In the financial services business, we spend a lot of time dealing with complex products and strategies. And there’s good reason for that. But the heart of good retirement planning—good financial planning—is simple (if hard to do). It’s informed common sense. It begins with starting early and saving aggressively. Then when the markets get ugly, as inevitably happens, it requires that we manage our internal radar to good effect.
This requires courage, the ability to do the hard, right thing even when we’re afraid. The best retirement income strategy in the world is utterly meaningless unless and until one has the resources to put it into place and make it work.
The most bitterly fought ideological skirmish in the investment world is that waged between advocates of active and passive investment management. But whatever view one takes on that controversial subject, active financial planning for and of retirement is an absolute necessity.
I hope you’ll read it.
The following animation (from Calculated Risk, using Census Bureau data), which updates every second, shows the wave of demographic changes from 1900-2060.
The additional numbers of older Americans (and thus retirees and, by implication, the need for better retirement saving and planning) going forward — as the Baby Boomer generation retires — should be obvious.
Lauren Foster of the CFA Institute asked Wade Pfau, Michael Kitces, David Blanchett and I to suggest some resources for advisors dealing with retirement. What we suggested and a lot of other good stuff are available here. I think it’s well worth your reading.
Let me hasten to emphasize up-front that Dave has done some fabulous work by helping many, many people to get out of debt, stay out of debt, budget effectively, live frugally and save aggressively. But when it comes to investing and to doing math, he is simply out of his depth. Let’s start with the backstory. Continue reading
A number of years ago, during George W. Bush’s second term and by sheer happenstance, I ended up playing a round of golf with a Navy SEAL Commander (half the SEALs train here in San Diego). Obviously, much of his job was classified and he was very circumspect in what he shared. However, when I asked where or how I could become better informed about foreign policy, he recommended Ron Suskind’s book, The One Percent Doctrine.
The “one percent doctrine” (also called the “Cheney doctrine”) was established shortly after 9.11 in response to worries that Pakistani scientists were offering nuclear weapons expertise to Al Qaeda. Here’s the money quote from Vice President Dick Cheney: “If there’s a 1 percent chance that Pakistani scientists are helping al-Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response. It’s not about our analysis … It’s about our response.”
Thus in Cheney’s view and per subsequent policy, the war on terror required and empowered the Bush administration to act without the same level of evidence or analysis as might otherwise be necessary. Continue reading
PBS aired an important documentary Tuesday evening examining retirement planning in America and entitled The Retirement Gamble. One particularly noteworthy comment came from Vanguard founder Jack Bogle on the “tyranny of compounding costs.” In contrast to the “miracle of compound interest” (often attributed to Albert Einstein, probably falsely, but that doesn’t lessen the import of the concept), which shows how quickly interest can accrue when it is compounded, the tyranny of compounding costs addresses how dramatically returns are diminished on account of excess fees. Note the chart below from The Journal of Financial Planning. As always, fees matter – a lot.
The great scientist E.O. Wilson created a major stink over the week-end via The Wall Street Journal by arguing (or at least seeming to argue, among other things) that math skills are less important to most scientists than imagination, theory, concept and intuition. It reminded me of the 1976 SNL send-up of the Gerald Ford-Jimmy Carter Presidential Debate. In the “debate” (shown below — the noted section is about 6 minutes in), Chevy Chase, as Gerald Ford, responded to a difficult economics question as follows.
President Gerald R. Ford: [ sweating ] It was my understanding that there would be no math… during the debates.
My newest column is now available from Research magazine. Here’s a taste.
As [The Wall Street Journal's Jason] Zweig emphasized, we are all social animals. It is natural and inevitable for most people to measure their success and status against their peers, and advisors are people, too. Yet the advisor who loses business to the competitor proposing an unrealistic approach and envies him “has already lost the battle. [Warren] Buffett likes to say that companies get the shareholders they deserve. Ultimately, every advisor has to be reconciled to the perennial truth that you get the clients you deserve.”
Surely the best advisors will need to listen more carefully, to provide excellent advice and recommendations based upon the most thoughtful research, and to make their points in a way that resonates with clients both intellectually and emotionally. That’s far easier said than done, of course. Long-term financial and retirement planning is difficult business. As Dana Anspach sagely added, “It is hard to plan for something when you don’t want it to happen.” Indeed it is.