The Retirement Gamble (full documentary) | FRONTLINE

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[Music] tonight on frontline america's retirement crisis it's tough to really worry about retirement right now i guess plan b would be to keep working my retirement plan is fingers crossed and pray basically even if you have a 401k or ira will you have the money you need to retire if you make a hundred thousand a year you need one and a half million to be okay a lot of 401k programs are lousy you put up 100 of the capital you take 100 of the risk and you get 30 percent of the return correspondent martin smith investigates make it simple that's a question that can only be answered on what your risk appetite is if you don't want making it simple well i wish it was simple if you want to gamble with your retirement money be my guest tonight on frontline the retirement gamble [Music] increasingly americans in money trouble in this bad economy are borrowing from the number of workers borrowing from their accounts has reached a 10 year number of workers now let's begin with one simple fact america is facing a retirement crisis and the statistics are grim tax code that could hit 401k half of all americans say they can't afford to save for retirement the average retirement fund has lost 12 000 one-third have next to no retirement savings at all meeting the need for many americans to work longer and save more for retirement i just don't know if i'll be able to save that much god willing social security will still be there for someone like me it'll probably be enough to keep me out of poverty retirement fund gets sliced and diced and divvied up for wall street to play with now i'm just gonna have to somehow find a way to save 10 of my salary or 15 of my salary which is probably what i what i need to actually be saving to have any shot of retiring you know not on food stamps yeah i don't know uh hope i hope to be able to retire [Music] recently i've started to look into how to make more money how to increase my income while still teaching it's tough to really worry about retirement right now because i know it's so far off and i know that worrying and stressing over is an easy thing to do [Music] but i'm also of the mindset that as long as i don't have too many bills or anything too many debts then i could essentially live off of whatever i get i guess plan b would be to keep working but i'm really banking on plan a otherwise yeah no i don't have a plan b [Music] it's hard to imagine even at this point in my life being retired i just don't see it you know living the american dream of having your house and being able to retire nobody has a pension anymore it wasn't like it was in the 60s or 70s where people worked for you know good companies and had a pension plan i think that's a harsh reality for a lot of people i think and i do think that we'll be working until we'll definitely be working until our probably mid 70s i would if i had to make a unless we can make up some big ground soon [Music] you know i consider myself middle class i don't have the luxury of a couple million dollars in savings the cost of living is going up your water bill goes up your utility bill goes up your gas bill goes up your food goes up retirees are getting stressed because their nest eggs their savings are not producing any income for them so they're all wondering where they're going to make ends meet i'm fortunate i can live at a higher standard because i have a little bit of a nest egg in in my retirement savings but others they're at poverty level as for me i'm almost 65.

i started saving for my retirement in my late 20s but along the way i dipped into my nest egg not once but several times so this is my ira and 401k which will be cleaned out over a certain amount of time and now like millions of other baby boomers i too don't have enough the key to your retirement working out is having enough return on your assets most of my savings went to pay for my kids educations well this is where fees would really hurt you badly this is where fees would hurt you badly a divorce and the crash of 2008 didn't help either it looks like my own personal fiscal cliff i'm now planning to work for as long as i possibly can so this whole plan is predicated on working full time until 70.

