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PBS Frontline : The Retirement Gamble, sorta Must See (1 Viewer)

fatguyinalittlecoat said:
Dentist said:
It is beyond unreal to me how people will spend hours and hours in their job, hours and hours clipping $0.50 coupons or shopping for shoes to save $5, or waiting in a 2 hour line for a FREE ice cream on Free ice cream day at the shop next to my office, but won't read one book on personal finance and execute the advice.. because that's too hard/boring.
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I'm not sure if the disincentive is that it's too hard or boring. I think for people with lousy finances, it's very unpleasant to deal with this crap. Just looking at your retirement fund (or lack thereof) is depressing. People don't like to voluntarily do depressing things. I have to force myself to try to pay attention to my finances but I still don't do nearly as much as I should, because every time I do I feel lousy.

I don't think you can relate because you're in a positive feedback loop. For you it's fun to look at where your money is and how it's growing and how you're moving towards your financial goals. My dad is like you. Every time I see him he's talking about how he has these stocks that are going up, or these stocks that went down, or whatever. It's a fun game for him to try to get the most out of his money. If I was in his position I'd probably feel the same way.
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i agree with you with the positive feedback loop theory.

But even when the market does ####ty, i still care and check things out.

I'm lucky.. i have a college degree and the capability to read and interpret the prospectus information that these funds have, to interpret the expense ratios and what they mean, and have read enough books on personal finance to adequately know what a proper strategy is for me and how to execute it.

But there are a lot of people with positive financial situations that aren't intelligent enough to read and decipher this information because they don't read at a high enough level. They aren't good with numbers so they can't really comprehend the difference or the math is too difficult to understand, and when they start to read and hear things they don't understand they mentally check-out of the process.

It's not actually very easy to get involved... i had to read several books on finance, stocks, etc. to really get a grasp.. in essence giving myself a minor degree in the subject.

Unfortunately most people would rather not do that and instead pay a "guy". and since they probably don't even ever directly pay said guy, they don't worry about it. not realizing that the 1% they pay him/her will add up to thousands and thousands of dollars over time... and for any other service they were purchasing that they were spending thousands on, they'd do a lot more due diligence.

It's a beautiful profession to be in... much like the casino industry, they shear people just a little at a time, and since their customers aren't directly handing money over... they just don't care.

 
Random said:
fatguyinalittlecoat said:
Dentist said:
It is beyond unreal to me how people will spend hours and hours in their job, hours and hours clipping $0.50 coupons or shopping for shoes to save $5, or waiting in a 2 hour line for a FREE ice cream on Free ice cream day at the shop next to my office, but won't read one book on personal finance and execute the advice.. because that's too hard/boring.
Click to expand...
I'm not sure if the disincentive is that it's too hard or boring. I think for people with lousy finances, it's very unpleasant to deal with this crap. Just looking at your retirement fund (or lack thereof) is depressing. People don't like to voluntarily do depressing things. I have to force myself to try to pay attention to my finances but I still don't do nearly as much as I should, because every time I do I feel lousy.

I don't think you can relate because you're in a positive feedback loop. For you it's fun to look at where your money is and how it's growing and how you're moving towards your financial goals. My dad is like you. Every time I see him he's talking about how he has these stocks that are going up, or these stocks that went down, or whatever. It's a fun game for him to try to get the most out of his money. If I was in his position I'd probably feel the same way.
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What have you done to change your situation for the better?
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Nothing really. My wife will be finished with school in about a year and will hopefully double or triple her income. Then we've got to spend our 40s trying to catch up to where we should already be. But it's going to be a long process.

 
Dentist said:
fatguyinalittlecoat said:
Dentist said:
It is beyond unreal to me how people will spend hours and hours in their job, hours and hours clipping $0.50 coupons or shopping for shoes to save $5, or waiting in a 2 hour line for a FREE ice cream on Free ice cream day at the shop next to my office, but won't read one book on personal finance and execute the advice.. because that's too hard/boring.
Click to expand...
I'm not sure if the disincentive is that it's too hard or boring. I think for people with lousy finances, it's very unpleasant to deal with this crap. Just looking at your retirement fund (or lack thereof) is depressing. People don't like to voluntarily do depressing things. I have to force myself to try to pay attention to my finances but I still don't do nearly as much as I should, because every time I do I feel lousy.

I don't think you can relate because you're in a positive feedback loop. For you it's fun to look at where your money is and how it's growing and how you're moving towards your financial goals. My dad is like you. Every time I see him he's talking about how he has these stocks that are going up, or these stocks that went down, or whatever. It's a fun game for him to try to get the most out of his money. If I was in his position I'd probably feel the same way.
Click to expand...
i agree with you with the positive feedback loop theory.

But even when the market does ####ty, i still care and check things out.

I'm lucky.. i have a college degree and the capability to read and interpret the prospectus information that these funds have, to interpret the expense ratios and what they mean, and have read enough books on personal finance to adequately know what a proper strategy is for me and how to execute it.

But there are a lot of people with positive financial situations that aren't intelligent enough to read and decipher this information because they don't read at a high enough level. They aren't good with numbers so they can't really comprehend the difference or the math is too difficult to understand, and when they start to read and hear things they don't understand they mentally check-out of the process.

It's not actually very easy to get involved... i had to read several books on finance, stocks, etc. to really get a grasp.. in essence giving myself a minor degree in the subject.

Unfortunately most people would rather not do that and instead pay a "guy". and since they probably don't even ever directly pay said guy, they don't worry about it. not realizing that the 1% they pay him/her will add up to thousands and thousands of dollars over time... and for any other service they were purchasing that they were spending thousands on, they'd do a lot more due diligence.

