Global Wandering

Just finished Lee Eisenberg's book THE NUMBER. The number he speaks of is the amount one needs to save for retirement. The subtitle of the book is "A Completely Different Way to Think About the Rest of Your Life." I can't say after reading it I think any differently. Perhaps if I wasn't saving enough for retirement and had no idea what my "number" was or my life goal was to retire at age sixty in order to play golf seven days a week, it would have been more eye opening. I’ve played golf once in the last ten years, and while I like the game, I can’t envision dedicating 40 years of retirement to perfecting my swing.

While most of my investment work is with institutions, I do occasionally dole out advice to individuals if asked. Recently in San Antonio, a lovely 80 year-old woman came up to me after a luncheon I had spoken at. A broker was pushing her to switch a boatload of money from Vanguard to another fund company, and she was confused as to whether to purchase A shares with their upfront commission or C shares with the higher expense ratio and deferred commission. I had to laugh. She was essentially asking whether she should trade in her current portfolio, which she is paying 0.2 cents on the dollar in fees, for an investment pool that costs five to ten times as much and will underperform where she is at currently, even before taking into account the taxes she will incur by switching. I told her to leave the money at Vanguard. She replied her husband thought the broker was a nice man, and they had already decided to move the funds. I wanted to wring the broker’s neck.

At least this couple seemed relatively well off, so the $25,000 they were about to pay in commissions, fees and taxes probably won’t send them to the poorhouse. Unfortunately, the vast majority of Americans will not fair as well. For them, the rest of their lives will pretty much be the same as their current lives: work.

Most Americans save way too little, and pay way too much for lousy investment advice. Plus they have no idea of the demographic time bomb that will hit with in about twenty years when marginal tax rates are pushed up to 50% to 60% in order to pay for social security, medicare and interest on the national debt. Nothing like paying 50 cents on the dollar in taxes on 401K and IRA distributions because our current Congress and President don’t have the guts to fix the fiscal mess both political parties have gotten us into by overspending and overpromising. Somehow Wall Street and financial planners never mention that down the road half of retirees’ nest eggs will go toward taxes, essentially paying interest on debt incurred to pay social security benefits for their parents.