“Will You Go From Yuppie To Dumpy When You Retire?”
A conversation with financial author, economist and actor, Ben Stein 

© 2006 by Kamil Skawinski (E-mail: skawinski@hotmail.com )
All rights reserved. This material may not be published, broadcast, rewritten or redistributed without prior written consent. 

When most of us think about life in “retirement,” we tend to focus upon the positive and fun activities we’d like to be engaging in once we bid adieu to the daily grind of work. 

Unfortunately, for too many Americans, the reality of life in the Golden Years will be very different.  Instead of enjoying the la dolce vita, la dolce far niente they’d envisioned, many of our fellow future seniors will discover to their chagrin that, because of inadequate pre-retirement planning, saving, and investing, they’ll likely have to continue working full-time well past age 65 in order to support themselves. 

“Retirement security requires planning, diligence and goal setting,” explains Ben Stein, economist, Hollywood personality and author of Yes, You Can Still Retire Comfortably!  “It’s critical that your retirement plan will generate enough income to meet all of you retirement spending needs for as long as you live in retirement, which can be 20 years, 30 years or more.” 

For many, alas, retirement planning is focused upon setting aside money now to be spent later.  While this is, indeed, a critical part of most retirement plans, people approaching retirement—particularly America’s 78 million Baby-Boomers—also need to plan for the other equally important aspect of retirement:  retirement spending.  And according to Stein, honorary chairperson of National Retirement Planning Week 2006 (www.retireonyourterms.org), Americans who’ve focused solely upon retirement saving might be in for a rude awakening 

Stein encourages people to think of retirement as a pendulum.  Over the course of our lives, the “retirement planning pendulum” swings from the beginning of our working years on through retirement—from the retirement savings phase through the retirement spending phase.  With many Americans living longer and spending 20 years or more in retirement, only a balanced retirement plan will ensure that they will not outlive their savings. 

“Wouldn’t it be nice if simply cutting back on the number of lattes each week would ensure that you can retire on your terms?  Sadly, it’s not that simple,” says Stein.  “It is equally important to understand how you will spend your money in retirement—from medical costs to travel expenses, and everything in between.  After all, if you don’t determine how you will spend your retirement money, how can you possibly know how much to save?  Without placing equal weight on both sides of the issue, the pendulum can quickly turn into a wrecking ball.” 

Sidebar To help Americans address both sides of the retirement planning pendulum, Stein offers the following retirement savings and spending suggestions: 

Retirement Savings Guidelines                                Retirement Spending Guidelines

 To encourage more Americans to seriously think about planning for retirement and avoid becoming “dumpies” (destitute unprepared mature persons), Stein graciously afforded Making Money Magazine an exclusive one-on-one interview in which he shares his concerns, observations, and recommendations as to how we should be planning and preparing for the future. 

Making Money Magazine:  What aren’t Americans getting with respect to the reality of life in retirement, life after age 65?  

Ben Stein:  “Well, they’ve never been there, so they don’t have an appreciation for, an understanding of, living in a situation where they’ll perhaps be desperately short of money. 

For most Americans, they’ve always been used to working, getting pay raises, and getting a steady paycheck every two weeks.  Their imaginations as to the realities of life in retirement simply fail them—they’ve never been in that sort of situation and so they’ve nothing to go by—and so when retirement arrives, many will, sadly, discover that they’re going to be terribly under-prepared.” 

MMM: Beyond the failure of imagination, what else aren’t we doing right?  

BS:  “People in this country aren’t: a) saving enough; b) not saving or putting they’re money into the right things; and c) not getting expert advice from financial planners—they should be going to financial planners who will sincerely have their best interests at heart, and not the financial interests of the financial planner at heart. 

This matter of preparing for life in retirement is no small matter: it is literally a matter of life and death.  Preparation can mean the difference between living a life of comfort and plenty when you’re a senior citizen versus enduring a life of want, deficiency, and financial desperation.  So, if you want to live well at 75, you absolutely have to plan for that when you’re 45. 

The future is no secret.  We all know what’s coming and so we absolutely have to start saving now.  And if, today, it’s just not within your powers of imagination to save…well, that’s fine, too, I suppose.  However, realize that when you’ll reach retirement, you’re going to suffer horribly.” 

