MarketWatch: 'Pollyanna', 'Americans refuse to confront dark side of retirement'

How about you?

A few of Mr. Powell's points:

"More than seven in 10 Americans are either 'very confident' or 'somewhat confident' " [regarding the adequacy of their retirement funding.]

"Yet almost half of workers have less than $25,000" [saved, excluding home or defined pensions]. This stinks. Your pension, if it comes in and stays reliably funded, may not be as much you think it will be. Are you married,and planning to get the 'pays as long as either of us is still alive' option, the amount you get will be reduced by perhaps a fourth. A fourth. the alternative is worse. Don't, please don't (guys) shaft the wife of your youth by taking the single-life option. (Individual circumstances might alter this. I'm talking about the normal case here.) If you do that, then die first, then she is without that ongoing money.

Your social security will only pay in full if you wait until you are 66 or even older. Take it earlier and they cut the payment. Work between then and your 66th birthday or whenever the magic date is for you and they take back a lot. And what you do get from Social Security likely will be "means-tested" at some point. That means you may get less. In other words, if you are not simply destitute, you might get to assist Uncle Sam to reduce his staggering budgetary pressures by getting even less.

The message for those of you in this situation is that you should get very, very serious now about providing for your retirement years. And watch out for the financial services pros who want to cure your apprehension by selling you some cure-all, heavily commissioned wonder annuity. Poor performance, excessive salesman compensation and wretchedly bad disclosure of ongoing costs will not make your situation better. The best solution is learning how to invest well, or, failing that, get some low-fee competent advice. And then you make the very best use of your remaining years in the workforce to get yourself back into the game.



Sunny Americans refuse to confront dark side of retirement - MarketWatch

Barry Barnitz' Financial Page blog: Hidden Fees in 401(k) Plans

Barry tells you what the issue is succinctly. Follow the link to read, or at least skim the underlying paper. 'Gird up your loins' if you aren't into reading technical financial discussions. But if you have a 401(k), and if you need it to work well for you, it's a major part of your future financial well-being. Start now, by at least looking over the paper.

I've advised people on subfund choices and allocation for their 401(k)s, and from this advisor's perspective, some are so much better, and some are so "less better". It's your retirement, and good advisors and smart clients have to find ways to make these things work optimally, as imperfect as they are, in short, make them work as well for you as they have for the financial services industry.

So, what do you do right now, with your plan as it is now, whether good or not so good? You learn. Learn about the disclosed and the undisclosed fees, at least well enough to know what a 12b-1 fee is, and to get the concept that these things are not neatly itemized for you in anything your plan provider sends you. Shock your 401(k) contact person by asking for the prospectus(es) for your fund choices. Get it. Gird up your loins again and read the thing. Go to the notes if you have to, to get the specifics, and get them correctly. You could politely email the people in your company who make decisions about the 401(k) provider. You might politely let them know if you think the fund choices are not great. Ask them, 'What is a fiduciary doing paying out 12b-1 fees, anyway?' Not all plan providers work that way. If there are no low-cost index funds, ask 'why the heck not?' If there is an index fund or two, but the expense ratio is higher than any index fund you ever saw, ask (in a nicer way) why they gave you such a crappy choice. You also do not need six or seven essentially identical (say, US large-cap growth) funds. You need one excellent fund, with low expenses, in major asset classes. You don't need "bear market" funds, internet funds, technology funds, long-duration or high-yield (junk) bond funds (uncompensated risk, per the academics,) or annuity choices (high fees and crappy performance--read the paper Barry links to.)

If you don't want to do such things, you might get a low-fee advisor who knows what the word "fiduciary" means, and cares enough to try to be a good one! Ask how the advisor has structured his business to be a good fiduciary. It's hard to stump financial services types, but that might do it! If you find one, he or she can help some with that 401(k).

Good investing!


Financial page: Congressional Testimony on Hidden Fees in 401(K) Plans

Are People Saving Too Much For Retirement???

Naahhh. Seriously, there is a debate on this. And while there is something to be said for not unnecessarily living the life of an ascetic, there is certainly the necessity in this life for most people to be a little bit prudent about saving for their retirement years. Ms. Rowley does a nice job, as usual, of reviewing the issue. The important thing, if you are not saving, is to start, and stick with it. Saving something is better than saving nothing. Saving a little more is better than saving a little less. Take a step for your future. This month.


here's the article

MarketWatch, via Yahoo Finance: "It's getting easier to create a socially responsible savings plan"

Looking to try to do some good in the world with how you invest your money? Who wouldn't like to do that? The idea's interesting, and the article discusses the appearance of "socially responsible" choices in 401(k) plans. The link is below.