Yes and at 70 from age 70 to 75 i have you working part-time [Music] these days many baby boomers are planning to delay their retirement some may never stop working it's hard without knowing exactly how long you're going to live it's difficult to guess how much you need to put away most people seem to feel that at retirement to be okay you need 10 or 12 times pay and maybe 15. so if you make a hundred thousand a year you need one and a half million to be okay you need to save more you need to start sooner you can't start work when you're 20 or 22 and decide to get serious about this in your 40s the boat has sailed so what can we do today americans entrust over 10 trillion dollars to thousands of big and small financial service providers okay click i just bought stock you just saw me buy stock no big deal with expensive marketing these but there's so many choices it's hard to understand when it comes to mutual funds it's often hard to tell what you're looking at rather than a system it's more like a free-for-all i don't really see it as a real system i see it as maybe a retirement mess is a better word for it looking for real life answers to your retirement questions if you're lucky you have a 401k roughly half of companies offer a 401k if you work for a small business chances are you might you don't have access to such a thing some companies then offer other supplements and then of course there's things you can do on your own like the individual retirement account so it's entirely confusing right so where does one begin let's talk about that 401k you picked up back in the 80s about 60 million americans have signed up for their company 401k plan these are your 401k election forms as you can see there are numerous options to choose from and remember this is your retirement so make your selections carefully but most people remember their first 401k meeting as dumbfounding any questions i had no idea i was so confused i came out of that meeting and i was like oh my god it was just it was overwhelming for me the knowledge that you had to have in order to invest i really was kind of clueless i didn't know what i wanted to invest in i really didn't know anything about it i had learned somewhere some i had heard something about if you're young you should be more willing to take risk you have time so other than that i really knew nothing and that's one of the best aspects of this morning i showed you the plan you either had your choices between an aggressive investment moderate or conservative you know there was nobody there managing my money it was all up to me so traditional pensions don't necessarily let you take it all in a lump sum the 401k is one of the only products that americans buy but they don't know the price of it it's also one of the products that americans buy that they don't even know it's quality it's one of the products that americans buy that they don't know it's danger and it's because the industry the mutual fund industry have been able to protect themselves against regulation that would expose the danger and price of their products it used to be much easier in 1970 42 percent of employees had a pension a guarantee by your employer that you would get a good percentage of your salary and benefits upon retirement this is the life what with my retirement plan and the few dollars i'd saved i didn't have a thing to worry about workers didn't have to figure out how to manage their own savings plan it was done for them it was very simple the employee really didn't know any of the mechanics behind it they just knew when they came close to retirement that they were promised a benefit to a secure income over their entire life so they had this income until they died and so what was wrong with that system absolutely nothing to be honest it was a great system the problem was that over the last decade the rules of the game changed what changed was that people started living longer new accounting rules global competition and market volatility 2 affected the cost of maintaining a pension plan the old system became an expensive system i think from an employer standpoint they have to know how to manage investment risk and they know how to have to know how to manage longevity risk and they have to spend a good deal of money and they have to spend a good deal of money and if the market doesn't do what they hope it will do you know they can lose some of the cash that they've actually put in from a funded status standpoint so it's pretty complex one of our major concerns is to protect our accounts against rit it was then that corporations found a new loophole in the internal revenue code what essentially happens is that the 401k comes in in the late 70s early 80s it starts as a corporate tax dodge basically it's if you're a high earner you're going to put some of your money aside nobody ever thought that this was going to apply to the rest of us i mean there was never any thought of it so not quite by design a new retirement system was born big brokerages and banks saw an opportunity to expand their business and helped employers set up and run their new plans they promoted the arrangement as a win for everyone from the individual perspective the 401k actually opened up the opportunity to save for retirement for many individuals who worked for businesses that didn't have a pension and it also allowed them to have a portable vested amount of money that they could take with them as americans started changing jobs more frequently it's as simple though isn't it as the businesses decided to get out of the business of providing pensions and shift the burden to employees i would