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Personal-Finance Salesmen Pedal the Retirement Myth November 15, 2006

Posted by federalist in Finance, Regulation, Retirement.

I suppose we can’t blame Robert Pozen for trying to drum up more business for his MFS Investment Management company, but his proposal for government-mandated retirement accounts is over the top. Rather than reforming our current social security programs, which require contributions by both employers and employees, he actually advocates creating a second more-complicated requirement for employers and employees to sock away even more money, this time in personal “retirement” accounts hamstrung by numerous government rules and regulations.

“Retirement,” as peddled by both entitlement politicians and personal-finance salesmen like Mr. Pozen, is a completely obsolete concept. It is based on the premise that an average American will reach a point in life at which he is unable to work for income. This may have been true generations ago, but today we enjoy a service economy in which even the severely disabled can find productive employment.

Furthermore, individual income requirements should actually decline over a lifetime. Even the most unskilled blue-collar worker in America has the opportunity and capacity over a 40-year career to own a home and send his children through college. With no debts and no future obligations, any unskilled senior who is willing to work can certainly support and insure himself without a “retirement” fund. Granted, there is always an individual risk of severe or long-term disability along the way, but we have both government social security and private insurance programs that address those risks and casualties.

As Americans live longer and healthier lives, they will continue to be capable of productive activity well into their old age. 21st-century retirement should not be thought of as the time when a citizen is no longer capable of working. Rather, it should be the milestone at which an individual is free from major future obligations, and therefore free to pursue interesting employment with minimal concern for income.



1. federalist - November 23, 2006

If economic arguments don’t convince you, Jonathan Clements offers this:

Here’s the latest thinking on retirement: Don’t.

That doesn’t mean you shouldn’t retire from your job. But what will you retire to? Many people give scant thought to what they will do after they quit the work force — and the result can be depression, mental deterioration, declining health and possibly a shorter life.

To avoid that fate, experts say you need to treat retirement less like a lengthy vacation and more like a career change.

2. federalist - December 9, 2006

Jennifer Levitz in today’s WSJ offers another argument in support of this thesis:

Big 401(k) companies have been busy rolling out new, more powerful online retirement-planning calculators. The goal: spit out more precise estimates of the nest egg you’ll need years (or decades) from now.

Despite their increasing sophistication, these tools can produce sharply different figures based on factors they either include, or omit. The biggest flaw, critics say, is that they sometimes don’t adequately adjust for expenses that disappear in retirement, such as college bills, mortgage payments — and to a degree, even the expense of saving for retirement itself.

For investors, underestimating savings can put retirement at risk. Overestimating can be bad, too: Saving more now can cut into money available for, say, a child’s education. Or it could force you to take on too much investment risk in a misguided effort to hit an inflated savings goal.

Overestimation can also benefit fund companies, who earn fees on retirement accounts. Ty Bernicke, an Eau Claire, Wis., financial planner, points out that if the financial-services industry can “convince people they need to save 15% or 20% more than they do, that’s billions of dollars for these companies.”

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