• Helaine Olen on personal finance: Parts 1 and 2

    olen_jacketHere are the first two segments of my interview with Helaine Olen regarding her book, Pound Foolish. You can see a more extensive interview with Olen, with arguably better production values, on Frontline’s the retirement gamble this week.

    In Part 1, we discuss how she got into this game, what it was like to do the Money Makeover feature for the Los Angeles Times. As I nod to project the wisdom of a sage and swig diet soda, we discuss what I regard as the financial industry’s most basic dilemma: The best advice fits on a 3×5 index card and is available for free at the library.

    We also discuss why divorce is bad for your financial health, and why trusting financial advisors is generally foolish, even if one assumes that this person is above ethical reproach. We note the false hopes placed in personal financial skills to offset stagnant wages for millions of Americans. Finally, we observe that Suze Orman isn’t one of the world’s greatest financial advisors. She has found one of the world’s greatest sales gigs. At least Orman is less predatory than many of the other finance gurus.

    In Part II, we start to get into the meat of things. We start by discussing the dinners for senior citizens, at which entrepreneurs sell rip-off variable annuities to seniors desperately (often fairly realistically) afraid that they will outlive their savings. As a warm-up, these salespeople predictably trash Social Security—the one solid source of annuitized wealth that Americans can turn to in their retirement years. Here’s a link to Personal Finance for Dummies, which beats most more pretentious personal financial advice books around.

    I’m cross-posting this with the Reality-based Community. I’m doing so to compare the comment threads on the two sites.


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    • I’ve not listened to the interview yet; I will do so, quite eagerly, in a minute. Based on the description, it sounds fairly negative, in the sense that the industry is bad for us and many of us are likely to outlive our savings. An annuity has always seemed like a good way to respond to that problem; Social Security, of course, is the annuity that we’re all entitled to, though it’s comparatively paltry. So the positive answer I want is: where do I go to find a non-scam annuity that will supplement my Social Security income when it comes time for me to retire? Are there books, on top of Personal Finance For Dummies, that I ought to read? I have lots of other questions that demand positive answers (should I buy a home? What if I’m trying to buy in an inflated market like Boston’s? At what point do I infer that the market is overheated and due for a correction, and that I should stay away even though interest rates are historically low? Etc.). Purely negative considerations don’t help much here.

      (The “write a book with the negatives, then another with the positives” approach is what Elizabeth Warren did: first “The Two-Income Trap”, then “All Your Worth”. Marion Nestle did this in the context of food: first “Food Politics”, then “What To Eat”.)

    • Steve:
      Check out fixed-indexed anuities. The ones I have vary with the S&P.
      If the index rises, I capture about 50% of the gain.
      If it reduces, I lose nothing, and start from a lower base, with a better chance of growth.
      They guarantee 2%.
      Don Levit

    • I wish that I had had the Bogleheads guide when I was starting out in my 20s. I was a good saver, but far too risk adverse in my investing and had far too much invested in housing. In the end it all turned out okay, but that was a matter of luck more than anything.

      A few years ago, half way between my husband’s 50th and my 50th birthdays, we received a small windfall and decided to get some “professional” advice. In March 2009 we set out to interview financial planners. The first one told us to buy gold because we were about to enter a period of rampant hyperinflation. The second one told us the same thing. The third one repeated the advice. We could not find any one who was not pitching the nonsense that they were hearing on Fox. Of course, they also knew that Social Security was in imminent danger of collapse although only one of them called it a “Ponzi scheme”. We never did work with a professional and are continuing to blunder along with the Bogleheads’ advice. Fortunately, we did choose to keep our money in the stock market…. Meanwhile we have untangled all of our old 401Ks and 403Bs from various rapacious financial “professionals” and shoved them into plain-vanilla Vanguard.

      We’ll give your book a read, too.

    • <em The best advice fits on a 3×5 index card and is available for free at the library.

      How true. Also true in some other professions.

    • In the video you discussed raising SS benefits, I think that the purpose of SS is to provide a minimum of income in retirement so that no one falls below that level. Therefore, I think that we must fist move to a system where everyone gets the same benefit, then we can more rationally debate the level of the benefit. Leaving the system as it is and raising the benefit would require taxing workers more (IMO not all of the increase can come from the rich).

      The system really needs to redesigned.

    • Unfortunately, both the author and the frontline video lump all into the same boat, including employer sponsored plans which are subject to fiduciary requirements under ERISA to manage the plan “solely in the best interest of participants”.

      For example, one of the problems with the Frontline video is that it NEVER mentions why the fees are high in some 401k plans relative to other 401k plans. The same weakness applies to the ERISA 408(b)(2) and 404(a)(5) mandated disclosures of fees as discussed in the Frontline video. By leaving it unsaid, they suggest fiduciaries did not select investments with a focus on the needs of participants – that they had some other conflict of interest or agenda. By leaving it unsaid, they hint better alternatives may be available – even though, that is typically the only plan available where you work. Why the variance? Why so high? Simply, every study of fees shows the fees that are charged to an account are in inverse relationship, as a percentage of assets held in the plan. That is, there are considerable fixed costs in establishing and administering a plan, and the smaller the base, the greater the percentage of charges relative to the assets. Even the DOL/EBSA had to back off prior assertions and confirmed in the preamble to the final regulations on fee disclosure that they could not confirm that plans were being overcharged!

      Another problem with the Frontline video is that fails to distinguish between the fees charged for administration and the fees charged for investment purposes. Purposefully comparing index fund fees without any load for plan administration with actively managed funds that also incorporate administrative costs is simply misleading.

      Finally, the DEMOS study discussed in the Frontline session is less than honest in at least two ways:
      First, that DEMOS’ own plan has not been able to reduce its costs as the author proposes is possible for all other 401k plans, and
      Second, where the author suggests the average participant in a 401(k) plan will shoulder “hundreds of thousands of dollars of fees”. His math is crap – and for Fronline to feature him without specific rebuttal from someone from the trade organizations involved in employee benefits fails to present a balanced approach.

      Sure, there are problems when non-fiduciaries offer investments that are “suitable” but not necessarily “solely in the best interest” of individuals. Don’t be so quick to lump everyone together here.