It's a beautiful profession to be in... much like the casino industry, they shear people just a little at a time, and since their customers aren't directly handing money over... they just don't care.
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Maybe you're right but I think most people have difficulty just earning more money than they spend. I don't think it's the faulty investment strategies that are holding them back, it's that they don't really have anything to invest.

 
fatguyinalittlecoat said:
Maybe you're right but I think most people have difficulty just earning more money than they spend. I don't think it's the faulty investment strategies that are holding them back, it's that they don't really have anything to invest.
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Oh, ok, i understand more what you're talking about now.

you're absolutely right.

there's sure not that much difference between a 0.2% expense ratio or a 2% expense ratio to someone who's putting away like $25 a month or something paltry like that.

2% of $5000 is what.. $100 0.2% is $10.. significant, but people have better things to do with their time than worry about $90 spread over the course of time.

it's really a top 5-10% er type of problem.. you'd better believe i give a crap about expense ratios when we're talking about a 1/2 mil.

I think as the new normal becomes not retiring, we'll care less about "retirement" as time progresses.

Really it's a pretty new concept historically.. in the past people just died, then there was this brief time frame of "golden retirements" and now i think we'll be back to a concept where you work somehow someway until you are physically incapacitated and that retirement will be for the rich only.

People want what they want... and most of them just want life/status now... and with real wages falling it gets harder to sock away any money WHILE having a smartphone, car with lots of nice options, McMansion where every kid gets his own room, full cable package, kids in a whole crapload of afterschool activities, etc.

Life standards have risen too much to save without making sacrifices that keep people from keeping up with the Jones'

 
Dentist said:
People want what they want... and most of them just want life/status now... and with real wages falling it gets harder to sock away any money WHILE having a smartphone, car with lots of nice options, McMansion where every kid gets his own room, full cable package, kids in a whole crapload of afterschool activities, etc. Life standards have risen too much to save without making sacrifices that keep people from keeping up with the Jones'
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There are bahavioral science challenges, too. People simply don't identify with their future selves. To quote from a book I just read about the topic, "The idea of setting aside a portion of one's current salary to be deposited in a retirement account can seem like making sacrifices now in order to give money to a stranger in the future. Who would want to do that?"

 
Dentist said:
fatguyinalittlecoat said:
Maybe you're right but I think most people have difficulty just earning more money than they spend. I don't think it's the faulty investment strategies that are holding them back, it's that they don't really have anything to invest.
Click to expand...
Oh, ok, i understand more what you're talking about now.

you're absolutely right.

there's sure not that much difference between a 0.2% expense ratio or a 2% expense ratio to someone who's putting away like $25 a month or something paltry like that.

2% of $5000 is what.. $100 0.2% is $10.. significant, but people have better things to do with their time than worry about $90 spread over the course of time.

it's really a top 5-10% er type of problem.. you'd better believe i give a crap about expense ratios when we're talking about a 1/2 mil.

I think as the new normal becomes not retiring, we'll care less about "retirement" as time progresses.

Really it's a pretty new concept historically.. in the past people just died, then there was this brief time frame of "golden retirements" and now i think we'll be back to a concept where you work somehow someway until you are physically incapacitated and that retirement will be for the rich only.

People want what they want... and most of them just want life/status now... and with real wages falling it gets harder to sock away any money WHILE having a smartphone, car with lots of nice options, McMansion where every kid gets his own room, full cable package, kids in a whole crapload of afterschool activities, etc.

Life standards have risen too much to save without making sacrifices that keep people from keeping up with the Jones'
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It's kind of mind-blowing, but I agree 100%. You see articles/videos like the OP where people are getting very worried about retirement and what they will do as they near the traditional age. Well, maybe as a society we are just moving towards longer work lives as the norm, and it's just a factor of "sticker shock" as people realize that later on in their work careers. I'm not there yet so I don't know personally, but that's what I gather from what I read/see.

 
wilked said:
I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion
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They don't need 50, but 5 is laughably inadequate. To get to where I wanted in a taxable account I put money into 15 ETFs. 401k is at 11 funds, and I'd like a few more (that aren't available). Since I don't use every choice in my 401k (that older people would likely use) I'd put the number of necessary choices at at least 20.

 
gruecd said:
wilked - Nothing wrong with comparing them, but you can't just artibrarily dismiss an option because its expenses are over 1 percent. That's all I'm saying. For example, most 4- and 5-star actively-managed international (and particularly emerging markets) funds regularly outperform their index, and almost all of those funds are going to have higher expenses; it costs a lot to run those funds.A lot of plans will have index funds with total expenses well over 0.75%. The fund itself might only be charging 0.20%, but there's another 0.50%+ built in to share with the recordkeeper, broker, etc. Like I said earlier, if this type of arrangement didn't exist, only the biggest companies would even offer 401(k) plans, because the smaller ones couldn't afford to pay for them.
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I'll agree here. I've invested in funds with over 1% in fees if their overall returns have been excellent. In the end all I care about is the net return.

