Ben Stein How Not to Ruin Your Life

A few days ago, I sat at an outdoor café on Las Olas Street in beautiful Fort Lauderdale, Fla., and had a dismally tasteless lunch. Next to me was my lovely wife of many decades and a friend from the movie business who now lives in Florida. The friend is in trouble.

He had gone through a magnificent career in Hollywood as a high official at a very big studio, the head of two major production companies, and a reputation as big as a Cadillac. Then, very relentlessly, his career unraveled or imploded or maybe just plain went away.

Partly, the problem was that he was tired of Hollywood. But partly it was also that in Hollywood, age is everything, and by his mid-fifties, he was considered too old to be totally hip to what the young moviegoer wants to see.

A Basic Idea Too Commonly Ignored

So far, it's a typical picture of life in Hollywood. It happens to everyone. The difference with my friend -- and with many friends I have in Hollywood -- is that this man, whom I will call Kevin, has made a foolish mistake. In fact, he has made a few foolish mistakes, and these cost him dearly.

His first mistake had to do with probably as basic an idea in consumer finance as there is -- and likely the most frequently ignored and misunderstood. It was explained to me in stark, stunningly brilliant terms by my friend and colleague, Ray Lucia, a nationally operating Certified Financial Planner, host of a huge national radio talk show about money, frequent guest on Fox News, rock singer, and generally supersmart guy.

The key in financial life, Ray told me when we first met years ago, is to "match your liabilities with assets."

That is, for every liability that's going to come down the pike, Ray explained, you must have a matching asset to meet it. My pal Kevin, like about 40 million other Baby Boomers racing towards retirement, had not taken the time and trouble to plan for the largest possible liability -- retirement. He mostly just never thought about it.

But when he did think about it, he engaged in what psychiatrists call "magical thinking". He thought he would somehow one day just strike it so rich that money would fall from the sky. Thus, he didn't save, didn't make a retirement plan, and just hoped for the best.

Life Happens

Alas, money didn't fall from the sky. Instead, he left the Hollywood labor force about 10 years earlier than he'd thought he would. He had some modest savings and a small inheritance, so he didn't starve. And he has a house he will soon sell. But he didn't make provision even remotely adequate for maintaining his pre-retirement lifestyle. Now he's tortured by anxiety, had to drastically shrink his lifestyle, and is just plain sad.

The second giant mistake he made, embedded in the first, was in failing to foresee that in life, the bad scenario can and does often happen. It's not called "life" for nothing. Kevin should have realized that he would probably be the victim of age-ism, like so many of us. He planned for the most optimistic outcome, but that scenario rarely happens.

It's not good to be a pessimist. It drains hope and joy from life. But it's sensible to plan for the worst and make provision for it.

Too Important to DIY

The third mistake Kevin made -- and this is a huge one -- was to fail to educate himself or hire a finance specialist to take care of him. Men and women, but especially men, hate to ask for directions. This is a cliché about driving, and I don't know if it's true or not, but it most assuredly is in personal finance.

Personal finance and making a retirement plan is serious business. You can't just read "The Wall Street Journal" for a few months and expect to get it. You need to get the fundamentals down pat, spend a lifetime updating yourself on the subject, and learn the ins and outs of calculations for retirement in particular.

For example, hardly any pre-retiree takes the trouble to figure out that he or she will almost certainly need to plan to live a good 20 years after retirement. In that time, the price level will almost certainly rise dramatically, even at present low levels of inflation. How do you deal with that when most of us can barely afford to have enough to retire on for the first few years after the gold watch?

Or, to summarize this: We wouldn't think of trying to figure it out for ourselves if we had a sudden pain in our forearm or in our gut and if it lasted a week. These days, we would rarely try to fix our cars' fuel injection by ourselves. But we think we can make our own plans for retirement and make them work. This is about as smart as thinking we can face a Major League fastballer with our Little League swing.

But how many of us shop around for a certified financial planner (CFP) or other financial professional at a brokerage or a bank or anywhere? How many of us take the time to e-mail my pal and colleague Ray Lucia, or my other pal and colleague, the brilliant Phil DeMuth of Conservative Asset Management, or any of the other great financial planners to get something going?

Start Somewhere, Start Today

My point is a little more complex than it seems: Ray has a phenomenally clever strategy called "Buckets of Money". It basically calls for allocating your funds so you have time for your common stocks and real estate to grow while you live off cash equivalents and income. This way, you'll have plenty of dough when you get late in retirement.

It's not nuclear physics -- and I want to say again, Ray is a colleague, and we often appear together on the same stage with the same sponsor -- but his strategy takes advantage of long-term growth in stocks and real estate to make sure you're set not just in your sixties but in later life as well.

Phil has a new strategy involving deep-value indexing and a much more aggressive investment mixture than the 60-40 (60 percent stocks, 40 percent bonds) portfolio that's usually suggested. He now thinks that to capture enough gains for a long life, you should go 70-30 stocks-bonds and go for broad indexing worldwide for heavy emphasis on emerging market and micro-cap areas.

I emphasize there could be better ideas, and there are certainly other ideas. But start somewhere, start today, and get expert help.

In a free society, we create our own destiny, and we don't want our legacy to ourselves in our old age to be one of fear. You should never have to get up in the middle of the night in a sweat about paying your bills and feeding your family and the mortgage. But it's up to you and no one else to start, and again, the ideal time is now.