Ben Stein: 3 Biggest Retirement Mistakes
Ben Stein has been making the rounds through the media in support of National Retirement Planning Week, a celebration of preparedness. He recently met with Terri Cullen from the Wall Street Journal and sat down for a quick interview.
Ben shared his opinion regarding the three biggest mistakes people often make in regards to the topic of the day.
Mistake #1: Not Starting Early Enough
Ben says the government should require auto-enrollment in 401(k) or 403(b) retirement plans, with an optional opt-out clause. He also suggests that teens with part-time jobs while going to school should have the self-discipline to save a small portion of their earnings ($10, $20, or $25 a week or month) into a retirement plan such as an IRA. The small savings will not dent today’s enjoyment of life, but the magic of compounding will do wonders for your quality of life by the time you’re 65. Start saving later, and it’s much more difficult to catch up.
Mistake #2. Not Being Diversified
Ben Stein’s advice is to diversify your investments among a number of different spectra: company size (large cap vs. small cap), company objective (value vs. growth), location (domestic vs. international), and level of market development (emerging markets vs. developed). I haven’t focused too deeply on some of these dimensions. He’s not a fan of target date funds because of the inclusion of bonds. He feels bonds are basically useless investments, especially if money markets are providing similar returns without the risk. Ben’s worried about terrorism or hyper-inflation, which would mean bad news for bonds.
Mistake #3. Not Curbing Your Spending
Lao Tsu said, “There is no catastrophe worse than lavish desires.” Ben admits this is his main mistake — it required constant effort to keep up with his lavish lifestyle. He has eight houses. Even he admits that is too much for one person. Is excessive spending overlooked as a threat to solid retirement? When it comes to spending in the present time, it comes down to a matter of personal choice. As long as one is educated so he understands that spending $x now will mean he will have $x · 1.08n where n is the number of years until retirement (assuming an 8% annual growth rate), he should be allowed to make that decision and not criticized. However, if expenses are accelerating at a higher rate then income, there will be danger ahead.
Article comments
To know the truth about any proposed solution there should to be supporting evidence. Regardless of the persons making the proposition, the truth supports itself. I find it very interesting how many people regurgitate what others say without asking them to provide proof for their proposition. In general Ben made some good points but I cannot agree with some of the things that he said. First, I disagree with the definition for “Being Diversified.” Stock Market history tells us that the market is a very risky place. If the purpose of being diversified is to reduce risk then that is the benchmark, period. Is it possible that there are investments that are not subject to market risk? I know that there are. Unfortunately most of the people giving advice have something to gain from our participation in the movement of market whether it moves up or down so there is an inherent bias in their advice. Secondly, If the goal is to retire with reduced risk, the 401K or 403b “differed taxation” is certainly not the way to go; besides, have you looked at your statement lately? I believe It is important to know that taxes will be lower when my working days are over based on the decisions and choices I make today. A Roth IRA would be preferred retirement vehicle if you must participate in Market based investments.
I get pulled in two directions when I see stuff like this. Yes, his message is sound. However, his message is severely weakened by the poor role model he sets. I think that the majority of people who really need this advice will think, “Easy for him to say, he’s an old white guy who made a bunch of money by being famous.”
Which one of his eight houses did he fly from for this interview again?
These are the core tenets of building wealth:
1. Save: Unfortunately, our nation has a negative savings rate so we need to do a better job of this.
2. Diversify: Even folks who focus on diversification do a poor job of this. Most investors are loaded with US stocks and bonds. To be truly diversified, your portfolio needs several asset classes with low correlations to one another. Think of adding REITs, commodities, TIPS, international equity/bonds, etc. to your stock and bond portfolio.
3. Spending: Before I knew anything about saving or investing, my parents taught me to never spend more than you make. This is the backbone to a wealth building strategy.
I hope Ben can get his message across to the youth in this country who really need to learn these three tenets. Of course, he probably won’t be able to do it if he fails to rise above his character performance in Ferris Bueller’s.
Perhaps I’m putting words into Ben’s mouth, but according to the interview, he feels the risks of bonds other than Treasury bonds (particularly in an environment where terrorism and hyper-inflation are threats) don’t justify the low returns. So while bonds have their purpose, Ben believes they’re not ideal for reducing risk in one’s asset allocation.
He feels bonds are useless? Wow. That’s a pretty harsh statement. Bonds are a critical piece of setting up asset allocation, and are not the same as cash or money market funds.
National Retirement Planning Week gives the media a reminder (excuse) to once again pay attention to American’s abysmal saving habits. But most of the time telling people to save more is like telling alcoholics to drink less.
Good advice, but it’s going to take a bit more.
Too many folks fear they will need to begin living a “cheap” life in order to be able to save. The result is procrastination.
Instead, being fiscally responsible every once in a while will have a huge long-term impact to your savings (and retirement) without the huge impact to your current lifestyle. That’s achievable and a great way to start.
I would put get out of debt as number one. Getting out of debt (except for our house) has been the spring board to better financial living and retirement savings.