Reviews

Short and Sweet, and Terrifying

Book Review by Paul F. Marr

 

 

How to Retire with Enough Money…and How to Know What Enough Is: A Clear Answer in 116 pages

By Teresa Ghilarducci. Workman Publishing, 116 pages.

 

Teresa Ghilarducci’s “How to Retire with Enough Money” will be nothing new to those who follow personal finance, but it’s both a wake-up and a how-to for the majority of would-be retirement savers who do not.

Most of Americans over 50 have less than $30,000 saved for retirement, Ghilarducci writes, and a third of those have nothing. With thousands of baby-boomers reaching retirement age every day, the United States faces not only a larger population of seniors but a larger population of aging poor.

Ghilarducci, a professor of economics at the New School in New York City, argues that the decline (some would say death) of old-style pensions, and the rise of the 401(k)s and similar retirement vehicles that have supplanted them, have been a disaster for most Americans. That’s nothing new, but Ghilarducci draws a stark picture of what that means: Many of us won’t have enough when it’s finally time to end our working lives.

Some will fool themselves into thinking they can make up the difference by making a big last-minute deposit into their plans, or taking part-time jobs, or moving in with their children, or using other questionable strategies to make up for the shortfall in their assets.

The reality, however, is that 401(k)s and similar vehicles, while helpful to businesses trying to reduce their employee retirement costs, have not provided nearly the security that the old system of pensions offered to average working people. The reasons include insufficient funding of the plans by workers, poor investment choices, and participants sabotaging their retirement by taking too many loans against their assets.

“The 401(k) favors top earners the most and puts too much risk on the individual,” the author writes. “But if offered, you should have one.” It doesn’t hurt if the employer provides a decent matching contribution.

Ghilarducci does the math, as they say, and not just in the literal sense: She poses the life issues we all face in realistic terms. Will you be able to retire when you want to, or might circumstances, such as health issues—yours or a loved one’s—force you to leave your career early? That means less money in your retirement, and with today’s increasing longevity, that money might have to last 30 years.

Or, imagine your employer lays you off in your 50s, well before you planned to retire, and an unwelcoming labor market effectively forces you into retirement early.

The book describes a number of frightening scenarios. The point Ghilarducci makes, however, is not that one should cower in fear before all the potential retirement nightmares that are out there, but that we have the power to avoid them or at least be ready for them if they come true.

The author makes some good points about investing: Leave your assets in a 401(k), even after you leave the employer, rather than rolling them over into an IRA; avoid financial advisors who are not fiduciaries and/or get paid to sell investments; and invest as much as possible in index mutual funds, because both risk and fees are lower.

As a mutual fund investor of some experience, I’ll quibble with the last item, to a point. Index funds do have very low fees, and often offer good or great return. There are, however, good non-index funds with reasonable fees that also offer strong returns at low or reasonable risk.

Ghilarducci’s point is well taken, however. High expenses can and do take too much out of many retirement accounts over time.

Speaking of time, the author also mentions the toll mortgages, loans and credit cards can take on one’s finances over the long term. Paying off a credit card, for example, that charges 15 percent interest can be seen as akin to having an investment pay 15 percent. The bottom line is that we want to be paid interest, not be paying it, to reach our retirement goals.

Ghilarducci concludes with a passionate, well-reasoned defense of Social Security, Medicare and Medicaid, and outlines her proposal for GRAs, Guaranteed Retirement Accounts.

Social Security’s expenses are three times lower than those of the typical 401(k), and the program has a bright future, the author writes. There are steps that can be taken to strengthen it further.

Similarly, Ghilarducci urges continued support and expansion of Medicare and Medicaid. For example, Medicare should be permitted to use its massive size to negotiate for lower drug costs.

The goal of Ghilarducci’s proposal for GRAs is to prevent seniors from falling into poverty if their 401(k)s or other retirement accounts fall short. The money workers pay into the GRAs would be overseen by expert financial managers with no need to make profits or please shareholders. The money would go into low-risk investments with enough return to ensure that when retirees needed the funds, they would be there to supplement Social Security.

In addition to saving enough, investing consistently and living as free of debt as possible, Ghilarducci argues that people can protect and enhance their retirement by participating in the political process—paying attention to what’s going on with retirement-related issues, communicating their concerns to politicians and officials, and voting.

Bottom line: A good strong book about retirement that doesn’t pull punches, and it’s a quick read. If it scares you a bit, maybe you needed to be scared, and if you didn’t already have the information that the author includes, you probably need it.

 

 

Paul F. Marr has been in print and broadcast journalism since the 1980s. Marr developed an interest in personal finance in the 1990s, when he began investing in mutual funds, and was briefly a financial advisor for a national firm. More recently, Marr’s own investment focus has turned toward ETFs (exchange-traded funds), value investing and dividend investing.