 
Sand said:
wilked said:
I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion
Click to expand...
They don't need 50, but 5 is laughably inadequate. To get to where I wanted in a taxable account I put money into 15 ETFs. 401k is at 11 funds, and I'd like a few more (that aren't available). Since I don't use every choice in my 401k (that older people would likely use) I'd put the number of necessary choices at at least 20.
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The average is just under that, and the trend is towards fewer, not more. The more choices people have, the more confused they get, and the more likely that they won't participate at all. To Dentist's point earlier, the trend is towards auto-enrolling people into an age-appropriate target date fund and perhaps using an auto escalation feature to automatically increase their deferral rates up towards 10% over the course of a couple years. In other words, take advantage of inertia and make people actually do something to "opt out" vs. having to "opt in."
 
gruecd said:
Sand said:
wilked said:
I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion
Click to expand...
They don't need 50, but 5 is laughably inadequate. To get to where I wanted in a taxable account I put money into 15 ETFs. 401k is at 11 funds, and I'd like a few more (that aren't available). Since I don't use every choice in my 401k (that older people would likely use) I'd put the number of necessary choices at at least 20.
Click to expand...
The average is just under that, and the trend is towards fewer, not more. The more choices people have, the more confused they get, and the more likely that they won't participate at all. To Dentist's point earlier, the trend is towards auto-enrolling people into an age-appropriate target date fund and perhaps using an auto escalation feature to automatically increase their deferral rates up towards 10% over the course of a couple years. In other words, take advantage of inertia and make people actually do something to "opt out" vs. having to "opt in."
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We have opt out here. On a personal level, frankly, I don't care about others getting confused. I want to maximize my chances of a successful retirement and could care less about the masses. Luckily my provider (TIAA) has very reasonable expenses and just about all the choices I could ask for. There are some good asset classes with correlation profiles that make them attractive that they don't have, but overall I can't complain.

 
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gruecd said:
Dentist said:
People want what they want... and most of them just want life/status now... and with real wages falling it gets harder to sock away any money WHILE having a smartphone, car with lots of nice options, McMansion where every kid gets his own room, full cable package, kids in a whole crapload of afterschool activities, etc. Life standards have risen too much to save without making sacrifices that keep people from keeping up with the Jones'
Click to expand...
There are bahavioral science challenges, too. People simply don't identify with their future selves. To quote from a book I just read about the topic, "The idea of setting aside a portion of one's current salary to be deposited in a retirement account can seem like making sacrifices now in order to give money to a stranger in the future. Who would want to do that?"
Click to expand...
i agree. I've seen that type of research.

I've even got an intelligent buddy (single) who does put money away for retirement in his 401k, but only does so because he knows he's supposed to.. and he certainly doesn't put as much money in there as he knows he could/should because he honestly stated:

"I'd rather spend now... screw that old guy in the future that won't be able to move as well or be attractive to girls... i just don't care about him"

And certainly there's the guy who has seen people die early or has an irrational fear of the markets... those people aren't interested in savings either.

It's also a family thing.. if you've seen someone in your family live a nice retirement where they were in good enough health to enjoy life, travel or do the things they want, it's an inspiration.

I'm fine with anyone who doesn't want to retire, or would rather live more richly now and have a meager existence when they are older.

What I don't want to hear is boo-hoo stories when they didn't save crap, their health goes and working until 75 isn't as good of an idea as they thought it would be 30 years ago, and now they have a sucky bare bones life.

The frontline guy and the stories of people they talked to were a bunch of boo-hoo stuff (woe is me, wall-street screwed me from retirement... a way to deflect blame)... and that crap makes me mad.

I may dislike the financial services industry and their fine print and high fees... but they will NOT be the reason you don't retire in style... your choices will be.

 
Sand said:
gruecd said:
Sand said:
wilked said:
I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion
Click to expand...
They don't need 50, but 5 is laughably inadequate. To get to where I wanted in a taxable account I put money into 15 ETFs. 401k is at 11 funds, and I'd like a few more (that aren't available). Since I don't use every choice in my 401k (that older people would likely use) I'd put the number of necessary choices at at least 20.
Click to expand...
The average is just under that, and the trend is towards fewer, not more. The more choices people have, the more confused they get, and the more likely that they won't participate at all. To Dentist's point earlier, the trend is towards auto-enrolling people into an age-appropriate target date fund and perhaps using an auto escalation feature to automatically increase their deferral rates up towards 10% over the course of a couple years. In other words, take advantage of inertia and make people actually do something to "opt out" vs. having to "opt in."
Click to expand...
We have opt out here. On a personal level, frankly, I don't care about others getting confused. I want to maximize my chances of a successful retirement and could care less about the masses. Luckily my provider (TIAA) has very reasonable expenses and just about all the choices I could ask for. There are some good asset classes with correlation profiles that make them attractive that they don't have, but overall I can't complain.
Click to expand...
The only reason to care about the masses is when the masses feel oppressed and you have all these broke ### old people because modern medicine is keeping people alive so long, and there's magazine article after news story about how the living conditions of the elderly are horrible due to the 401k industry and wall street returns, etc... who knows what kind of god awful legislation they could come up with to redistribute the wealth between the responsible and the irresponsible.

The other side of the coin being... if everyone with a job was forced to watch that show and then decided to save the proper 15% of their paycheck and get some financial religion, the effect of all that money being invested rather than spent on good/services would cause a recession in the retail good/services industry that would make the 2008 recession look like a cake walk.

 
15% of your paycheck is that with or without match IYO? Just curious.

FTR I'm at 16% with match I just do a flat 10% and get 150% on first 4%

 
Dentist said:
Slapdash said:
culdeus said:
I was going over my wife's retirement plan. She works at a school with average income of 60k. With the min required to match 4%+4% match an 8% savings rate for 30 years won't even sniff enough money to retire on.

Then you have 50% of people that contribute 0 into any plan at all.

You want to talk about a financial crisis? This is it. You will have people that have made 100k-200k at the poverty level 10 years into retirement.
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That is their own damn fault.
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true.

