Debunking Retirement Myths

by: Roger Nusbaum

A contributor at Seeking Alpha who goes by the handle Regarded Solutions wrote a post about a month ago that sets out to debunk 10 retirement lies. Per their bio page, Regarded Solutions is retired, there is no mention of gender and because of the liberal use of the word we in the bio I'm not sure if this is husband and wife but to keep things simple I will just use the word he when a pronoun is called for.

Before getting into the retirement lies he provides very transparent information on a dividend based portfolio.

Lie number 1 was "You will need multi-millions of dollars to retire 'comfortably'" which of course is good timing after I tried to explore a reader's comment about needing $2 million. His point here seems to be you can't spend more than what comes in. This is true of course. So then what is comfortable? One person's idea of comfortable could easily require millions. He goes on to say "it's more about how much you spend" so if that is true (and I agree it is) then I am not sure any lie was debunked. This is a good reminder about living within your means and again, I agree.

Lie number 2 was "Social Security will not be around for those over 50 when you retire." I don't see this one very often. I don't believe it will be around for people under 50 at least not the way we now know it. I have said many times that I, in my mid 40s, expect nothing, which is the more conservative planning approach. If I am wrong then maybe I'll be able to get a sweet grille like Gator (Will Ferrell in the movie The Other Guys).

Lie number 3 was "Medicare will not be available for those approaching retirement". Again, I've not read that people approaching retirement are in jeopardy.

Lie number 4 was "Keep a much smaller % of cash invested in equities." I'm not sure that the advisor community says this anymore. Bogle does however, but he is correct that people tend to become too conservative with their asset allocations. If you're 60 and either of your parents are alive then you need to plan on being around long enough for even "normal" inflation to eat away at your purchasing power.

Lie number 5 was "The 4% withdrawal rule is the best to follow." Obviously I believe in not exceeding 4%. His argument here is that he says he believes in the die broke philosophy. He talks about not wanting to eat saltines and then leave it all to the kids. How much someone does or does not leave to their heirs is a personal decision with no wrong answer so no quibble there. As a stark example the risk to the die broke scenario could thought of as planning at 70 to die broke at 95 and somehow being quite fit well past 100.

Also I may have missed it but this idea would seem to conflict with not spending more than what comes in. It looks like he believes in just spending the dividends, so in theory he would never be broke. He is a very prolific writer and so I am sure this is addressed somewhere else in his posts.

Lie number 6 was "Annuities 'guarantee' money for life." I don't care for annuities either. I was picked on about this a few weeks ago to the point of someone doubting my integrity but I simply don't believe in relying on an insurance company in this way.

Lie number 7 was "Stocks are too risky in retirement." This seems like a repeat of number 4 and I agree people often become too conservative.

Lie number 8 was "Make sure you have a professional advisor to 'help' you." Managing a portfolio requires time and a certain amount of understanding of markets and human behavior. Almost anyone can learn these things for themselves and manage their own portfolios. Not everyone wants to spend the time. Someone who does not want to spend the time should hire some help. An advisor can be a big help even if all they do is prevent clients from succumbing to their own behavioral flaws.

I tend to believe a portfolio needs time devoted to it but that does not have to mean hiring someone. Assuming Regarded Solutions is a do-it-yourselfer he is someone who wants to spend the time on his portfolio. This blog is written in part because I expect very few of the people reading it will ever hire me or anyone else to manage their money.

Lie number 9 was "Make sure you leave enough for the kids." This is a repeat from above and to be blunt I'm not sure the industry says this. I've worked at two buyside firms and at both the approach was along the lines of "what are your thoughts about leaving money to your kids or anyone else" and then the plan is built with that wish in mind.

I know people who view how much they leave to their children is a measure of their value as people and at the other extreme I know very wealthy people who believe the obligation ends once college is paid for and think it is crazy to leave anything to children. An advisor who questions that, as opposed to simply trying to execute the client's wishes, will have one less client. And of course an advisor may need to deliver bad news on this front but that is not the same thing as questioning the intention.

Lie number 10 was "Retirement is an outdated idea, work forever." I'm not sure this is a lie foisted upon an unsuspecting public by the financial services industry as I have been reading comments along these lines on my blog and in other places for many years. Recently I talked about one line of comments though, that believes there is some sort of conspiracy to train us into believing we need to work longer and won't get the social security benefits we think we have coming.

Like a couple of things above, the manner in which we "retire" is very subjective. I could argue that I am retired now. I work from home doing things that I love doing and that I hope to do for a very long time. My personal belief is that working is a better way to stay mentally sharp for longer. Based on what I can tell Regarded Solutions stays very busy. I have no idea if the investment writing pays him anything but it is a vocation.

As for the potential financial benefit from working I've written about this many times in the context of trying to relieve some of the income burden that would otherwise be place on the portfolio. To his first point if your idea of comfortable can't quite be covered by the dividend income (I believe he is a dividend investor) then maybe another $500 or $1000 from some part time work could bridge the gap to "comfortable."

I agree with most of the ideas spelled out in the article, the common sense notion was very good but it is not clear to me that too many lies were actually debunked.