Category Archives: Observations

PBS Frontline: The Retirement Gamble

frontline

I finally had a chance last night to watch the excellent PBS Frontline documentary on the American retirement “crisis”. If you have a spare hour, it’d be worth your time to watch the whole thing. (Here’s the transcript if you want to take a quick skim.)

The piece covers a lot of ground, but the two biggest points were that the burden of retirement planning has been plopped into the unprepared public’s lap in the form of 401(k) plans and that the 401(k) bucket of cash has been too tempting for plan managers, who have been grabbing the money for themselves in the form of fees.

In fact, the most powerful punch of the show is when it’s illustrated that the fees actually eat up as much as two-thirds of the gains over your working career. Fortunately, they also point to a solution: low cost index funds. Interestingly, it’s the exact same strategy espoused by none other than Mr. Money Mustache. They even interviewed MMM’s hero, Vanguard’s John Bogle! That was pretty cool to see and it was great to get reinforcement of my preexisting opinion about 401(k)’s and financial advisers.

Of course the program had to include some “real people” to add some emotional weight to the story. This is where the piece was at its weakest. One gaping hole was that they didn’t talk about these people’s spending rates and didn’t even mention whether they still carried a mortgage or not. For example, one woman said she had $500,000 in retirement funds at age 48, but somehow can’t imagine being able to retire until she’s in her mid-70s! Another fellow was shown at what looks like a waterfront home, talking about how he has to work part-time in his senior years. I actually liked him because he said he’d downsize into a tent if he had to. I think that’s the attitude that got him his waterfront house.

The reporter, the always intrepid Martin Smith, uses his own retirement as an example, noting that he dipped into his nest egg multiple times over the years. The financial adviser tells him he has to work full-time until age 70 and “from age 70 to 75, I have you working part-time.” The reporter notes that his savings went to his kids’ education, a divorce and “the crash of 2008.”

The real tear-jerking segment featured Debbie Skoczynski:

I freaked out when I took the money out of my 401(k). It was hard. I mean, it’s— you know, you never— every day on the news, I’d listen to it and I’d be, like, “Oh, God, it’s really bad. Will I be able to keep my house? Will—” you know, “I— what if my car breaks down? I can’t afford a car payment.” It just can’t be this hard to make— it can’t. You know, you hear these big companies with these people taking these huge bonuses. You’re thinking, “Well, what happened to the average Joe?” They just don’t care. They made their money already.

Now, I feel bad for Debbie, but you can see her one-dimensional thinking here. She asks “What if my car breaks down” and answers that with “I can’t afford a car payment.” I don’t want to pick on her, after all she’s having a rough time, but I was thinking, “Um, you can’t think of ANY other solutions to that potential problem?” Like maybe “car repair”? Or “cheaper car”. Or “the bus”? To me, she really represents how Americans have been trained to deal with life: just throw money at the problem and if I don’t have any money, that’s OK because I’ll have money later.” Had she not been too far stretched with (apparently) a large house payment and other expenses, she could have easily weathered the storm without tapping her retirement money.

The remainder of the show was mainly the strongly worded accusations and squirming insiders that make Frontline such a fun show to watch.

Unfortunately the show didn’t once talk about buying too much house, how to get rid of your mortgage, mindless spending, how much one needs to retire, or whether people should pay for their kids’ education.

If the show had a fatal flaw, it was that it uses a “Retirement Plan Consultant” to endorse the proposition that Baby Boomers don’t have enough to retire but then calls such advisers out at the end of the piece for giving bad advice and scooping up all the money in fees.

In fact, the financial planner at the beginning even pulls out the old “$1.5 million” trope again, saying one needs 10-20 times your yearly income to retire. Um, why? Not explained. Just gulped down by the reporter as if it were just handed down on a stone tablet.