express that more as a sharing of the responsibility for retirement between employers and employees but while some employers contribute to employees 401k plans all of the risks fall on the individual 401k plans really place the burden on the individual participant to have an adequate retirement and the vast majority of ordinary people don't know how to do that it's a very complex task we wanted them to be able to figure out how much they needed to save for retirement how to invest that money and then once they had a lump sum once they retired how to withdraw the money so they didn't outlive their assets so that's three different risks picking and choosing the right investments requires very careful handling enter the mutual fund industry people in the mutual fund industry realize that there was a huge opportunity here right i mean not only could they sell their mutual funds you know directly to investors but they could make the mutual funds the very foundation of the 401k plans in 1981 nobody knew what a 401k was by 1989 it's in the lexicon it's being written about it's being talked about by throughout the 90s now all large employers effectively have plans in place people are participating it continues to grow from there start saving 300 a month when you're 23 and you can retire a millionaire the boom happened in lockstep with the roaring bull market of the 80s and 90s mutual funds were charging high management fees but nobody seemed to care the returns are great so no one thinks about how much does this cost to me when they're earning 15 or 20 percent star mutual fund managers like fidelity magellan's peter lynch encouraged all of us to jump in you shouldn't be intimidated everyone can do well in the stock market you have the skills you have the intelligence it doesn't require any education all you have to have is patience do a little research you've got it saving for retirement seemed as simple as betting on the market it was a great time employees who participated in these plans and invested in the stock market you know couldn't wait to open their monthly statements to see how much the value had gone up you know so things seem to be working nicely [Music] well i was invested in everything stocks mutual funds you name it we would get monthly reports things were growing everything was growing in the 90s you could not lose money in the market even if you were a dumb investor i mean it just kept growing and growing and growing internet stocks drove a powerful surge on wall street today the economy was doing great i mean you had all kinds of gains in the stock market that was kind of the dot-com era internet you really didn't have to pay attention to you know you got your statements at the end of every quarter and you were making money it was exciting because uh just uh gradually over time you have it we would have a day where we would make seven thousand dollars or uh and as much as thirty thousand dollars as in a day as it built and even more in 1996 we had like doubled our money we had like 400 almost 500 000.

steve shulow and dan robertson believed they were headed for early retirement the day their portfolio topped one million dollars it was november 11 1999. oh that was a very uh nice day that day wasn't it what happened november 11 it's when our portfolio went over a million so that was just amazing it was like well yeah this is this is how investments work you invest it and it grows i mean that's how i thought about it it was a manic monday in the financial market stocks plunge traders are standing there watching in amazement and i don't blame them but in the spring of 2000 the market collapsed a lot of their customers are freaked out we did not know this is our mistake we didn't know it was a bubble we just didn't know our portfolio had gone all the way down to where it was in 1996 from 1.5 million to 500 000 460. i think all that was gone at the height of the internet bubble americans had also stuffed 19 percent of their retirement money into company stock we invest all of our 401k and enron stock absolutely don't you guys agree for savers like debbie skedzinski who worked for com disco a computer leasing company the fall would be precipitous i was close to a half a million dollars i had in my 401k with company stock you know it was like wow look at all the money we have look at what is happening you know i can retire probably when i'm 45.

the dot-com failures continue to mount the internet skozinski not only lost her savings she lost her job today filed for chapter 11 bankruptcy protection including another 200 job cuts or joined a who's who list of corporate bankruptcies the day i got laid off i lost it i thought oh my god i'm a single parent i have no job i have a house i have a house payment what do i do you know um and i was scared really scared i didn't have much of a retirement left um i couldn't even borrow against it and it was just something that um i never foresaw ever you know losing my job ever never the worst was yet to come concerns about shaky home mortgages are triggering fears of a financial meltdown talk about the speed with which we are watching eight years later savers were hit again the mortgage market is far from over this is volatility we haven't seen of course since way before you and i were more trouble ahead for the nation when the housing bubble turned into the crash of 2008 it put retirement even further out of reach economic turmoil of recent years is putting a comfortable retirement at risk for many americans it was like holy smokes how do you stop the bleeding the reality of what you've lost is huge i mean not only