A financial clue book

For decades, my generation has been living in jaw-dropping denial about its retirement prospects. We are old enough to have witnessed the pensions that our parents still might be receiving, but those pensions no longer exist in most of our workplaces.

In fact, most of us will never get guaranteed money throughout our retired lives — other than (we hope) Social Security, which faces its own issues and never was designed to cover all of our needs anyway.

And as those workplace pensions disappeared, we were warned and warned and warned to sock away money in our 401(k)s or other tax-advantaged retirement accounts if they were available to us. But we also had to buy a lot of stuff to overtake the lifestyles of our parents — one of the stupider mythic ideas of the American Dream.

Thus, we have been squeezed both ways — we are expected to save more *and* buy more than the previous generation. That hasn’t worked out so well and you can imagine which route most of us chose.

In this recent article, The Washington Post noted a few scary numbers. To wit: The median retirement account balance for households nearing retirement is about $12,000 — that’s it, 12 Gs. At a 4 percent annual pull (a typical suggested figure if you want your funds to stick around for a couple of decades), you’d get to take $480 a year from that account. A year.

I am not in that kind of awful shape, but I do anticipate my wife and I may have to take a 40 percent spending haircut in retirement. Now, that’s not as horrible as it sounds — I can save 30 percent just by moving out of this expensive region into a cheaper one, and my wife and I will be happy to live on less — but I am still far, far better prepared than most boomers.

This overall lack of preparation and widespread denial annoys the hell out of William J. Bernstein, an investment adviser and author. The New York Times takes a look at a 7,000 word freebie manifesto Bernstein has written about the state of retirement investing. It’s framed as a guide for Millennials — who, like young adults throughout modern time, don’t have much money to save and really want to buy stuff with the money they have.

But Bernstein lays out an extraordinarily simple plan for this generation and explains why it’s so important they get on board right now. He also gives you the quickest financial education you will ever get, no matter what your age — with some particularly harsh (and, I believe, deadly accurate) talk about the financial services industry.

I don’t agree with all of his conclusions. For someone my age, 66 percent stock exposure is a high number. For a 25-year-old, it’s probably a low number. And I would not put a third of my money into overseas stock funds. Finally, his proposal that you throw all your money at the end of the rainbow into inflation-adjusted annuities is odd — they are very expensive, and he spends most of this brochure railing against that very issue in the financial services industry. But overall, there is a lot of head-clearing wisdom in this document, and his recommended reading list will enlighten and (believe it or not) possibly entertain you.

It’s been nearly 20 years since I first put money in a 401(k), and really only 15 since I genuinely started shoveling money at retirement. Only now is the power of compounding returns really starting to take off, and it should accelerate like nobody’s business over the next decade until I retire. But had I started even a few years earlier, that same math would have a lot more horsepower and I wouldn’t be talking about my haircut. (Honestly, every time I look at my peer group, I’m just glad I may get to keep my head.)

If you’re young, you don’t have to face this dilemma. Download the ebook and get educated. Start putting money away. Understand that savings will bring you freedom and debt will bring you servitude. Then act accordingly. It’s really the only option you have. And if you’re older, download the ebook anyway and buy yourself a clue. It’s never too late to improve your lot going forward.


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