Ben Stein: 3 Biggest Retirement Mistakes
Ben Stein has been making the rounds through the media in support of National Retirement Planning Week, a celebration of preparedness. He recently met with Terri Cullen from the Wall Street Journal and sat down for a quick interview.
Ben shared his opinion regarding the three biggest mistakes people often make in regards to the topic of the day.
Mistake #1: Not Starting Early Enough
Ben says the government should require auto-enrollment in 401(k) or 403(b) retirement plans, with an optional opt-out clause. He also suggests that teens with part-time jobs while going to school should have the self-discipline to save a small portion of their earnings ($10, $20, or $25 a week or month) into a retirement plan such as an IRA. The small savings will not dent today’s enjoyment of life, but the magic of compounding will do wonders for your quality of life by the time you’re 65. Start saving later, and it’s much more difficult to catch up.
Mistake #2. Not Being Diversified
Ben Stein’s advice is to diversify your investments among a number of different spectra: company size (large cap vs. small cap), company objective (value vs. growth), location (domestic vs. international), and level of market development (emerging markets vs. developed). I haven’t focused too deeply on some of these dimensions. He’s not a fan of target date funds because of the inclusion of bonds. He feels bonds are basically useless investments, especially if money markets are providing similar returns without the risk. Ben’s worried about terrorism or hyper-inflation, which would mean bad news for bonds.
Mistake #3. Not Curbing Your Spending
Lao Tsu said, “There is no catastrophe worse than lavish desires.” Ben admits this is his main mistake — it required constant effort to keep up with his lavish lifestyle. He has eight houses. Even he admits that is too much for one person. Is excessive spending overlooked as a threat to solid retirement? When it comes to spending in the present time, it comes down to a matter of personal choice. As long as one is educated so he understands that spending $x now will mean he will have $x · 1.08n where n is the number of years until retirement (assuming an 8% annual growth rate), he should be allowed to make that decision and not criticized. However, if expenses are accelerating at a higher rate then income, there will be danger ahead.