have you now lost half of your 401k but your house is not worth anything anymore either so anything that you thought you were going to have there is gone and now your half of your 401k is gone you know if it took 13 years to accumulate 80 000 in one year to lose half of that and then try to get that in the back in another 13 years and and only be at the 80 000 that you were 13 years ago um you know the math doesn't work [Music] debbie skozinski was already in a hole with next to nothing to cushion the blow of a second shock and now her house was worth less than the loan she owed the bank you know there's some days where it's like you just want to go scream you know in the backyard and just scream because you have your choice do you pay this or do you pay this her bills were piling up she did what a quarter of americans have done she dipped into what was left of her 401k i freaked out when i took the money out of my 401k it was hard i mean it's you know you never every day on the news i'd listen to it i'd be like oh god it's really bad will i be able to keep my house well you know what if my car breaks down i can't afford a car payment it just can't be this hard to make my i can't you know you you hear these big companies with these people taking these huge bonuses you're thinking well what happened to the average joe they just don't care they made their money already growing outrage over those bonuses the year the markets crashed wall street doled out 18 billion dollars in bonuses the latest bonus bombshell is sending shockwaves across washington robert hilton smith entered the workforce in 2003 he taught for a bit worked at a coffee shop and then went to grad school where he ran up forty thousand dollars in student loans but on the bright side he had no savings to lose during the 2008 crash when he graduated with a masters in economics he was hired at a small think tank in new york they had a 401k and he began to make regular contributions but even in a relatively good market he began to sense that something else was wrong i have a 401k i save in it it hasn't seemed to go up it's awful i kept checking the statement i'd be like why does this thing never go up this is weird i mean the stock market i knew was up and down but i was like i still should be seeing some returns hilton smith decided to make a research project out of the subject he began by looking at the investment options inside his 401k plan 22 funds in all you know you've got all these names and the names tell you nothing it's a balanced fund it's a growth fund okay you know yes that's lingo for certain kind of broad investment strategy but really what the heck does it invest in you know so i went through each of these the actual fun prospectuses um which took me an exorbitant amount of time because each of these things were you know 50 pages long they still wouldn't tell you what they were doing [Music] as he dug deeper he discovered one fund invested in mortgage-backed securities the kind of security that caused the collapse of the housing market but that's not what worried him i was digging into all the different aspects of it and i kept coming back to fees so here's the first mention of fees this x ratio right here why would you think that x ratio means fees hilton smith found over a dozen different kinds of fees including asset management fees trading fees marketing fees record keeping fees and administrative fees use when you draw money fees when you take loans fees when you actually get money out when you're retired which i actually didn't even know about i spent a month lily going oh oh actually this fee is a sub-type of this v and o that covers that or no that's another name for that it was very opaque the average actively managed mutual fund carries an annual expense of one point three percent some funds charge a fee of two percent and even as high as five percent that may not seem very much right you know you've got fifty thousand dollars or a hundred thousand dollars and okay so you lose five hundred dollars so you lose a thousand dollars a year that's what you would pay to a financial advisor right but if you add that up over 20 or 30 or 40 or 50 years in a 401k plan all of a sudden you're well into the six figures as your balance grows and that's the difference between running out of money before you die or having a little money left to pass on to your heirs a lot of 401k programs are lousy the fun choices stink the fees are outlandishly high and in many cases you can take two next door neighbors you know living on maple street in any town usa and one person is paying 10 times as much to invest in a 401k as the other person [Music] to understand this fee business i went to talk to someone who has thought long and hard about it jack bogle the founder of vanguard a company that offers some of the lowest fee products on the market he says that if you want to improve your retirement outcome make sure to minimize wall street's take [Music] costs are a crucial part of the equation it doesn't take a genius to know that the bigger the profit of the management company the smaller the profit that investors get the money managers always want more and that's natural enough in most businesses but it's not right for this business bogle gave me an example assume you're invested in a fund that is earning a gross annual return of seven percent they charge you a two percent annual fee over 50 years the difference between your net of five percent the red line and what you would have made without fees the green line is staggering bogel says you've lost almost two-thirds of what you would have had what