But you'd better believe that when shows like this one on Frontline are on good morning america and E! News and you have constant sob story after sob story that politicians will begin running for office on a platform of "saving the retirement population" and they'll get elected because people will love it.

then who's going to pay? someone who did everything right.
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Sounds like you need to move your money offshore where it's not FDIC insured.

 
wilked said:
gruecd said:
wilked said:
wilked, on 26 Apr 2013 - 09:46, said:

I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.
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Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.

Trust me. I know what I'm talking about.
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It sounds like this is rounding into an actively managed funds vs index funds question. There are so many studies showing that index funds outperform active funds, but I like this one. Rick Ferri states it well, "The evidence in favor of all index funds, all of the time, is irrefutable, overwhelming and important to all investors."

http://www.forbes.com/sites/rickferri/2012/08/20/index-fund-portfolios-reign-superior/

With some very minor exceptions (Berkshire, Wellington come to mind) the investor is rewarded by sticking to Index funds and keeping what he/she can control (ie fees) low.
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:goodposting: Even with those minor exceptions, it only takes one bad idea to reverse it.

 
Sand said:
gruecd said:
wilked - Nothing wrong with comparing them, but you can't just artibrarily dismiss an option because its expenses are over 1 percent. That's all I'm saying. For example, most 4- and 5-star actively-managed international (and particularly emerging markets) funds regularly outperform their index, and almost all of those funds are going to have higher expenses; it costs a lot to run those funds.

A lot of plans will have index funds with total expenses well over 0.75%. The fund itself might only be charging 0.20%, but there's another 0.50%+ built in to share with the recordkeeper, broker, etc. Like I said earlier, if this type of arrangement didn't exist, only the biggest companies would even offer 401(k) plans, because the smaller ones couldn't afford to pay for them.
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I'll agree here. I've invested in funds with over 1% in fees if their overall returns have been excellent. In the end all I care about is the net return.
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Sand, are you speaking of past returns? It has been shown over and over (and over) again that past returns of actively managed funds have no predictive ability on the future of these funds.

Again, the one thing you can control is fees, which you want to minimize.

It has also been shown over and over again that Morningstar ratings have no predictive ability.

http://www.cbsnews.com/8301-505123_162-57450187/active-managers-lag-index-counterparts-again/

"Every time, the results are pretty much the same, demonstrating that active management is a loser's game"

It references the well done Fama / French study which "found that active managers as a group haven't added any value over appropriate passive benchmarks."

Sand, do you think you can predict a fund's future performance by examining its past returns? Grue, do you really see Morningstar ratings as anything more than marketing for morningstar.com?

 
Binky The Doormat said:
Slapdash said:
culdeus said:
I was going over my wife's retirement plan. She works at a school with average income of 60k. With the min required to match 4%+4% match an 8% savings rate for 30 years won't even sniff enough money to retire on. Then you have 50% of people that contribute 0 into any plan at all. You want to talk about a financial crisis? This is it. You will have people that have made 100k-200k at the poverty level 10 years into retirement.
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That is their own damn fault.
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Whoa - is it those people's fault that scrimped and saved, invested wisely/conservatively, retire - and then the market goes to sheet again. What is your take on that situation?
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My take is it isnt likely at all someone with a high income like that and those conditions you mentioned would end up in poverty. No amount of the stuff in the PBS piece should do that.
 
The Z Machine said:
Dentist said:
Slapdash said:
culdeus said:
I was going over my wife's retirement plan. She works at a school with average income of 60k. With the min required to match 4%+4% match an 8% savings rate for 30 years won't even sniff enough money to retire on.

Then you have 50% of people that contribute 0 into any plan at all.

You want to talk about a financial crisis? This is it. You will have people that have made 100k-200k at the poverty level 10 years into retirement.
Click to expand...
That is their own damn fault.
Click to expand...
true.

But you'd better believe that when shows like this one on Frontline are on good morning america and E! News and you have constant sob story after sob story that politicians will begin running for office on a platform of "saving the retirement population" and they'll get elected because people will love it.

then who's going to pay? someone who did everything right.
Click to expand...
Sounds like you need to move your money offshore where it's not FDIC insured.
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A lot of investments in the US aren't FDIC insured either.

Unless his investments are limited to checking, savings, trust, CDs, IRA , and money market accounts, his investments aren't FDIC insured out of the US any more than they would be in the US.

 
In all fairness, if the people spent half as much time looking at their retirement, as they spend on FBG forums, they would probably be OK. Myself included.

 
Dentist said:
I'm fine with anyone who doesn't want to retire, or would rather live more richly now and have a meager existence when they are older. What I don't want to hear is boo-hoo stories when they didn't save crap, their health goes and working until 75 isn't as good of an idea as they thought it would be 30 years ago, and now they have a sucky bare bones life. The frontline guy and the stories of people they talked to were a bunch of boo-hoo stuff (woe is me, wall-street screwed me from retirement... a way to deflect blame)... and that crap makes me mad.
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You and I agree 100% on this.
 
wilked said:
Grue, do you really see Morningstar ratings as anything more than marketing for morningstar.com?
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It's debatable. I know I've seen studies showing that 4- and 5-star funds tend to do better (going forward) than lower-rated funds, but I tend to look at fund rank relative to peer group, manager tenure, and other statistical measures. The stars are just a way to make it "easy" for the uneducated investor.But I'll fight you all day long about active management never adding value. The majority of my business is based on advisory fees, so I really couldn't care less if people use active or passive funds, but there are a lot of asset classes where active management definitely adds value.
 
gruecd said:
wilked said:
Grue, do you really see Morningstar ratings as anything more than marketing for morningstar.com?
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It's debatable. I know I've seen studies showing that 4- and 5-star funds tend to do better (going forward) than lower-rated funds, but I tend to look at fund rank relative to peer group, manager tenure, and other statistical measures. The stars are just a way to make it "easy" for the uneducated investor.But I'll fight you all day long about active management never adding value. The majority of my business is based on advisory fees, so I really couldn't care less if people use active or passive funds, but there are a lot of asset classes where active management definitely adds value.
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Can you give a list of those asset classes?

