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Mass Media Retirement Hype: Hurting 401k Investors and Increasing Plan Sponsor Fiduciary Liability?

February 01
01:54 2011

Too often a mass media reporter, while no doubt a well-trained journalist, lacks the relevant experience to do justice reporting and a specific, highly complex, topic. We see this with humor in the scientific fields. Unfortunately, the 557747_82076492_rocking_chair_stock_xchng_royalty_free_300over-simplification can lead to potentially hazardous hasty generalizations in the field of finance and investing.

Such appears to have been the case in a New York Times story published last week. “With Retirement Savings, It’s a Sprint to the Finish,” (New York Times, January 21, 2011), written by a reporter with an impressive journalistic pedigree, may cause unrealistic expectations among the investing public. It purports to show an example of a 26-year earning $40,000 a year failing to accumulate enough for retirement, despite diligent savings and respectable earnings. Indeed, to meet the assumptions of the author, this hypothetical investor’s “portfolio essentially must double in the nine years” prior to the investor’s retirement date. The author than paints a bleak picture of the likelihood of this outcome. Does this type of article cause unnecessary worry among investors? Worse, will worried investors blame 401k plan sponsors for making retirement “impossible”?

Timothy R. Yee, Co-founder of Green Retirement Plans, Inc. says “retirement planning is not a sprint, it is a marathon. And like a marathon, the client needs to have a clear goal in mind.” The article claims the investor needs a retirement portfolio of $1,000,000, yet, given the assumptions, would only have a total of $483,000 after 31 years. The author does not explain why the investor needs to retire at age 57 instead of the usual 65. “The article’s biggest gaffe is to miss the contributions and growth in the final 9 years,” says Yee. Indeed, his calculations show, by retiring at age 65, the investor comes close to the target (his calculator showed a value of $936,000). Given this, a better title for the New York Times article might have been, “Early Retirement Requires a Sprint.”

But the article fails on other levels, too. It does not explain where the $1,000,000 target originates from. Yee says the retirement target should be roughly twenty times the intended annual need. How does one calculate the annual retirement need? Yee agrees with the rule of thumb saying one needs about 80% of your highest salary levels (others take this number down to 70%). Yee also says “All sources of income must be taken into account.” This includes social security, pensions and any other outside sources of income. Finally, Yee warns against relying too much on generic rules of thumb as each investor has unique circumstances.

It’s possible the New York Times reporter used the Retirement Saving Calculator from Based on the assumptions in the article, retiring early at age 57 does require a $1,000,000 retirement portfolio. Retiring at 65, however, only requires $906,890 (because of higher Social Security payments). This means, according to Yee, the hypothetical investor would accumulate more than enough savings the requirement of an aggressive sprint in the decade before retirement.

Maybe the best title for the (correctly written) article would have been, “Retirement: It’s as Easy as it Sounds.”

Which leads one to ask: “If the major networks prefer to use former professionals as color announcers for sports events, why don’t they use specific industry professionals to write these types of stories for the mass media?”

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Roger Wohlner
    Roger Wohlner February 01, 08:54

    Rules of thumb or averages are a bare bones starting point in retirement planning. Each investor is unique and will have unique needs in retirement. This is a complex task and is an ongoing event rather than a one-time event. Ideally folks will establish a target and track their progress against that target. Along the way the target should be reviewed at least annually and adjusted as needed. Likewise with retirement accumulation strategies. Articles about retirement planning are useful as long as they stress the fact that the the “rules” are unique and different for each and every one of us.

  2. Rich and Co.
    Rich and Co. February 01, 11:44

    There is a simple and probably insurmountable obstacle here – “If it bleeds it leads.” Our brains just don’t pay attention to much other that what triggers fear. Fox News has proven the “feed the fear” format for all media and made billions doing it.

    Human nature.

    We actually proposed a “fact checking” program to PSCA last year. A consortium of stakeholders in the system would make sense.

  3. Chuck Epstein
    Chuck Epstein February 01, 14:53

    As noted, most reporters have no professional experience, plus they fall prey to PR people, advisors who never admit mistakes, journalistic conformity and the need to churn out stories. All of this lowers the quality of financial journalism and adds to the clutter. Any stories about retirement must address the changing relationships between employers and employees and the new reality that Americans have a high probability of facing a lower standard of living in retirement. That’s not upbeat news, but we are seeing it daily.

  4. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author February 01, 15:17

    All good points, especially Chuck’s point about the changing relationship between employers and employees. The New York Times story assumes the $40K salary would increase 3% per year. By retirement age, the worker is now making $150K. I don’t know we can assume automatic 3% salary increases. In fact, by the time this 26-year old reaches 50, he (and his salary) will probably be replaced by a new 26-year old getting paid $40K. How do you account for that in your retirement projection? Unfortunately, this little tidbit didn’t really fit in the story, so it was left on the cutting room floor.

  5. Dave Ehrenthal
    Dave Ehrenthal February 01, 17:03

    I read the referred-to article a couple of weeks ago and I do not dispute the technical issues raised by all of you, I thought, however, the article did a good job of conveying the importance of returns in the last ten years before an individual retires and the affect a bad equity market can have on meeting retirement objectives established years before based on what seemed to be reasonable return assumptions in that last time segment. Therefore, placing too much equity in the Transition life-stage and depending on high returns in the last 5-10 years can be very risky. I also thought William Bernstein’s short quote was helpful for investors to read since this point of view is fairly absent from the air waves.

  6. Rob Thomas
    Rob Thomas February 04, 13:05

    News is rapidly becoming views. No longer do many news organizations have resources or desire to do real in-depth reporting. Add to that blogs, bloggers, news aggregators and internet noise and it becomes important all assumptions are challenged before being believed. Investing is hard to keep simple as well.

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