happens in the fun business is the magic of compound returns is overwhelmed by the tyranny of compounding costs it's a mathematical fact there's no getting around it the fact that we don't look at it too bad for us what i have a hard time understanding is that two percent fee that i might pay to an actively managed mutual fund uh is going to really uh have a great impact on my future retirement savings well you have to rely on somebody to get out a compound interest table and look at the impact over an investment lifetime do you really want to invest in a system where you put up 100 of the capital you're the mutual fund shareholder you take 100 of the risk and you get 30 of the return i wanted to know how others would react to bogle's claims jpmorgan chase offers more than 100 mutual funds that charge anywhere from less than half of one percent to more than two and a half percent annually i want to get your reaction to an example that jack bogle gave us and that is that if you invest over a 50-year investing lifetime in a mutual fund making seven percent a year on average but you're paying two percent in fee for that that that two percent will erode uh something like two-thirds of your gains so the lower fees relative to and to any given investment will always result in a higher accumulation but is his example correct i mean it's it's shocking that you would be giving up two-thirds of so i so i don't know the math behind the example but does it sound correct exciting it sounds um it sounds high [Music] it had sounded high to me as well so i took bogle's advice found a compounding calculator online and used a simple example in order to isolate the effect of fees take an account with a hundred thousand dollar balance and reduce it by two percent a year at the end of fifty years that two percent annual charge would subtract sixty three thousand dollars from your account a loss of sixty three percent leaving you with just a little over thirty six thousand dollars most investors are unaware of all the types of fees they're paying okay so as soon as everybody's actually seated we'll go over what's going on crystal mendes started saving for retirement in her early 20s but she rarely looked at her account and just assumed it was doing well today one day my fiance was looking at his retirement and he was essentially bragging about how great he was doing so i pulled out my annual report and we kind of compared notes and i realized that he was doing far better than i was he basically said honey i think you're getting ripped off we should look into this after looking at the fine print mendez found out that not only was she paying high fees she was invested in an annuity with a high surrender fee a penalty for any early withdrawals i think it was ten percent was the surrender fee so i was like you know battling with myself do i really want to give these people my money or leave it there and then i won't have a surrender fee but i think in the end i just said forget it they can have the fee and i'll move on with the remainder of my money all this talk of fees made me curious about my own 401k i run a small company with a handful of employees we make documentaries for frontline but we're too busy to look at the fine print of our retirement plan but while putting together this report i went online to look at what my plan was offering the funds that i'm allocated to if you look at i found what hilton smith found confusing tables of all sorts of products with different kinds of fees but it doesn't have any sort of ticker but those are proprietary mutual rights they have 434 but axa because they're an insurer i even found this offering the american century livestrong fund a mutual fund co-branded with lance armstrong's cancer foundation how did this get here how do funds like these get into my plan in the first place in seeking an answer i came across another family of fees it works like this in order to get their offerings placed on employer 401k menus mutual funds rely on brokers and plan administrators in return the brokers ask for a payment or revenue share it's a kind of pay to play arrangement or as some say a kickback that adds another layer of costs to retirement plans a lot of people use a term like kickback because in some ways it is it's a legal kickback there's nothing against the law about it but it is a sort of you scratch my back i'll scratch yours kind of arrangement if you sell our funds you will get a portion of the revenue we earn from selling them through you this is a kind of subrosa part of this industry and there's not a lot of information about it but the fact of the matter is as far as i know that those kind of payments to brokers for distributing your shares has simply become part of the system you know the brokers are getting a little religion here they're saying why should i distribute your funds unless you pay me to you get these big management fees i want some of it you're getting plenty give me some the problem is that these fees are not paid by the fund company the bill is passed to you and me here it is buried deep in my 401k plan documents it took me about an hour to find the reference [Music] do you think the industry could do a better job of making people aware of the effective fees on their savings i think we could make people aware of the effect of every pressure that they have on their accounts what stands in the way of doing that better job i what i would tell you is it's sometimes it's very difficult to get people to focus on something that seems complicated and dull and boring so could we do a better job with helping consumers understand all