You won't convince me that a large cap stock manager can beat the S&P 500, nor a bond manager outdoing the Barclays Aggregate..

But I could believe that in microcaps, emerging markets, munis that there would be some value.

I utilize some closed end funds that are actively managed with the use of leverage that have a long term track record of doing better than a comparable passive fund in the muni line.

You could probably also argue though that the average investor doesn't need the asset classes where active management could provide value.

 
Dentist - "It's also a family thing.. if you've seen someone in your family live a nice retirement where they were in good enough health to enjoy life, travel or do the things they want, it's an inspiration."

I agree with this whole heatedly. Kids that come from households that saved and retire early, at least as far as I can tell, have kids that save money and try and retire early. At least that seems to be the case for most of the families I know and it includes me.

 
The Ref said:
I agree with this whole heatedly. Kids that come from households that saved and retire early, at least as far as I can tell, have kids that save money and try and retire early. At least that seems to be the case for most of the families I know and it includes me.
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I have a grandfather who's enjoyed a 20+ year retirement with his wife who recently passed. He wasn't a dentist, just a man who worked hard, was frugal and although he did enjoy the benefit of a pension, was also an active stock market participant through Ira and cash management accounts who paid very close attention to investment fees.

he is an inspiration to me. my father will retire when he wants to as well.. he could walk away now, but is moderately happy working 2.5 days a week.

But i know a person who had a brother die in his 30's (accident) and another sibling get a rare form of cancer in her 40's and is debilitated. He lives paycheck to paycheck with a complete #YOLO attitude despite being smart enough to understand why someone else might save for a retirement.

His attitude is that tomorrow is an uncertainty.. based on what he's seen and experienced.... well i wouldn't want to talk him out of what he does.

I assume his kids will adopt that same attitude.

I am incredibly fortunate that i have enough money to live a nice life now (although if i spent to my limit i could live an even more extravagant life i suppose... but I don't feel as if I'm denying myself anything)... but still have enough to fund what i think has the potential to be both a long and awesome retirement.

I see old people that are broke as #### and always saying things like.. "i'm on a fixed income" and generally being grumpy.

and my burning goal is not to have to be that guy

 
NewlyRetired said:
Binky The Doormat said:
Pick said:
I don't know about others, but we just plan on anything we get from retirement to be a bonus (401Ks, pensions, etc.). And maybe that's enough but I'm not going to pin my future on it. We'll make our own money.
Click to expand...
??? So you are going to work until you drop?
Click to expand...
He is a landlord. That will be an excellent source of income for his family. He already stated he hopes to retire in 5 years.
Click to expand...
I talked a little more about this with the wife but still don't have the numbers they are at home. We rent one house out but essentially break even (rent pays the mortgage). That may become profitable down the road (either as a $2000 a month rental or outright selling it). The wife makes a pile of money right now. Two options:

1) In 5 years have all debts paid off including two mortgages and have $250K in bank. Wife would retire, I would continue working (just a measly teacher). Plus the rental income. None of that includes anything in 401K.

2) In 5 years have all debts paid off except mortgages and have $1mil+ in bank. Everything else the same except rental income is not profit.

I think we are leaning toward option 1. But the thing will be if my wife can really walk away from the money. And keep in mind we have 4 kids who will be out of the house by then and hopefully not a huge drain on the finances.

 
Dentist said:
Binky The Doormat said:
Any of you guys have Master Limited partnership holdings (MLPs)? I read about them via Motley Fool recently and they piqued my interest - especially in the natural gas sector.

http://online.barrons.com/article/SB50001424053111904081004577434252994880844.html
Click to expand...
tax nightmare be aware
Click to expand...
Bought a bunch during the crash - the ROI has been awesome. As far as tax consequences the biggest issue is buying them in tax sheltered accounts. For taxable accounts it is just a lot of paperwork to put into Turbotax.

 
Sand said:
Dentist said:
Binky The Doormat said:
Any of you guys have Master Limited partnership holdings (MLPs)? I read about them via Motley Fool recently and they piqued my interest - especially in the natural gas sector.

http://online.barrons.com/article/SB50001424053111904081004577434252994880844.html
Click to expand...
tax nightmare be aware
Click to expand...
Bought a bunch during the crash - the ROI has been awesome. As far as tax consequences the biggest issue is buying them in tax sheltered accounts. For taxable accounts it is just a lot of paperwork to put into Turbotax.
Click to expand...
multiple state returns in some cases though if you buy enough volume.

also the can be volatile

the right ones at the right times can be great dough.

same thing with REITs.. which don't have near the tax issues

 
Politician Spock said:
southbound said:
So my employer matches up to 6%. I am 26 and am currently putting the max 25% of my pay into my company's 401K. Should I be only putting the 6% to match and opening an IRA with the remainder?
Click to expand...
1) Put the 6% in to your 401K to get the employer match. This is an immediate 100% return on your investment.

2) Throw as much post tax money as you can into a Roth IRA.

3) If you max out the legal annual limit that you can contribute to a Roth, then you should consider putting more into the 401K, but only if the 401K is a good plan with good investment options. If it is, try to max out your contributions to it. If it's not a good plan, you might be better off passing on the tax benefits of the 401K and just do some post tax investing.