The first thing I would urge you to notice is that the 401(k) vendor is using the socially-responsible approach as a marketing strategy. This does not make it a bad thing, but it is largely about the use of socially-responsible investing as a successful marketing niche, because of its' appeal to investors who want to do a good thing. IMHO a 401(k) vendor who wants to do a good thing should start with setting fees and fund expenses at the low end of the competitive range. I can find not one word about fees in the article.

There are a few counterpoints in the article, and I will highlight one I think is extremely important: "Some people criticize socially responsible mutual funds for having lackluster performance. However, that isn't always the case." That isn't always the case? Boy, that's a powerful defense. The problem is that often it has been the case. The company most typically excluded by socially responsible mutual funds is Altria, fka Philip Morris. Nobody gets excited about owning the stock of purveyors of cigarettes. I don't -- my father lost most of a lung to cancer. Like many of his generation, he smoked. You should not smoke, but it still is a free country. But I'll admit this, Altria is probably one of the most consistently profitable and best performing long-term stocks you could have owned over the last fifty years, and the company does not stiff its stockholders. Jeremy Siegel called it the best single-company investment in his book The Future for Investors. It returns cash money to investors in the form of dividends. It is an honestly-run company too, as far as I can tell. I'm not touting it. What I am saying is that you could very likely find that many "socially-responsible" or environmentally-oriented companies don't gain in share value over time like Altria, don't pay out dividends like Altria, or have badly inferior records for honestly running their businesses, and keeping conservative accounting standards.

It is no simple call. Indexed products, arguably the best approach available, include the problem companies. Cull out your objectionable companies as you will, and you will very likely pay a price in lower portfolio returns, and still find your "socially-responsible" holdings in the newspaper over and over again after some scandal blows up. There are too few companies out there that will not ever disappoint you in some significant way.

In an imperfect world, I would urge you to try to invest as well as you can, for the best returns -- you'll need them -- and support your favored causes, like smoking cessation and addiction recovery, with your dividends and long-term gains. If you invest unwisely, you may not have the financial means to help your causes.

Otherwise, where do you stop? Throw out the gun makers, the war-mongering defense contractors, the casino operators, the booze makers, the ... carnivore meat-packers, the oil companies, the coal-mining companies, the polluters, the oppressors of poor third-world peoples, the fast-food operators who make America obese, the credit card vendors, the Predatory Retailer who is non-unionized and who stamps out locally-owned stores, the ... list goes on, depending on your own views of what is socially irresponsible. Is this any way to make a sane portfolio?

here's the article:

Yahoo! Personal Finance

Managing Your 401(k) -- Just a Gentle Nudge

So, if you are having difficulty funding the kind of contributions you know you should be making to your 401(k), if it is a question of your lifestyle hindering your future, here are a few helpful ideas.

A Thoughtful Columnist's Take on Retirement Funding and a Question

Are you ready to retire? I mean, are you financially ready to retire? Here is one columnist's take on the question.


Martha M. Hamilton - Age 65 and Not Ready or Able to Go - washingtonpost.com

I will get one thing off my chest right now. If you go into an office and do not see anyone with gray hair, it may just say something about that place's attitude toward older employees. They may not want any. But if their marketing efforts include reaching seniors as customers, then perhaps there is a big disconnect. If a business is not senior-friendly as an employer, then do they deserve to make any sales to seniors? If they wouldn't want you as an employee, well ...? Well?

You might even ask this question of your stockbroker!

Two Great Posts on Financial Page

Barry Barnitz' Financial Page blog is just a marvelous resource. The quality of the content is consistently very high. I'll link to two posts here and add just a few comments regarding the pdfs he links to.

First,

Financial page: Morningstar Year End Commentary Report.

Morningstar's numbers confirm what so many have observed as to how the markets are doing now. Large-cap value and small-cap value US stocks did very nicely in 2006 and continue to do quite well, though the small-caps may be cooling off some. Large-cap growth stocks are now performing about equally well as the large-cap value, and are valued somewhat cheaply, at least relative to some of their historic peaks of valuation. All of this implies that a portfolio with some value "tilt" is still working well, though the potential for improved large-cap growth relative to value in 2007 may be there. The beauty of it all is that, just as you would expect, value investing is looking just like one would expect, sort of the "man for all seasons," and growth, when it has its day, will likely give you plenty of time to work it in in a measured way, if you are into tactical or mean-regression anticipation approaches. Small-caps, likewise, if they go cold for a time, have pulled very well for a multi-year period, and a period of time when they trail their large-cap brethren can be handled well either in a strategic or more tactical way, depending on one's pre-meditated portfolio approach. Sticking to one's approach is the hard part!

The second post, What Moves the National Retirement Risk Index? gets into the real issue for us all. Will we be adequately funded for retirement? As a young man, I confess, I just couldn't get serious about thinking about retirement. I couldn't. Each day was full of things to do, and retirement might as well have been in the next century. It will be!