the things that are tied to what they just bought whether it's financial services or the riding lawnmower yes it's too complicated uh retirement sit back relax pull out the paper and what an article that says a typical family pays 155 000 in wall street fees on their 401ks seriously seriously you don't believe in certain average american household will pay nearly 155 000 over the course of a lifetime and fees alone that's according to a new study here to break it all down robert hilton smith in the spring of 2012 robert hilton smith came out with his study on the impact of fees on retirement savings when we looked at it we really found that all the costs over time are really being shifted onto individuals here i was amazed i mean everybody covered it all the major outlets and all of the financial industry outlets as well every one of them really had been sold to us these 401ks and iras as safe products over the years the point is that this system isn't built for individuals at all it's certainly not built for their benefit new and eye-opening report out this morning these are taking a huge chunk out of our retirement the industry took issue with some of hilton smith's numbers but he'd made his point we're being charged a lot by these financial firms to do not a lot in a lot of cases we need something different out there we need something simpler something safer you know honestly something that people can put their money in get good returns not have to worry about losing their entire nest egg and then trust that they'll actually be able to retire one day if they you know do the right thing and save enough etc [Applause] there is someone who has been promoting something simpler i was criticized many years ago somebody said the only thing that poor guy has going for is the uncanny ability to recognize the obvious for the past four decades jack bogle has been preaching the gospel of long-term low-cost investing through index funds get wall street out of the equation get trading out of the equation get management fees out of the equation you own american business and you hold it forever that's what indexing is own upon the owns the entire u.s stock market does no trading has a cost of one percent a year to own and that is the only way to do it then you were the creature of the market and not of the casino index funds buy and hold a broadly diversified basket of stocks that match the holdings of a market index the s p 500 the wilshire 5000 or maybe a bond or commodity index they don't eliminate market risk they ride the market up and down but they are much cheaper because there is no active manager you can guarantee to the shareholder that they will capture their fair share of the stock market's return for better or for worse if you want to gamble with your retirement money all i can say is be my guest but be aware of the mathematical reality that maybe you have a 1 chance of beating the market over time it has been proven right year after year after year because it can't be proven wrong it's a mathematical certainty a tautology if you will jack bogle would say stop fooling yourself you're better off investing in a broadly diversified index fund than in actively managed mutual funds what do you say to that i think he's a uh i'm not going to second-guess him i'm going to say that i think that there's a role for uh actively managed uh product in the marketplace i think but that is second-guessing him he's saying so i'm second-guessing jackpot i'm respectfully uh disagreeing i think there's a role for for active management in uh in portfolios it's that's my belief but what is that role how well do they perform they come with names intended to reassure every investor growth funds value funds balanced funds and they are run by seasoned professionals who are paid handsomely to manage them the question is what are you getting for that are you getting superior performance and the answer unequivocally for the industry as a whole is no there's no scientific evidence that mutual funds outperform a simple strategy of holding the market index the verdict is in it's been in for at least a quarter century all else being equal you should buy the cheaper fund and one of the ultimate dirty secrets of the fund industry is that a lot of people who run other fund companies um own index funds in their in their own accounts and don't talk about it unless you put a couple beers in them the evidence is overwhelming year after year actively managed mutual funds failed to beat index funds studies have borne this out repeatedly over various time periods in bull and bear markets i asked the head of retirement at prudential which markets dozens of actively managed funds what she thought about this yeah i haven't seen any research that substantiates that i mean it i i don't know whether it's true or not i honestly have not seen any research that substantiates that so all the research that's done at vanguard that makes that argument you've looked at that no i haven't i haven't i haven't read everything but it it so much it depends on you know what i need is different than what you need and there's not an asset allocation or a fund strategy that's right for everybody i talked to one woman at prudential who's head of retirement and asked her if she was aware of the studies that showed that index funds did better over time than the actively managed funds and she says she wasn't that's unbelievable i find that actually unbelievable these people that are in the business know that the index funds do better right they convince themselves that's not true when i've talked to these people but wait a minute