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Ben Stein How Not to Ruin Your Life

Three Big Mistakes in Retirement Planning

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Very Good (479 Ratings): 3.532356/5

Posted on Friday, March 31, 2006, 12:00AM

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.

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78 Comments

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Yahoo! Finance User - Sunday, May 20, 2007, 2:48PM ET Report Abuse
- Overall: 4/5
Im not even in my 20's yet, but I guess this article sounds quite interesting and worth having a thought about. I hope that after reading this article less people will have problems such as above. I guess investing in future is the best thing anyone can do, if only they know how, and why theyre doing so..cause everything can get out of control.
Yahoo! Finance User - Sunday, May 20, 2007, 1:18PM ET Report Abuse
- Overall: 2/5
Why would I trust my money to someone who still works for a living? If these specialists are so good at making money, why are they still working? I'd be willing to bet they're working still because they have to, not because they choose to. Thanks for the thought's Ben, but I'll take my advice from people who are already retired because of their choices!
Roger S - Sunday, May 20, 2007, 12:30PM ET Report Abuse
- Overall: 2/5
Good, .............but so simple, a cave man could have done it.
Clyde F - Sunday, May 20, 2007, 12:04PM ET Report Abuse
- Overall: 5/5
Great Wake Up Call ! Even if you look into doing one thing TODAY for your later years, Ben accomplished something. If you are going to plan ....Plan Right with Professional Advice !
Thaiguy - Sunday, May 20, 2007, 11:37AM ET Report Abuse
- Overall: 5/5
Ben hits the mark! This is what I am doing right now! ;-)
Yahoo! Finance User - Sunday, May 20, 2007, 11:34AM ET Report Abuse
- Overall: 1/5
cheap infomercial, cheap info
JAck - Sunday, May 20, 2007, 11:28AM ET Report Abuse
- Overall: 5/5
This couldn't be better advice, especially the last sentence. Take it, blow it up, magnetize it permanently to your refrigerator and get to it. Or else...
Yahoo! Finance User - Sunday, May 20, 2007, 11:20AM ET Report Abuse
- Overall: 5/5
Thanks for helping! I need to put my mind to it right away!
Harshvardhan - Sunday, May 20, 2007, 10:53AM ET Report Abuse
- Overall: 5/5
its an absolutely brilliant piece of guidance.
Ben - Sunday, May 20, 2007, 10:43AM ET Report Abuse
- Overall: 5/5
Ben has a lighthearted way of talking about a serious subject. Kudos!
Anne Rose - Sunday, May 20, 2007, 10:41AM ET Report Abuse
- Overall: 4/5
It would have been excellent and is for who may read it and don't know about Ray Lucia. I've already been to one of his seminars--and it was Free!
OHsailor - Sunday, May 20, 2007, 10:40AM ET Report Abuse
- Overall: 5/5
I have found Ben to be a source of outstanding advice. He is down to earth and logical. I devour everything that he writes because it is so good. This is only one more example of sound advice written by a very intelligent man who communicates so well. CBS is wise to have him to balance their other commentators.
amit - Sunday, May 20, 2007, 10:13AM ET Report Abuse
- Overall: 4/5
I am still in my 20's, but this story was an eye opener.
stepheniel - Sunday, May 20, 2007, 10:12AM ET Report Abuse
- Overall: 4/5
Time is the essence of life. Ben Stein is accurate in stating plan for the future. I see the effects of what happens to people when planning is not thought about. My Mom now lives on SSI and a fixed income of less than 500 a month. It is a sad story indeed, but one that could have been avoided. I have decided to venture down a path of decision and planning so my future and my children's futures are secure. Good advice Ben.
NATHANM - Sunday, May 20, 2007, 10:10AM ET Report Abuse
- Overall: 3/5
Ben Stein is a pretty smart guy. As a financial advisor I can tell you that this article is pretty good. I did want to comment on some of the "comments" by readers that many financial advisors, brokerage people, bankers, etc. etc. are distrustful and out for themselves. Pure and simple: find one that you trust and find one that works on a fee basis (fee is a % of assets managed) and not on a commission basis (generates revenue when trades occur). Fee basis advisors are compensated on the performance of your assets so your interests are aligned with theirs! What a novel idea! Again, this goes to Ben's point of educating yourself. I will tell you that there are unscrupulous people in my business. Lots of them. But there's unscrupulous people in every business. Do your homework and find a trusted and competent advisor and your financial situation will pay great dividends vs hoping for it all to work out.... NM, Evansville, IN
Bodayshus - Sunday, May 20, 2007, 10:10AM ET Report Abuse
- Overall: 2/5
What all of these retirement theorists tend to ignore is that we live in a society that is straying further and further toward democracy. Our mainstream media portrays those who save and plan as the selfish evil wealthy class. Class envy spurred on by the media and a growing parasitic underclass will lead to disaster for those who save and plan. The people who planned will be stripped of their savings by taxes and penalties imposed on them by those elected by the shiftless and the poor who vastly outnumber them.
Susan - Sunday, May 20, 2007, 10:08AM ET Report Abuse
- Overall: 1/5
Same old story. I prefer "Die Broke" - a book about the outdated belief or "magical thinking" that, in today's world, anyone in the U.S. can retire. And, I have consulted with, and paid a few certified financial planners over the years to guide me - all I got was self interested investments or information that was useless. Now, I manage my own investments and do just the same, or better than before - all the while saving myself thousands of dollars in commissions. It isn't that I know more, but as "Die Broke" explains, much of the investing world is left to chance and is something you nor anyone else can control .