MMM:  Is the mindset that “Social Security will be always be there” in some way contributing to the failure to prepare for retirement in terms of saving, investing and planning?  

BS:  “Social Security, unfortunately, just isn’t going to be enough.  Unless you’re coming from a modest income bracket, Social Security isn’t going to pay you very much.  If, for example, you’ve been earning something barely above the poverty wage, then yes, Social Security will provide you with a retirement income that might be just fine.  But if you’ve been earning a middle- to upper-income wage, Social Security is not going to come anywhere close to supporting you in retirement. 

The people who are really going to get smacked in the face the hardest, by any measure, are upper- and middle-income people—they’re going to get hit terribly, terribly hard.  And yet they’re the ones who are most unable to comprehend how much their income is going to drop once they retire.  If you’re a high income worker, you’re going to see your income drop so much it’s going to be breathtaking; but, if you’ve been a low income person for much of your life, the difference between your work and retirement incomes won’t be that much.” 

MMM:  What about that seemingly widespread belief that Social Security will ultimately have to be reformed and restructured so that the government will be able to take care of those who’d not adequately prepared for retirement?  

BS:  “There’s simply not enough money in the world to do that on such a scale.  There’s just not enough money in the world to take care of all the American people who’ll be grappling with the decrease in income they’ll see once they transition from work and into retirement.  There wouldn’t be enough money even if Saudi Arabia emptied its coffers into the system.” 

MMM:  But so many people working and living today aren’t saving their money—they’re living paycheck to paycheck and/or are spending they’re hard-earned cash on consumer goods or a lifestyle.  Saving money seems either impossible or just too painful. 

BS:  “Yes, saving money can be painful when you first start out.  But when you get into the habit of setting aside a good chunk of your money into savings every payday, saving money will eventually become a habit: it will eventually become part of your daily life and routine.  

There are plenty of people out there, of course, who are now living beyond their means and they’re going to be in trouble if they don’t change their behavior.  There is this huge slice of the American population [that is] saving virtually nothing—something like 40 percent of the population has no savings set aside for retirement—and that’s a super, giant, enormous, mega-problem…. 

The main point, the main problem, is that Americans are just not saving enough…you need to have between 10 and 15 times of the average amount of money you annually earn in your retirement savings.” 

MMM:  While we don’t hear that much about them, there are people in this country who are still frugal and who diligently save a percentage of their incomes well above the national average; however, being conservative, these folks just plunk that money into bank money market accounts and CDs.  What are they missing out on by being so conservative with their money? 

BS:  “When compared with a diversified portfolio of common stocks over time, the people who invest solely in CDs and bonds—know that every portfolio should include these, by the way—well, they miss out on the tremendous returns that stocks will offer.  They’re just missing the boat and not taking advantage of investments that, over time, will grow more quickly and offer them diversification.” 

MMM:  Okay, so what sorts of investments make the most sense for folks?  

BS:  “First, let me say a few words about variable annuities here.  Variable annuities have gotten a lot of negative press lately, but they’re still a great investment.  It’s an especially great investment when you can annuitize your money and then get that regular check each month in retirement, come hell or high water, to help keep yourself afloat. 

Now, are there some problems to be aware of?  Yes.  Some of these are just way too complicated; some charge fees which are grossly excessive.  But if you carefully shop around for one and buy one with only the features you need and want, you can do extremely well. 

Shopping for a variable annuity is like shopping for a car: if you live down in Florida, for example, you’re not going to buy a car that comes with snow-tires.  Similarly, with an annuity, you should only select and buy one that comes with the features you want, and not the features you don’t want or don’t need.  When you go about shopping in that vein, you’ll find an annuity that not only will work in your particular circumstances, but you’ll also find that that annuity won’t come with expensive fees—some are available with no fees, in fact.  As with everything in life, you have to shop around. 

Now, I’m a fan of variable annuities, because my parents bought variable annuities from TIAA-CREF all during their working lives…and when they retired, those checks just came cascading in.  And when they died…my sister and I got those checks, and that money just kept pouring in.  My parents chose only those features which they wanted, and their annuities turned out to be terrific investments for them. 

Now, am I saying variable annuities should be your only investment?  No.  What I’m saying is that they should be part of your overall retirement portfolio.” 