I advocate trying to “pretire” as soon as possible, which means generating enough money through passive means to support yourself indefinitely. If you reach that stage before traditional “retirement”, then you should be able to get a nice raise when you retire. If we accept that as the goal, then your yearly salary becomes completely irrelevant to how much you need to have in your nest egg when you retire. There is NOTHING about how much you make today that helps you determine what you need to retire. The only thing that matters is how much money you need each month and how you’re generating that money.

The program does a great job of exposing many problems, particularly that the general public is completely clueless about this stuff and that they’re being robbed via fees. Sadly the reporter himself is in this category. His ending has him exploring online calculators(!) and finally comes to the conclusion “I will keep working.” Hopefully they’ll go deeper next time and explore the real math of retirement and pretirement: bringing in more than you spend.

Ten awesome ways to look like a total idiot

There was once a time when wealth was hard to fake. For example, in the Gilded Age, the Vanderbilts and the Rockefellers, among others, floated far above the masses living in their own, untouchable world. Several layers below those elites were the plain ol’ rich, but they weren’t obscenely so. These were the executives, the entrepreneurs, and others who made a great living, living it up in mansions and even owning cars.

No matter how many boom and bust periods the country went through, you could still spot the wealthy a mile away. It was them and everyone else.

This continued right up until later in the 20th century, particularly in the 1980s and 1990s. That’s when something very interesting began to change: the advent of Easy Credit. Suddenly a lowly office drone could drive to work in the exact same car as the owner of the company. While their financial situations may have been very different, if you saw them stopped next to each other at a stoplight, you wouldn’t be able to tell which was which. This was new. In fact in the ’80s I was working in fast food and our manager drove a new BMW convertible. A fast food manager. Of course he also burned out his nose on cocaine, but that’s another story…

We are, after all, just animals

In the natural world, animals employ various tactics to attract a mate. The male frigatebird inflates a large, red sack on its chest, dancing about to bring on the ladies. Male rams famously crack heads with competitors until the strongest stands alone, thus impressing the females. And the male cichlid fish prefers females with a large pelvic fin, causing the ladies to sprout outsize fins to attract the boys (and probably starve themselves to make the pelvic fin look larger).

Even in the human world, we see the same approaches, although it’s harder to recognize them in ourselves. For example, the Maasai tribe in Africa uses a jumping ritual where the males compete to show their prowess. The higher the jump, the more attractive you are to the girls. In western culture, we do crazy stuff as well. Mostly geared toward looking wealthier than we are. If we spend a lot of money on haircuts, fancy clothes, gym memberships, flashy car, etc., on some level it’s just the human equivalent of flashing our plumage. (Which in turn is a proxy for better genetic material, according to the scientists. Wealth is an indicator, however subconsciously, that this mate was stronger, smarter, whatever and therefore is someone we want to combine DNA with.)

How humans choose a mate

Which brings us back to the world of personal finance. For quite some time, people were able to discern wealth (and by proxy, desirable DNA) by easily identifying those individuals by their trappings. Mansions, beauty, cars, leisure time, etc. But in the era of easy credit, beautiful jaw structure or a sleek black Mercedes could be presented as wealth with no way to tell how real it was.

HOWEVER, like any animal, we can’t be fooled for long. Certain things we do to present that fake wealth are now easily able to be seen through. Once symbols of wealth, they’ve become symbols of stupidity. Ways to be targeted for Loserville by potential mates, even as we’re still doing them in hopes of mating success.

So with that very long introduction, I present Ten Awesome Ways to Look Like a Total Idiot and thus be overlooked by potential mates. (Full disclosure: I’ve done more of these than I want to admit. I’ll leave it to the readers to guess which ones.)

Keep in mind, we’re talking about things that people do to make themselves look rich but actually make them look poor and stupid. There are a lot of dumb things people do, such as not investing in their retirement plans at work, that are private. That’s a different post.

1. Buying a brand, new car

Photo: Beth and Christian

Photo: Beth and Christian

Once upon a time showing off that flashy new car to your friends was a sign you’d made it. But in the era of easy credit, your new car just screams “I’ll always be poor!” Your polite friends might compliment you on your new purchase, but inside they know you’ll be asking to borrow money someday. It’s probably the most vivid example of an item where the consumer thinks everyone else thinks they look rich, yet we all know what’s really going on.