If you are young and reading this, congratulations. You can take small, easy steps now which can make a great positive difference in you future and the future of those you love. Put what you can into your 401(k) each month. Sweat over investing it well. Don't try to time the market by leaving your money in the money market fund or bonds choices until you see a bull market. You won't see it until it's well underway. If you got burned in the bear market, it's been over for four years now. You could have made some money, perhaps one hundred percent or more, just with some well-chosen, diversified equity holdings. If you've been very risk averse, expecting a terrorist dirty bomb attack or some other disaster, the news is that it did not happen. Live in hope, not fear. These are the years for you to grow your money. Sure, bear markets happen, but you, as a long term investor, do not have to sell. You can take the long view, stay invested, and pull ahead. Market timers, as a group, fall ever further behind. It is a fact of financial life. Successful market timing is the financial equivalent of searching for El Dorado. It is not there. But you don't need El Dorado. All you need are time and some good markets. Get some knowledge. Read up. Learn about the one thing that really, truly works over time. It is called asset allocation. It is like the proverbial wisdom of the book of Proverbs being cried out in the streets, and being mostly ignored because it is not "sexy", it is not fast, it does not lend itself to exploitation by billion dollar brokerages ravenously hungry for revenues, in the way that failed ideas like technical analysis and market timing and even (gasp) "active management" do.

If you are older and thinking that you may be underfunded, well you have plenty of good company. Understanding the problem is the first part of the solution. If you are underfunded, guard your good health, and get a good night's rest, and go to work, one step at a time, to move toward fixing things up. There is much that can still be done.

The Right Kind of Question You Should be Asking

401(k)s: How much do you need to contribute? - Dec. 19, 2006

This article does a good job of opening up the thought process. Will your retirement be well funded? The free online tools mentioned in the article can tell you some things about how well you are standing, or whether you need to save and invest more. You don't need to invest with the folks who put them on the web to use them. If you identify yourself, you will get some kind of a contact later, but you can put in an alias if you wish. The point is to use the tool, get an initial workup of where you stand. As you go through the exercise, keep your investment returns assumptions conservative, say eight percent per year. You want a real-world, meaningful result, don't you? If it looks like you are somewhat under-funded, do not go into a funk, get moving. Take steps. A new year is a great time to take steps toward a more secure future. You can still make a significant difference. You'll be very glad you did. You will!

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Get Your 401(k) Working Right! Beat Longevity Risk.

Longevity risk is the risk of outliving your money. It shows up in financial projections for an individual frequently. Many financial planners see it as the greatest financial risk.

This article is really very good. It catches many of the common issues with 401(k)s, from plan shortcomings, to the most common things you as the employee can fix. If you are feeling too busy to find out a bit about doing 401(K)s the right way, this article could be your start.

Make your own choices, as each person's situation is different, but some good generalities should apply:

I would emphasize: if you are young, consider having the great bulk of
the money in equities. Yes, they do go up and down. That is nothing to get depressed over, because as a long-term investor, you do not have live in terror of normal market volatility, or even cyclical market declines. Markets go up when they're done going down. They're like that. No other asset class will get the job done for you as well as equities. Do not get trapped into just choosing the moneymarket fund or the stable value fund. The danger of being underfunded when you are old is greater than that from market volatility. Educate yourself more. I will be building a blogroll of the sites and people I respect the most. For a beginning, if you want something right now, search the internet for Scott Burns' columns archive. He is phenomenal. You must prudently seek appreciation by balancing the risks with equities and other asset classes -- learn about asset allocation. It is what gives you a functional portfolio, rather than just a bunch of stocks or mutual funds.

Do not ignore foreign stocks or small-cap stocks. Each has powerful reasons for inclusion. A bit of a value orientation to your equities choices is a plus.

Do a little mutual fund research. Find the best alternatives your 401(k) plan offers. Bug you plan administrator for prospectuses of the fund choices you have, or rummage around the plan website for them. Dig down for the fees disclosure. Get really annoyed if you see a bunch of 12b-1 fees in your plan choices, or if Morningstar.com describes your plan's fund choices with terms like "asset-bloated", "perennially underperforming" or "closet index funds".

The article referred to above is quite correct as to the age/target/destination funds having a problem with being overly conservative. more and more research is coming along now from objective academic finance big guns indicating that you should not reduce the percentage of your assets in equities as fast or as much as has previously been commonly recommended. Your risk of outliving your money is the greatest risk you face. Balance out the risks in a responsible fashion for you.

Don't try to time the market, by doing things like going to cash after the market has gone down some. You'll miss the recovery! Financial markets go up over the long run, though sometime the long run can be a long time coming. And don't be changing you fund choices around all the time. You'll just cost yourself money almost every time you do that.

You might even consider joining the school of thought I subscribe to: market volatility can be your friend, not the enemy, if you get your asset allocation really well thought out, and applied, and stick tenaciously to it.

The Unknown Advisor