Of course, if you have bad debt, option 3, and perhaps even option 2, should wait until you've paid off that bad debt.
Click to expand...
I do have bad debt that is around 4-5 years old. Probably around 10K worth. I've been considering what to do about that since I've heard/read that after 7 years it disappears from your credit report anyways?

 
southbound said:
Politician Spock said:
southbound said:
So my employer matches up to 6%. I am 26 and am currently putting the max 25% of my pay into my company's 401K. Should I be only putting the 6% to match and opening an IRA with the remainder?
Click to expand...
1) Put the 6% in to your 401K to get the employer match. This is an immediate 100% return on your investment.2) Throw as much post tax money as you can into a Roth IRA.3) If you max out the legal annual limit that you can contribute to a Roth, then you should consider putting more into the 401K, but only if the 401K is a good plan with good investment options. If it is, try to max out your contributions to it. If it's not a good plan, you might be better off passing on the tax benefits of the 401K and just do some post tax investing. Of course, if you have bad debt, option 3, and perhaps even option 2, should wait until you've paid off that bad debt.
Click to expand...
I do have bad debt that is around 4-5 years old. Probably around 10K worth. I've been considering what to do about that since I've heard/read that after 7 years it disappears from your credit report anyways?
Click to expand...
Yes, you should fund the matched 401(k) portion no matter what (i.e., get a loan if you have too, but make sure you get the free money), and then fund Roth second. There's one key item that should also be mentioned for completeness before the Roth IRA funding. After the matched 401(k), you should add in a second step of creating a "Strategic Reserve" for emergency/layoffs (e.g., cover roughly 1M of your actual expenses per $10k of salary) before the Roth funding. For example, if you make $50k per year, figure you need 5 months of expenses at whatever your monthly expense rate is. Retirement planning should follow the creation of a safety net for the present. Not everything needs to be cash in this fund, but this reserve should be low risk, and easy to turn liquid quickly if you need it. If you don't do this and an emergency hits, you'll have to borrow from the 401(k) (if you have a job), or outright withdraw from the 401(k), likely with a large penalty. If you have family you can borrow from easily, you might choose a smaller net than if you are on your own. The exact amount you might need or want is hard to determine without details, but the concept is sound. After safety net, and then funding the Roth IRA, I'd still focus on the 401(k) until maxed-out, regardless of the investment options in the 401(k). There will be some good-enough options available, and if not, the tax deferred status (which can be viewed as a ~15% return on investment just by avoiding tax in the current high tax bracket rate vs. the assumed future lower retirement bracket rate) is worth it anyway. Also, you'll be able to roll a "bad 401(k)" into another 401(k) if you change jobs. The new one may have better options. Retirement planning is great, but making sure you can live now in the event of a crisis is also a top priority that should not be overlooked. Eliminating high interest debt certainly is another high priority, and where that fits in this picture depends on too many factors to make a blanket recommendation. It's probable that you should fund the matched 401(k), and then borrow against the 401(k) to retire high interest debt.

 
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I think we'll be pretty well set once we hit retirement age but one of the reasons I decided to go into voiceovers is because I'll never have to retire. Someone will always want an old man voice. That gives me some comfort. I don't ever want to stop doing something productive.

 
I worry about this quite a bit. I need to be more proactive. My wife and I both earn decent money for small town rural Minnesota but just can't relate with several of the people in this thread. 5000 a year is a lot of money to me in an Ira on top of 12 percent in the 401k. Thanks for the tips. The biggest thing I have taken from this is to try to do Roth ira s.

 
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Sand said:
wilked said:
I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion
Click to expand...
They don't need 50, but 5 is laughably inadequate. To get to where I wanted in a taxable account I put money into 15 ETFs. 401k is at 11 funds, and I'd like a few more (that aren't available). Since I don't use every choice in my 401k (that older people would likely use) I'd put the number of necessary choices at at least 20.
Click to expand...
There is no reason that your employer sponsored plan needs to be your personal brokerage account. If all employers had the lineup that TSP offers your average employee would have substantially higher savings, owing to the much lower fees as compared with the crap many 401ks offer.
 
gruecd said:
wilked said:
Grue, do you really see Morningstar ratings as anything more than marketing for morningstar.com?
Click to expand...
It's debatable. I know I've seen studies showing that 4- and 5-star funds tend to do better (going forward) than lower-rated funds, but I tend to look at fund rank relative to peer group, manager tenure, and other statistical measures. The stars are just a way to make it "easy" for the uneducated investor.But I'll fight you all day long about active management never adding value. The majority of my business is based on advisory fees, so I really couldn't care less if people use active or passive funds, but there are a lot of asset classes where active management definitely adds value.
Click to expand...
Debatable? Morningstar came out publicly and said its ratings had no predictive power. Many studies were done to show they were worthless. I will credit MS with being proactive, though, and they made new formulas and a new gold silver bronze system a couple years ago. This system uses expense ratio as one of its primary drivers, and in this way is probably useful in identifying the dogs. But it still won't be able to pick the winners (of course each time they change the formula you have to wait some years to prove so before you have enough data to say so confidently)
 
RustyFA4 said:
I worry about this quite a bit. I need to be more proactive. My wife and I both earn decent money for small town rural Minnesota but just can't relate with several of the people in this thread. 5000 a year is a lot of money to me in an Ira on top of 12 percent in the 401k. Thanks for the tips. The biggest thing I have taken from this is to try to do Roth ira s.
Click to expand...
Rusty, just remember that Old Man Rusty will thank you...The beauty of the Roth is its flexibility. You have to max it each year while you can.
 