 

2. A perfect lawn

Photo: Iamrealestatephotographer

Photo: Iamrealestatephotographer

No one is denying a perfect lawn looks nice. But that lush green patch also looks like you don’t know how to manage your money. There’s nothing more pathetic than watching someone dump gallons of water on their green patch just so they can trim off the excess growth they just caused and throw it in the yard waste bin. Even worse is watching someone sacrifice the health of their pets and kids by covering the lawn with chemicals. Here’s a tip: If a plant doesn’t grow without unnatural intervention, the plant doesn’t belong there!

 

3. An expensive coffee habit

Photo: Ishmael N. Daro

Photo: Ishmael N. Daro

Look, an occasional treat is one thing. But we all know that person who can’t stumble their way into work without their triple-Venti-no-foam-half-soy-half-nonfat-extra-hot latte. These people can’t function without their morning milkshake and they carry their disposable cup around all day as if to say “look how rich I am, I can’t function without my fancy coffee milkshake every day.” Newsflash: everyone knows you’re buried in credit card debt — we can tell by your decadent wasting of money every morning.

 

4. Fancy bottled water fiji_water

Some business genius started this madness in the 1980s when Evian bottles became the hottest thing to make sure people saw you holding. Never mind that it tasted like shit. For awhile it got so bad that just having a water bottle in your hand was a status symbol in and of itself. We’re finally at the point where most people acknowledge bottled water is one of the worst things you could do to the planet and it’s started to disappear. Except! Now we’re also seeing the arrival of new, fancier bottled waters, with morning dew shaken from the leaves of gorgeous plants in the most exotic locations. Just stop. If you’re thirsty, grab a glass and put some water in it.

 

5. Whipping out the store credit card

Photo: mlinksva

Photo: mlinksva

Ugh, when will this die? Whether it be accidentally pulling out a fancy store’s credit card at dinner or simply using that store’s card when shopping, this ridiculous phenomenon must be stopped. With very few exceptions (I can think of exactly zero right now), store cards are for SUCKERS. For a large purchase, it can be worth it to apply for and use a store card just to receive the discount. However, after the purchase is complete, cancel the card! Keeping a wallet full of various store cards is absurd. And while you think your fancy wardrobe is making you look rich, your idiotic store cards make you look POOR.

 

6. Driving gas guzzlers

Photo: David Guos Master

Photo: David Guos Master

I’m not sure what is going on in America these days, where certain individuals are threatened by anything environmentally friendly, but it’s super weird. I see people all the time who love to mock gas-saving cars and then rumble away in their giant trucks, the ash from burned-up dollar bills coming out of their tailpipes. My favorite is the Hummer, the ultimate car of the fake-rich. Bought, no doubt, on credit, the fools that drive these giant machines get a little ego boost every time they get behind the wheel. Meanwhile the rest of us are snickering at their stupidity.

 

7. Kids buried in toys

Photo: Rob Boudon

Photo: Rob Boudon

This one really gets obnoxious at Christmastime. Spoiled little American brats find themselves awash in plastic crap from China. It’s quite amazing to watch this ritual each year. The pile of presents is slowly processed into two piles: one of shiny, crumpled paper and the other of shiny plastic. The excitement of anticipation on Christmas morning lasts about 0.3 seconds per gift as the item is ripped open and quickly thrown aside as they go on to the next one. Later the pile makes its way into a basement or bedroom, where it’ll be occasionally played with, but usually forgotten as the kid searches for the next thrill.

 

8. Name-brand wardrobes abercrombie

I’m actually a little bit amazed that people still consider name-brand clothing a status symbol. It is well understood now that the jeans with the fancy label on the butt were made in the EXACT SAME factory as the cheap version of the same item. We tend to think of women and their shoes and purses when we talk about name-brand money wasters, but if we’re honest, men can be just as bad. Really, you’re going to go in public with the word “Abercrombie” emblazoned across your chest? Why don’t you just wear a shirt that says “Idiot”?

