"I'd rather read the complete novels of Anthony Trollope and walk the dog in the woods than supervise a retirement portfolio," a library director at a community college in Michigan writes to Pennywise.
Who can argue? Literature, nature, children, friendship, art, politics, music: Those are the real dividends in life, far more important than mere pecuniary dividends. Pennywise actually spends a great deal of time in the woods (sans dog). Last summer, I climbed three high mountains in the Cascades. Not a farthing did it yield, but it was time exceedingly well spent. As Portia observed in The Merchant of Venice, "He is well paid that is well satisfied."
Once upon a time, faculty and staff members could concentrate upon being well satisfied. They could pursue their favorite diversions without devoting the slightest care to retirement planning because defined-benefit pension plans took care of everything.
Anyone who got to the point of boxing up their office mementos and turning their keys in to the physical plant could head home, flop into the BarcaLounger, and watch college sports for an eternity. Pension checks would soon arrive regularly, the amount calculated by a formula based upon years of service and final salary.
Over the last 30 years, however, old-style pension plans have faded. Fewer and fewer people are covered by them, their benefits do not always measure up to promise, and their honorable fuddy-duddy ways have given way to risk-taking bordering on the irresponsible. CalPERS, California's giant pension fund, recently announced its decimation as a result of losses in exotic hedge funds, equities, and commodities. Nice work, guys. Meanwhile, Social Security supplies only Spartan payments and exists under its own clouds of political-fiscal uncertainty.
Increasingly, therefore, individuals bear responsibility for their own retirements. People who have many talents but not the slightest time, aptitude, or inclination for retirement planning often fail to amass sufficient savings, whether because they can milk little surplus out of their incomes or because they lack financial skills, interest, or discipline.
As public policy, that is a dismal failure. Median household net worth in the United States is now almost surely less than $90,000, given the recent collapse in stock and home values (The Chronicle, December 19, 2008). Most of that wealth is tied up in homes, but even with a disposable $90,000, any couple would be hard-pressed to live on it for more than a few years. Ponder what that portends for the lives of the nation's seniors, some of whom are bound to require assisted living, and you may be tempted to curl up in bed with that Trollope novel and a tub of ice cream and hide from the world.
You don't need Pennywise to tell you that you really ought to plan for retirement. But let's be honest about our consciousness. Most of us are terrified when we picture ourselves living the barren senescence of the fabled Aesopian grasshopper, but have absolutely no interest or competence in retirement planning. That approximates the dispensation of about 93 percent of all Americans, according to Pennywise's extensive data set gathered while eavesdropping from the barber's chair.
One option would be to hire a financial adviser who would do it all for you. While that would marshal expertise, advisers charge fees that diminish your returns, and at least one of them was named Bernard Madoff. So maybe you'd prefer to do it yourself, without any hassle? No problem. It is astonishingly easy to set your retirement on autopilot.
Begin by establishing three special accounts.
First, open an employer-based retirement plan, ideally one that includes a match (The Chronicle, January 16). If your university or college offers such a plan, hasten to HR and set it up. If you aren't contributing at a level sufficient to take the full match, then boost your contribution to the full level. This is important: It's like giving yourself free money.
Then add two additional accounts: a Roth Individual Retirement Account (Roth IRA) and an online savings account at an institution separate from your regular bank. Set up routine automatic electronic transfers to those accounts from your regular account. Time them to the days your paychecks arrive. Start with small deposits, if you like. Then forget about them, or increase their levels a bit when you get pay increases.
For the Roth, pick a low-cost provider. Vanguard and Fidelity are Pennywise's favorites. If you have an existing IRA elsewhere, consider transferring it to one of those companies to save on fees and expense ratios. For those who want to start with bare-minimum contributions, however, TIAA-CREF is best, allowing a Roth IRA to be opened for just $100 a month.
For the special savings account, look to an online bank such as FNBO Direct (fnbodirect.com) or ING Direct (ingdirect.com), which offer consistently superior rates, demand no minimum balances, and are FDIC guaranteed. By placing the cash at an institution separate from your normal bank, the savings will achieve a psychological remoteness that may create a barrier to withdrawal, except in genuine emergencies.
Each of those three retirement-savings accounts will perform distinct roles for you. The employer-based account gives you the employer match, a current income-tax deduction, and no taxes on its growth until the day you start to make withdrawals. The Roth IRA will grow tax-free forever, a good thing should taxes rise by the time you retire (quite likely, given the towering national debt). The special bank account is your new emergency account. Try never to tap it. It is a backup should illness, disability, or familial adversity ever force you onto unpaid leave, enabling you to meet mortgage payments and other expenses without breaking into your tax-protected retirement accounts prematurely, a fatal move. So leave it alone.
Deposit money into those three accounts religiously, and their holdings will accrue over time. Once your savings account equals at least half your annual salary, you have enough cash savings accrued to permit you to redeploy that contribution toward your Roth IRA, or into a supplemental-retirement fund through your employer.
One last suggestion: target-date funds. All major fund companies offer those. They hold a mix of stocks and bonds, making them ideal for your employer-linked retirement plan and Roth IRA.
They are also ideal for people who don't want to fuss with a portfolio, because they shift stock-bond proportions automatically, taking on less risk as you age. The Vanguard Target Retirement 2035 Fund, for example, is appropriate for someone who wants to retire in 2035, such as a 40-year-old who means to retire at 65. Such funds diversify, rebalance, and diminish volatility steadily, without your lifting a finger. How easy could it be?
Above all, just start saving. "The perfect," wrote Voltaire, "is the enemy of the good." Forget perfect. Just save. Once your plan is in operation, you'll feel much freer to focus on what really matters, like Trollope and the dog.
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