Last one, I know grue is taking some of comments personally, but I have seen so many disgusting 401k plans with sickening fees that I consider it an affront to the American people. Most plans are only 80 percent horrid, but plans like the below are not uncommon either. People are losing their shirt by investing in these as opposed to low fee funds, and most are doing so unknowingly. If anyone reading this is not well aware of what your 401k investment funds expense ratios are you should really check. Grue, please tell me the below makes your breakfast rise to your throat.

Available 401k funds: Name (Net ER)

SSgA Cash Series U.S. Government Fund - Class L (0.75)

PIMCO Low Duration Fund - Class R (1.05)

PIMCO Total Return Fund - Class R (1.10)

Prudential High Yield Fund - Class R (1.12)

PIMCO Real Return Fund - Class R (1.10)

American Century LIVESTRONG Income Portfolio - Class R (1.27)

American Century LIVESTRONG 2015 Portfolio - Class R (1.30)

American Century LIVESTRONG 2020 Portfolio - Class R (1.33)

American Century LIVESTRONG 2025 Portfolio - Class R (1.36)

American Century LIVESTRONG 2030 Portfolio - Class R (1.38)

American Century LIVESTRONG 2035 Portfolio - Class R (1.41)

American Century LIVESTRONG 2040 Portfolio - Class R (1.45)

American Century LIVESTRONG 2045 Portfolio - Class R (1.48)

American Century LIVESTRONG 2050 Portfolio - Class R (1.50)

American Century LIVESTRONG 2055 Portfolio - Class R (1.51)

Janus Balanced Fund - Class R (1.34)

BlackRock Equity Dividend Fund - Class R (1.32)

Lord Abbett Fundamental Equity Fund - Class R3 (1.24)

Alger Capital Appreciation Institutional Fund - Class R (1.68)

Perkins Mid Cap Value Fund - Class R (1.34)

American Century Heritage Fund - Class R (1.51)

Fidelity Advisor Small Cap Fund - Class T (1.51)

Goldman Sachs Small Cap Value Fund - Class R (1.61)

Lord Abbett Developing Growth Fund - Class R3 (1.27)

Templeton Foreign Fund - Class R (1.46)

MFS Research International Fund - Class R2 (1.47)

Thornburg International Value Fund - Class R3 (1.45)

Oppenheimer Developing Markets Fund - Class N (1.70)

Fidelity Advisor Real Estate Fund - Class T (1.43)

 
I am lucky, my 457 plan has several low fee index funds from Vanguard.

When I first began contributing to it 7 years ago, I met with a rep and he put in me in all of the funds with the highest fees.

 
wilked said:
Sand said:
wilked said:
I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion
Click to expand...
They don't need 50, but 5 is laughably inadequate. To get to where I wanted in a taxable account I put money into 15 ETFs. 401k is at 11 funds, and I'd like a few more (that aren't available). Since I don't use every choice in my 401k (that older people would likely use) I'd put the number of necessary choices at at least 20.
Click to expand...
There is no reason that your employer sponsored plan needs to be your personal brokerage account. If all employers had the lineup that TSP offers your average employee would have substantially higher savings, owing to the much lower fees as compared with the crap many 401ks offer.
Click to expand...
As I said I could care less about the average employee. When it comes to retirement savings I care about me. Sounds horrible, but true in this particular instance. To construct a portfolio that has enough uncorrelated assets to withstand those dramatic downturns that, incidentally, are a large cause of the horrible track record of typical investors, you need more than five. Typical investors buy high and sell low (or in this case allocate high and go conservative at the nadir) and tend to panic badly during crashes.

IMO, opt out is probably the most effective way to get people started down this road.

Dentist said:
Binky The Doormat said:
Any of you guys have Master Limited partnership holdings (MLPs)? I read about them via Motley Fool recently and they piqued my interest - especially in the natural gas sector.

http://online.barrons.com/article/SB50001424053111904081004577434252994880844.html
Click to expand...
tax nightmare be aware
Click to expand...
Yep, total nightmare, and we HATE seeing them come in with client documents

I am yielding 11% on cost. That is worth the paperwork. I also like BDCs, REITs, and preferred stocks. You'd hate seeing me, I guess.


 
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So if you hold a MLP in a roth or 401k you just don't deal with the tax forms or what? I did a oil royalty trust once and that wasn't horrible to do the paperwork on, but it certainly wasn't easy.

 
culdeus said:
So if you hold a MLP in a roth or 401k you just don't deal with the tax forms or what? I did a oil royalty trust once and that wasn't horrible to do the paperwork on, but it certainly wasn't easy.
Click to expand...
It depends on the amount of income. If the aggreagte unrelated business taxable income (UBTI) passing through from all MLP's exceeds $1,000 in a year, your IRA has to file a tax return and pay the tax. If UBTI is less than $1,000 you can pretty much ignore the K-1 forms and don't need to do anything.

 
Sand said:
I am yielding 11% on cost. That is worth the paperwork. I also like BDCs, REITs, and preferred stocks. You'd hate seeing me, I guess.
Click to expand...
More power to you if you've investing well and making money, and knock yourself out if you're going to prepare your own returns. I should clarify what I mean by "nightmare" - if you've got enough invested in the funds, you start opening up odd/unusual tax rules that we don't see terribly often. Depletion, personal DPAD, IDCs....we see them enough to have a basic idea, but unless you're an oil & gas guru (of which I certainly am not), it often results in research time and, frankly, more careful preparation. We have 2-3 guys in our office who are very adept with the concepts, but most of the rest of us aren't (at least at our firm - I'd imagine if you were to talk to a CPA firm in Texas or Oklahoma, it'd be vastly different).