 

9. Ridiculous car accessories

Photo: ThaRemix

Photo: ThaRemix

The U.S. is nothing if not a car culture and it shows in how we pamper our vehicles. And this treatment all too often goes to ridiculous levels. When you put spinners on your 1989 Honda Civic, you’re not showing the world how rich you are, you’re tell them how POOR you are. I wince whenever I see headlights covered in colored shrouds, bits of chrome trim added around taillights shining above a coffee-can tailpipe. Cars that glow, flash, thump with horrendous base, or even that bounce, are all really just messages saying, “I never want to have any money!”

 

10. Smoking cigarettes

Photo: Rick Camacho

Photo: Rick Camacho

Cigarettes are still the best way known to science of turning cash into lung cancer. Even so, millions are still hopelessly puffing away, quite often outside the doors where these people work. They gather in small groups to bitch about the latest corporate outrage, blind to the fact that they are breathing in their early retirement dollars as they complain. How much quicker could they retire if they invested their ciggy money instead? They’ll never know because they’re too busy complaining about how broke they are.

I mean, really, time to give it up already, people. What are you doing??

 

OK, I couldn’t resist adding in an extra bonus item: 

11. Plastic surgery

Photo: David Shankbone

Photo: David Shankbone

Sure, some people actually end up looking better after plastic surgery. And certainly in many cases there are legitimate medical reasons to undergo various procedures. But I’m talking about the endless pursuit of stretchy-faced fake youth. The women who look surprised and bored at the same time. The men who look like they couldn’t close their eyes if they tried. Maybe there was a time when potential mates were fooled by these techniques, but today people see right through it, always too happy to shout “Wow, she’s had some work done!” (Meanwhile thinking, “No wonder she doesn’t have any money!”)

 

What are some other ways people inadvertently show the world how financially dumb they are?

Really, Costco? Really?

Bigger paper towels? Does this help anyone?

Bigger paper towels? Does this help anyone?

I have  a love/hate relationship with Costco. In many ways it represents everything that is evil about American capitalism: driving us to buy more than we need, buying cheap crap from China that we don’t need, buying more than we can afford on impulse, feeding the bigger is better crowd with the mentality that they should fill up their SUVs to the brim then store this crap in their own homes for future use, thus turning into their houses into mini-Costcos of their own. I much prefer the European model of picking up what you want to eat for dinner THAT DAY on your walk home from work. People laugh at tiny European refrigerators, but those people aren’t giving away free warehousing for a store. It’s a true just-in-time model.

I also hate the experience of shopping at Costco, with the overcrowded parking lot, idiots stopping to gape in mid-aisle and the moronic crowds circling around the endcaps for a mini-bite of frozen waffle. So far I have restrained myself from ramming anyone, which I think is a point in my favor.

On the other hand, a trip to Costco can be a money-saving experience. And the company has very progressive (by today’s standards) of worker treatment and fairness. They also tend to buy relatively high quality merchandise and have a great return policy.

We’ll typically do a surgical strike maybe four times per year and bulk up on certain essentials. But you have to be careful. Case in point: Costco’s paper towel selection.

During a trip to Costco last week, I found this abomination: new, larger paper towels. This is one of those cynical capitalist gimmicks that is so frustrating. Do we really need the actual towel to be larger? Obviously this is geared at making us use more paper towels!

Fortunately we don’t use many paper towels. But they’re occasionally handy. Main uses are wiping up cat puke, covering food for microwaving (although we rarely use our microwave) and cleaning something that I need to keep relatively germ-free (where a sponge is a bad idea). Even when we do use them, however, I almost never need a full normal-sized towel. Often I’ll just tear one in half and use the other half later. So when select-a-size paper towels came out, I was fully on-board. But none are available at Costco. Just ginormous paper towels. See, I don’t care what the cost per “roll” is: I care what the cost per “wipe” is. So I aborted and picked up a similar-sized pack of select-a-size towels from QFC. Oh, and if I happen to need a larger one? Guess what, I’ll just use 2-3 of the smaller select-a-size towels.

