Taylor Larimore et al., The Bogleheads’ Guide to Retirement Planning — July 13, 2013

Taylor Larimore et al., The Bogleheads’ Guide to Retirement Planning

This book is “okay”.

A year or so ago, I finally paid off my college loans, after 12 years of bearing that giant psychic weight. My employer is good to me, so now I’m at a point where I can think about saving. My first impression was — and still is — that everyone is out to screw me over. There are financial advisors, but their incentives are well-known; there are mutual funds, but all my reading tells me that they can’t be expected to beat the market consistently, and hence that your best bet is to just place your money in an index fund and be done with it. Or you come to the topic of buying a house, and you can’t help but feel that everyone *there* is also trying to pull a fast one on you: the realtors, the banks, the owners of the homes themselves.

So I asked around on Twitter, and Austin Frakt helpfully pointed me to The Bogleheads’ books. A Boglehead, if you’re unfamiliar, is a discipline of John Bogle, founder and former CEO of The Vanguard Group, a mutual-fund company now managing around $2 trillion in assets. If you didn’t know about the Vanguard Group before picking up this book, you soon will; much of the book reads like an advertisement for Vanguard.

I’m still a little confused, after reading it, what exact purpose it’s supposed to serve. Is it a beginner’s guide to retirement planning? If so, I think it was incorrectly structured. It contains a chapter on defined-benefit retirement plans (i.e., pensions), for instance, which only 29% of the population even has access to. That number drops to 17% if you exclude the public sector. Yet it’s one of the first chapters in the book. That is part of the testimony to this book’s odd structure.

So let’s imagine that the book were restructured into a more appropriate form. Honestly, I think the best form would be as a web app of some sort, à la TurboTax: ask you a series of questions, and let previous questions guide subsequent ones. “Do you have a defined-benefit retirement plan?” 7 out of 10 of your readers would answer “no”, and on you’d go. That would also allow most people to skip over the “are you in the middle of a divorce?” section, or the “are you in the middle of a financial crisis?” section, or the “here’s the order in which you should withdraw from your retirement savings when the time comes to withdraw from them” section. I submit that that last section isn’t really helpful to someone like me, who’s 35 years old and (hopefully) many years away from drawing down his retirement savings.

What I *do* want to know, and what I haven’t yet found the appropriate book for, is how to spread my money around across various buckets. Right now, I can choose to save money for a house, for retirement, for future children, for a rainy day, etc. How should I split things up? This retirement guide provides a bit of useful guidance in that direction, inasmuch as it taught me that profits on the sale of your primary home are non-taxable (at least for now). That’s fantastic news. It certainly suggests that your primary home should be considered a central part of your retirement strategy; maybe you should buy the largest home you can afford, and tax-shelter the appreciation in its value. Unfortunately, the Bogleheads’ book only approaches the home when retirement time comes; they suggest that you consider selling the home, downsizing, and pocketing the difference. That all sounds correct, but what do I do *now*? Suppose I have $1,000 lying around; do I put it in my 401(k), or put it in a house? And how about buying a triple-decker and using it for rental income; is that a thing I should do?

That’s one problem I’ve noticed with a good many books of this sort: they focus on one problem, like buying a home or saving for college or planning for retirement, but don’t necessarily treat those problems as parts of an integrated whole.

To the extent that it *does* treat them as part of an integrated whole, the Bogleheads’ book seems to have one bit of advice: all the various things you need to think about — which life insurance to buy, which mutual funds to invest in, how to write a pre-nup — require professional help. You and your partner should write your pre-nup with two lawyers; find an insurance broker you can trust; choose a financial planner who doesn’t live off commissions. (They illustrate this with a nice quote: where are the *customers’* yachts?)

Which just brings us back to where we started: the problem is finding people whom you can trust. Find trustworthy insurance brokers, trustworthy realtors, trustworthy lawyers, etc. How do you decide whether they’re trustworthy? Well, ask your friends, I suppose. But how do you know whether, for instance, your friends have been suckered into buying a life-insurance policy that will not actually help out their beneficiaries when your friends die? To paraphrase that famous story about the scientist explaining the origins of the universe, it’s trust all the way down.

What I conclude from reading this book, and from life more generally, is that I am too stupid to make above-market returns. I’m willing to go further and suggest that the vast bulk of Americans are also too stupid to make above-market returns. And if we *do* make above-market returns, they’re frittered away by fees from investment companies, who are the ones making all the money. So one conclusion is: invest stupidly. Put my 401(k) in a low-fee, passively managed mutual fund that invests in a broad market index.

This adds fuel, by the way, to the book I want to write. Americans are told that we can’t afford to provide the good life for our people, and specifically for our retirees; the best we can hope for is that Social Security will be cut less than Republicans would like. In fact we can afford the good life; it’s just that the story over the last 40 years or so has been that we 1) remove people’s safety net, 2) tell them to take care of themselves, and 3) turn the safety net over to private companies, thereby creating a rentier class that siphons the public’s money into the pockets of the already-wealthy. We can certainly afford the good life; it will just require that the rentiers be euthanized.