Yahoo! Finance User - Sunday, May 20, 2007, 9:58AM ET Report Abuse
- Overall: 5/5
Retirement. As someone approaching retirement, I wish I had paid more attention to finance when I was younger, I may not have allowed myself to lose my stake in my first two businesses, or invested more wisely when I had the chance. From the time you start working for money you should be trying to retire! You can choose to retire at any time after your passive income exceeds your expenses! Passive income is income you do not have to work for, interest on savings, dividends from shares, rental income, and income from business where your participation is not required to generate that income! Being able to sleep until you have slept enough, and having enough passive income so that you do not have to do anything you don't want to is one of the purposes of Network Marketing! You use your own companiesâ product and tell your friends how well it works for you; you get a percentage of your own turnover! They join you and as long as they are still part of the business you will receive income as a percentage of their turnover! It is your choice, at the moment you are selling yourself wholesale to the company you work for, they are selling what you do to their customers at retail and keeping the difference! This is your choice, I am only pointing out that there are alternative choices for everyone! If you continue to do today exactly what you did yesterday, do not expect a more positive outcome tomorrow! Education is the key, no one has ever âtaughtâ you about health or money, it is your responsibility to learn and take advantage from your lessons! This is not difficult, dangerous, or damaging! It can be great fun, exciting and rewarding! It is up to you! I have enrolled my own son in "My Network Marketing Business" so that he can begin his business education without further financial burden to me. He may even make enough from this "Part Time Business" that he does not have to ever have a JOB, if he achieves this I could probably also retire?
Yahoo! Finance User - Sunday, May 20, 2007, 9:58AM ET Report Abuse
- Overall: 3/5
It is good article and reminder for most of us to start working on your own financial safety net. Your personal finance now and in the future can not be left to government support. However the idea that certified personal planners are the holly grail is to much. Most of them have this job to sell products and so far I met 90% of them. Inform yourself by the financial planners and make a plan, but do not leave the plan to them alone based on their products.
Yahoo! Finance User - Sunday, May 20, 2007, 9:39AM ET Report Abuse
- Overall: 3/5
People should be taught how to save early in life. Needs and Wants are different. Hiring a financial planner might work for people with a huge paycheck. But I never trust them. They know how to maximize their share of gain out of your wealth and will take care of themselves first. I am just a middle class, first generation immigrant. What I would suggest is to save as much as you can, max your 401K and Roth IRA and make sure you have a safe net of emergency fund. Anything can happen in this crazy world. That being done...take good care of your health. It is commen sense. Nobody would like to live in hospitals with a large retirement account in their old age. Saving for retirement is important but don't forget to enjoy life. Again balance and moderation is the key to everything!
Yahoo! Finance User - Sunday, May 20, 2007, 9:36AM ET Report Abuse
- Overall: 5/5
Thanks for scaring me with information I already "know" but need to be reminded of. I'm a head-in-the-sand 47 year old. This simple little common-sense article could be the tipping point for action for me and others...valuable and true.
Yahoo! Finance User - Sunday, May 20, 2007, 9:29AM ET Report Abuse
- Overall: 1/5
THEY make money when you BUY--THEY make money when you SELL--THEY don't care about your Retirement--The Author threw out a couple of names--Friends?? How much does he cushion his own Retirement for Those NameDrops!!
Raymond - Sunday, May 20, 2007, 9:28AM ET Report Abuse
- Overall: 5/5
Now I have to get my wife to read it!
Dove - Sunday, May 20, 2007, 9:28AM ET Report Abuse
- Overall: 5/5
People need to wake up and realize that money isn't going to grow from trees and that "something" will happen. The only thing that will happen is you will find your self without enough money to live comfortably. I finally opened my eyes and its almost too late for me, I'm 45! Wake up, the government isn't going to take care of you, and you might not strike it rich overnight. Save , Invest, Seek professional help!
Yahoo! Finance User - Sunday, May 20, 2007, 9:25AM ET Report Abuse
- Overall: 5/5
Ben Stein, as usual, is right on the numbers! I am 56 years old and have followed a discipline very similar to this for over 30 years. I will be retiring in about a year and will NEVER have to look back.
KennyG - Sunday, May 20, 2007, 9:19AM ET Report Abuse
- Overall: 4/5
Preach it, Ben! The baby-boomers need to hear this message from someone like you. Your 'Stein' runneth over with valuable advice in this article...
Helen - Sunday, May 20, 2007, 9:16AM ET Report Abuse
- Overall: 1/5
No new information & very hard to find the info that is there.
Yahoo! Finance User - Sunday, May 20, 2007, 12:46AM ET Report Abuse
- Overall: 5/5
This is a time loaded wake up call . THANK YOU
Phyllis G - Tuesday, May 1, 2007, 11:37PM ET Report Abuse
- Overall: 5/5
A trerriffic article,since my spouse and I are rushing full speed toward retirement and we are scared.
Yahoo! Finance User - Friday, March 2, 2007, 7:35PM ET Report Abuse
- Overall: 5/5
Good commensense advice that you can't hear often enough. I hope people take Ben's excellent advice.

Showing comments 6-35 of 78<< Previous Next >>

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