It's not uncommon for someone who's invested in ~10 gas PTPs to have their return prep time double. A 3-hour return can become a 6-hour return, and those costs get passed on to the client when they get their invoice. :shrug:

 
Steve Tasker said:
Sand said:
I am yielding 11% on cost. That is worth the paperwork. I also like BDCs, REITs, and preferred stocks. You'd hate seeing me, I guess.
Click to expand...
More power to you if you've investing well and making money, and knock yourself out if you're going to prepare your own returns. I should clarify what I mean by "nightmare" - if you've got enough invested in the funds, you start opening up odd/unusual tax rules that we don't see terribly often. Depletion, personal DPAD, IDCs....we see them enough to have a basic idea, but unless you're an oil & gas guru (of which I certainly am not), it often results in research time and, frankly, more careful preparation. We have 2-3 guys in our office who are very adept with the concepts, but most of the rest of us aren't (at least at our firm - I'd imagine if you were to talk to a CPA firm in Texas or Oklahoma, it'd be vastly different).

It's not uncommon for someone who's invested in ~10 gas PTPs to have their return prep time double. A 3-hour return can become a 6-hour return, and those costs get passed on to the client when they get their invoice. :shrug:
Click to expand...
Luckily I'm small time enough that I can ignore most of that. If I had 10x what I do I'm sure the PIA factor would go way up.

 
wilked said:
Last one, I know grue is taking some of comments personally, but I have seen so many disgusting 401k plans with sickening fees that I consider it an affront to the American people. Most plans are only 80 percent horrid, but plans like the below are not uncommon either. People are losing their shirt by investing in these as opposed to low fee funds, and most are doing so unknowingly. If anyone reading this is not well aware of what your 401k investment funds expense ratios are you should really check. Grue, please tell me the below makes your breakfast rise to your throat.Available 401k funds: Name (Net ER)SSgA Cash Series U.S. Government Fund - Class L (0.75)PIMCO Low Duration Fund - Class R (1.05)PIMCO Total Return Fund - Class R (1.10)Prudential High Yield Fund - Class R (1.12)PIMCO Real Return Fund - Class R (1.10)American Century LIVESTRONG Income Portfolio - Class R (1.27)American Century LIVESTRONG 2015 Portfolio - Class R (1.30)American Century LIVESTRONG 2020 Portfolio - Class R (1.33)American Century LIVESTRONG 2025 Portfolio - Class R (1.36)American Century LIVESTRONG 2030 Portfolio - Class R (1.38)American Century LIVESTRONG 2035 Portfolio - Class R (1.41)American Century LIVESTRONG 2040 Portfolio - Class R (1.45)American Century LIVESTRONG 2045 Portfolio - Class R (1.48)American Century LIVESTRONG 2050 Portfolio - Class R (1.50)American Century LIVESTRONG 2055 Portfolio - Class R (1.51)Janus Balanced Fund - Class R (1.34)BlackRock Equity Dividend Fund - Class R (1.32)Lord Abbett Fundamental Equity Fund - Class R3 (1.24)Alger Capital Appreciation Institutional Fund - Class R (1.68)Perkins Mid Cap Value Fund - Class R (1.34)American Century Heritage Fund - Class R (1.51)Fidelity Advisor Small Cap Fund - Class T (1.51)Goldman Sachs Small Cap Value Fund - Class R (1.61)Lord Abbett Developing Growth Fund - Class R3 (1.27)Templeton Foreign Fund - Class R (1.46)MFS Research International Fund - Class R2 (1.47)Thornburg International Value Fund - Class R3 (1.45)Oppenheimer Developing Markets Fund - Class N (1.70)Fidelity Advisor Real Estate Fund - Class T (1.43)
Click to expand...
How many dollars are in the plan??I'll say it one more time, because you keep ignoring it. There are fixed costs in operating a plan. Most employers don't want to pay them directly, so they get built into fund expenses. Regarding this particular fund line-up, if you looked at the portion of the listed fees that are actually being kept by the investment managers, you'd probably think they're quite reasonable. But if it costs $14,000 to operate the plan, and there are $2M in plan assets, then there's going to be an additional 0.70% added into your fund expenses. So a fund that would otherwise have "reasonable" expense of 0.50% now has an expense ratio of 1.20%. Get it???Again, your alternative is not having a plan. I don't see what this is so hard to understand. :shrug:
 
So to answer your question, wilked, no, it doesn't make my breakfast rise to my throat. I have no problem with employees having to pay for the operation of their own 401(k) plan, especially if the alternative is not having one available to them.Please tell me you understand. You can't compare the cost of one of these funds to the cost of a no-load fund you might buy throw T. Rowe Price or something. These fund expenses have an extra component (revenue sharing to pay for plan expenses) that those other funds don't.

 
And with that last comment, I'm done in this thread. I'm not taking it personally, but people are commenting without understanding how 401(k) plans really work, the cost involved in administering them, the various parties that are involved, etc. I don't opine on topics that I don't understand, and other people should really take the same advice, or at least take the time to learn when people try to explain.

 
I am no math genius but there is no freaking way I can meet my retirement goal.

If I want to retire at 62, I would have had worked 40 years by then. Let's be conservative and say I live to at least 90 then I need to save enough for 27 years of carefree spending. My retirement income will be pitiful - employer has no pension plan and I'll get chicken scratch from Social Security.

It is impossible for me to maintain 80% of my current standard of living when I retire, unless all my income go straight into my 401K and Obama exempts me from paying Federal taxes.

 
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