MMM:  What about other investments?  

BS:  “I love index funds—large cap, small cap, micro-cap, emerging markets, established European, Australasian, and Far Eastern markets—I’m a huge fan of these.  I also like ETFs; I myself have a lot of these.  ETFs and index funds are very inexpensive to buy and own, they afford immediate diversification, and they’re very tax-efficient.  Their performance is terrific and you’re not paying exorbitant fees to a fund manager.  They’re also very stable—you never have to worry about any changes of strategy a fund manager might take or fear becoming over-exposed to a particular market sector.” 

MMM:  So, what should the portfolio of the typical thirty-year-old look like?  

BS:  “The typical thirty-year-old should have an investment portfolio that breaks down, more or less, along the following lines: about 10 percent in EEM [the iShares MSCI Emerging Markets Index ETF] or an emerging markets fund; 20 percent in EFA or a fund investing in developed foreign markets; 15 percent in a good small cap stock fund; 15 percent in SPY, the S&P 500 “Spyders”; 15 percent in DIA “Diamonds”, the stocks of the Dow Jones Industrial Average; and the remainder invested in the Vanguard Total Bond Fund or VBMFX.” 

MMM:  Should a REIT (Real Estate Investment Trust) be a part of one’s portfolio, too?  REITs had gone up in value so spectacularly over the past several years and analysts have shied away from them.  Is the REIT, therefore, not so sweet? 

BS:  “Ah, yes, thank you for reminding me about these.  Yes, I love the ICF ETF, which has had a very good performance, indeed.  I would only say that this and other REITs have had such a huge run that I really don’t know how much more of a run [REITs] can still get.  It’s just been absolutely incredible.  Now, will this run be done for a while?  Maybe.  But over the next twenty or so years, it’ll be fine and it’ll still be worth owning.” 

MMM:  And how should one enter nto the world of stock and bond investing?  Should one dollar-cost average money into such investments regularly, a little at a time?  Or is taking the plunge with large investment amounts an acceptable way to go? 

BS:  “There are a lot of people who love dollar-cost averaging and there are a lot of people who hate dollar-cost averaging—so, I don’t really know what I can say and tell people about that.  My friend, Alan Abelson, the editor of Barron’s, intensely detests dollar-cost averaging, for example, and he thinks that you should just buy when it’s low, and not buy when it’s high. 

Personally, dollar-cost averaging has served me well.  What I do is just buy, every month, quite a large chunk of the Spyders or the Fidelity Spartan 500 Index Fund, the Fidelity Spartan International Index Fund and the Fidelity Spartan Total Index Fund.  It’s a way, for me, to invest in something like auto-pilot.  ‘Set it and forget it’ are words I love.” 

MMM:  One hears many things about the potential negative impact the coming retirement of the Baby-Boomers will have on the U.S. stock market.  Need we worry?  

BS:  “I think that, unless we have a nuclear war or something involving germ warfare, the U.S. stock market is going to do well for a good long time.  I don’t really have any concerns about the strength of or stocks of the U.S. stock market.  Even if the Baby-Boomers end up pulling a lot of money out of the market as they all retire, there are still lots of foreign buyers out there—it’s an international capital market at this point.” 

MMM:  Is it ever too late to invest for retirement? 

BS:  “Facetiously, the answer is when you’re on your deathbed.  But, seriously, it’s easiest to prepare and invest for retirement while you are still a few decades away from that event.  Time is your friend then: it works for you and your money and helps it grow.   

When you are close to retirement age and without sufficient savings, well, then the situation becomes considerably more difficult.  You really have to start living frugally and saving as much as you can…but your money won’t grow as quickly, and you’ll likely have to live very frugally throughout your retirement years as well.  And for those who hadn’t prepared while there was still time, the truth is that things will be very, very tough. 

It’s not too late to prepare for retirement while you are still working and earning money, so start thinking about it now.” 

MMM:  Any final words of advice? 

BS:  “For more in-depth answers and strategies and everything you could possibly want to know—or not want to hear and know—read Yes, You Can Still Retire Comfortably!  And remember that no sacrifice made while you are young or middle-aged is too great if it helps you avoid the worst possible fate: penury in old age.”