“We got two eyes but still don’t see” — “Casey Jones,” The Grateful Dead


Jerry Garcia’s ex-wife, Carolyn, aka Mountain Girl, successfully sued his estate after his widow/executor halted the $250,000 annual payments Garcia agreed to pay. The lawyers worked out all the details and Mountain Girl ended up in better shape than the typical baby boomer. At first glance, it may appear to be a giant leap from Workingman’s Dead to retirement planning but many don’t get the message.

At the Retirement Income Symposium Vanguard’s venerable John Bogle, like Jerry Garcia, sees trouble ahead. The combination of low yields on fixed income, underfunded pension plans and a flawed retirement system will lead to a train wreck unless we make changes quickly. Like the Dead warned, “It’s on the wrong track and heading for you.” 

Our current retirement system with self-directed IRAs and 401(k) plans potentially dooms everyone; perhaps we need to hit the reset button. Bogle, a lifetime conservative Republican, suggests combining all retirement plans into a single entity run by a board with fiduciary responsibility. The idea that you can plan your own retirement successfully while navigating the ebb and flow of markets and financial marketing hype leads people to expensive errors. 

Bogle echoes a prescient New York Times column (July 21, 2012) by Teresa Ghilarducci, who labeled our approach to retirement “ridiculous.” Ghilarducci enumerates the problems with our do-it-yourself approach. Understand you have to save 7 percent of every dollar you earned beginning in your mid-20s and earn 3 percent over inflation. Don’t withdraw any money if you get laid off, get sick or divorced, buy a house and need to pay college tuition.

You must asset allocate appropriately and avoid investment gimmicks while keeping fees low.

Both Ghilarducci and Bogle propose changes to our current 401(k) distribution options. Their recommendations include eliminating loans and penalty-free withdrawals. Ghilarducci touts annuitization (creating a lifetime income stream) to make sure people don’t run out of money before they run out of breath. The money management world cringes at annuitization because they would have fewer assets to charge fees.

Bogle takes advisors to task for unwittingly (or not) increasing clients’ risk by goosing yield for short-term gain. Using low cost passively managed ETFs and mutual funds increase your return without additional risk.  What you don’t pay you keep. Don’t take big bets on a hot sector or some new-fangled investment idea.

Investing should be as exciting as watching paint dry. Too many people confuse short-term speculation with investing. The market doesn’t care if you need additional income. Rather than take extra risk, look at paring back expenses or working longer.

Bogle scoffs at the notion of privatizing Social Security and, since he’s a conservative who can do math, instead proposes raising the amount subject to employment taxes while gradually raising the retirement age and limiting inflation adjustments. The notion of privatizing Social Security in a country where 75 percent of people approaching retirement have less than $30,000 saved for retirement boggles the mind. 

Life expectancy is increasing but for many people “Train 102 is on the wrong track and heading for you.”

Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast.  He can be reached at 267-1068, Buz@LivingstonFinancial.netor www.LivingstonFinancial.net.