5%. This is suitable for most people. So all they have to do is to elect to be apart of the 401K and forget about it. You need to do a little bit of due-diligence in everything you do, retirement included.

I personally am in the Spartan S&P 500 fidelity index fund with 0.05% fee and the Spartan International fund with .17% fee.

https://fundresearch.fidelity.com/mutual-funds/summary/315911701

Dunno how many 401Ks offer Fidelity Spartan or Vanguard Admiral funds. I know that mine doesn't. All of the choices are high expense active funds. Not an index fund in the bunch.

 

[dr150]

How do I find out what these expenses are?

...I'm also seeing 2% year to date return right now.......

Look at the only PDF file for each fund within your account. It's there. You may also find the info. on a different screen as well. You can also call the brokerage and ask about the expense ratio. They'll immediately tell you.

As you already mentioned, that 2% return is really underforming--that's lower than the twelve month 2.96% dividend yield on the conservative VYM ETF (not to mention its 13%+ YTD return and ultra low .10% expense ratio)....http://etfs.morningstar.com/quote?t=vym

Also, by comparison, a cheap simple S&P500 Index ETF like VOO (.05% expense ratio/2.05% dividend return) has already returned 10.85% YTD....http://etfs.morningstar.com/quote?t=VOO

Well, most day traders lose money as I understand it. They can have all the systems they like - but the people who make money are the big firms who speed trade (where microseconds matter), which is a majority of all the trading done on the market now, with supercomputers who pay big bucks to locate next to the market and suck up a lot of the nation's Ph.D's in math and physics to design how to make money, you can't do that.

Perfect example of a supercomputer speed trade was yesterday's fake tweet on White House explosion. The market tanked hard and recuperated in seconds based on ONE tweet. Bank computers with their trading algorithms acted immediately on the plunge and ride back up.

It's a dangerous game, even for seasoned pros. A trader on the floor mentioned his firm made money all the way down the slide but lost 70% of that profit riding it back up because their computers weren't fast enough on the take.

 

[Exterous]

thanks for link

No problem! It can really shed some light onto how good a plan has to be (and most likely isn't) to justify the cost

I believe it's now a requirement to disclose the overall expense ratio. They're usually on the fund prospectus.

Yep - all fund fees are required to be displayed under federal regulations and the total Expense Ratio must be calculated and everything presented in "plain English"

That being said it appears as though the new disclosures haven't helped the public:

After the new fee disclosure statements went out, roughly the same percentage—half!– of participants said that they still do not know how much they pay in plan annual fees and expenses, according to a recent survey by LIMRA,

At least there was some progress. One out of five (22%) participants in the LIMRA survey said they believed they didn’t pay any fees or expenses compared to 38% in the survey done before fee disclosures went out.

And it seems people don't seem to mind high fees:

For those 401(k) participants who said they thought they knew how much they paid in fees, most of them were way off base. 30% thought they paid between 2% and 9% in fees.

http://www.forbes.com/sites/ashleaebeling/2013/03/11/401k-fees-still-widely-misunderstood/

 

[Genx87]

Fees are a big deal.

 

[kranky]

No disputing the greed of the financial industry, but there are other factors that are relevant. I think pensions were doomed when people started to live longer in retirement. In the heyday of pensions, people retired at 65 and lived to 70-75. Now they live into their 80's and 90's, so the payout per retiree is much, much greater than it was years ago. I'm not surprised pensions became obsolete.

The financial industry has done a great job of pretending to educate the public while actually convincing the public that they can't possibly understand investments and must have expert, costly guidance. They got people to think paying 1% per year for professional management of their money is cheap, and making sure they don't stop to think that over a 30 year period of saving, that 1% PER YEAR adds up to 30%.

I have seen people pay 1.5% for an advisor who put their money in high-cost mutual funds that had 1.5% expense ratios. That's 3% every year off the top. Who's getting rich on that deal? It ain't the client! It would take a miracle for that account to perform as well as a 60/40 equity/fixed income portfolio over a 30 year period. But people think they have to use costly advisors.

I don't know why the average person doesn't try to learn how to manage their own investments. It doesn't have to be complicated. It should be common sense that nobody cares about your money as much as you do. Bogleheads.org has a 3-fund portfolio that is simple and low-cost. Just doing that can be enough. But it's boring, and for some people that's a negative. You can't brag to your co-workers about the hot stock you just cashed out or the exotic investments your advisor put you in.

Jack Bogle's creation of the low-cost index fund might have put more money in the pockets of Americans than any other person ever.

 

[Craig234]

No disputing the greed of the financial industry, but there are other factors that are relevant. I think pensions were doomed when people started to live longer in retirement. In the heyday of pensions, people retired at 65 and lived to 70-75. Now they live into their 80's and 90's, so the payout per retiree is much, much greater than it was years ago. I'm not surprised pensions became obsolete.

I agree, but what a crappy way we've addressed this in our policies. We pretty much haven't addressed it at all.

We just watch the numbers get worse and don't look for any good solutions, but instead just let those who can profit from the situation set the agenda for what to do.

We used to actually try to have policies that were good for the public, like creating social security in the first place. It would not be made today.

 

[kranky]

My solution is to take responsibility for my own retirement funding.

 

[JTsyo]

That sort of cynicism is an excuse for a quote reminding there's more than dolllars:

"Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans."

Don't see what adding a bunch of zero entries to our GDP is supposed to do

It seems the quality of retirement for people is going to depend on the state of the stock market during that time. When the stock market is high people won't want to get out and when it's low they won't be able to afford to get out. I wonder if there's a market for 401K plan's to be converted into annuities. People might prefer the stability.

 

[Juddog]

Cliffs:

My generation is screwed.