Which is my overall point about Costco: it can be awesome and handy, but don’t assume that just because you get something there (or anywhere), it’s a better deal. Do your homework.

What bargains or non-bargains have you found at Costco?

Update 9/11/13: Just a quick update to mention that I was in Costco recently and they have surrendered to the will of Pretired Nick and have added select-a-size paper towels to their offering. Another win for me!

The bricks don’t need to be moved

When I was just starting out at a dotcom company back in the high-flying internet boom days, our vice president walked our team through how he looked at doing performance reviews.

Performance review season is one of the worst times in corporate America, with executives posturing that they’re actually doing something that matters, managers jumping through the stupid hoops and pretending their subjective judgments are actually objective. And, of course, the employees at the bottom scrambling to remember what they did over the past six months so they can fill in their “self-review” and convince their boss they can have a larger raise. Which they won’t do because their boss already set their score weeks ago and only pretends to take the employee’s review into account to prevent any… unpleasantness.

That said, the explanation I received of how give a good performance review was the only one I ever thought made any sense and I have used it many times for my employees in the years following.

Here’s how the scoring worked officially.

1.0 – You’re fired immediately. Basically theoretical because you would have been fired long before you were reviewed.
1.5 – Not meeting the bar for the job; basically fired.
2.0 – Doing some of the tasks of the job; put on performance improvement plan. Probably fired rather quickly.
2.5 – Doing most of the tasks; but are having trouble; put on performance improvement plan. Likely to be fired, although a few did survive this score.
3.0 – Did all the tasks of your job with no problems. You’re safe, however what this really means is your boss doesn’t want to go through the hassle of firing you.
3.5 – Performing above expectations. In reality, however, this means you’re average.
4.0 – Very high performer. These are the rock stars you can’t lose. Sometimes also means you’re friends with your boss.
4.5 – Given rarely and only for remarkable innovation. Even those receiving this score will only get it once or twice in a career. Something along the lines of creating a patented product that revolutionizes the future of the company. I only heard of maybe 2-3 of these ever being given out.
5.0 – Given when thinking on a completely different plane then everyone else. Imagine someone proposing an idea to the CEO that turns into billions of dollars. Something completely disruptive in the marketplace. Basically theoretical. I never heard of a 5.0 being given.

In reality, several of the levels weren’t used because 1.0, 1.5 and 2.0 were only used when they were trying to get rid of you and 5.0 was basically a theoretical score meant to inspire us to do better (or something).

Here’s how it was explained to me by that VP long, long ago in a way that actually makes sense. I’m paraphrasing a bit; it’s been a few years. He used a metaphor of moving bricks from one pile to another pile as the requirements of your job. The review scoring then can begin to make some sense:
1.0 – You stole the bricks. You’re fired immediately.
1.5 – The bricks didn’t get moved. You’re fired.
2.0 – You only moved some of the bricks. Fired.
2.5 – You moved most of the bricks but are struggling. Probably fired.
3.0 – Moved the bricks from one pile to the other exactly as instructed.
3.5 – Moved the bricks and did a great job. Bricks are nicely stacked, you even had extra time to move some additional bricks. Nice job!
4.0 – Came up with a more efficient way to move the bricks, perhaps using a conveyor belt or other innovation. You get a huge raise!
4.5 – Figured out the bricks didn’t need moving.
5.0 – Invented a substitute for bricks, making the company gobs of money.

I like the metaphor because it rewards high-performance and makes the expectations crystal clear. I also particularly like that it gives the greatest rewards for thinking beyond the parameters of the job. Not just dreaming up new and better ways of doing things but realizing the things didn’t need doing at all.

The commonly used cliche for this is “thinking outside the box”, but in reality the creative power is realizing there never was a box. “There is no spoon” if you will.

Pretirement is about realizing the bricks didn’t need moving.

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