all the studies how can they convince themselves that's not true because they're convinced they're recommending the fund that's going to do better this is not a time when you want to be buying index and of course there are hot funds this is not gambling it's investing the financial media loves the best performing stock mutual fund this year and we're often susceptible to the lure the problem is as the small print says past performance doesn't guarantee future results well if only the pass for prologue it would be a great thing returns do not persist there are some funds that are outperforming the broader market the good markets turn to bad markets bad markets turn to good markets so the system is almost rigged against human psychology that says if something has done well in the past it will do well in the future that is not true and it's categorically false the high likelihood is when you get to somebody at its peak he's about to go down to the select up ten valley here today the last shall be first and the first shall be last last year's dogs could actually be this year's winners [Music] so why aren't more of us invested in a diversified portfolio of low-cost index funds critics say it's because the fund industry spends millions hoping workers will follow their financial advice they're hoping that the worried worker will actually trust um an advisor you have the audacity to believe your financial advisor should focus on your long-term goals not their short term in its marketing the industry implies that retirement advisors are on our side but when it comes to employee retirement plans there are no clear standards on who can give advice financial advisors lead from a new position of strength the department of labor is responsible for regulating employee retirement plans we have a system today where anybody can hold themselves out as an expert they call themselves retirement planners financial planners advisors etc we don't have a standard way that the consumer can figure out who has the expertise to provide advice what's a financial advisor that is a term that means almost nothing it is somebody who might be a financial planner or it could be a broker who is really a salesperson there when you need them there are registered investment advisors or fiduciaries who are obligated by law to act in their clients best interests let's talk about the cookie cutter retirement advice you get at some place the vast majority of so-called advisors around 85 percent are not fiduciaries they're merely brokers or salesmen a fiduciary is a professional who by law is supposed to put your interests ahead of their own broker dealers are not under that obligation they have to conform to a suitability standard which means they can't put you into something which is totally unsuitable for you this doesn't have to be the best thing that you could pick out for them it's just something that's suitable it's okay i can't believe that somebody would want to get into a business and then stay in the business of merely being suitable basically your guy is out for himself to maximize his sales and the way he does it is to be loyal to the mutual fund and they try to sell you the most profitable products steve shulo learned this lesson the hard way when he encountered someone selling financial advice in his school lunchroom i met my salesperson in the teacher's cafeteria she showed us the different products you know i didn't know very much about investing but in the back of my mind way back then how is this person compensated it was always a question because i had worked in the private sector before i came into teaching and i knew there were no free lunches nothing is free the salesperson working on a commission basis offered shulo an annuity a retirement insurance product with what he thought was a guaranteed return of 12 percent a year so i signed up for 200 a month and for about five years the interest rate was going way down to three percent and i was wondering what the heck is going on here why is it down to three percent i didn't understand that the insurance company has the right every year to reset that rate uh as they see fit so how can you know when a financial advisor is really a salesman if you're working with somebody who is trying to sell you financial advice you say to them are you acting in my best interest here would you be willing to sign a pledge that says that you're going to act as my fiduciary at all times with all products because if you're not then i'm going to leave and it's really just as simple as that another broker sold an annuity to the featherston's after the crash of 2008.

at the time it seemed suitable this was a product that we had discussed with him and we thought that this would insulate some of our money from what we had just gone through what most a lot of people had just gone through you know we trusted him yeah we trust him yeah we trust him but the problems came after mark got laid off and the couple had to break into their account i mean we're talking on seven thousand dollars the fees have been upwards of 600 just to get the money out i can agree paying the 10 penalty you know to uncle sam but you know these companies need to realize that they're making money off the backs of people that have worked hard for their money it makes you mad but you know what are you gonna do you're powerless he paid for advice that was not to try and hold the industry accountable the department of labor proposed a new fiduciary rule in the fall of 2010.

When retirement savings are at stake advisors should put their clients interest first the critical question is what constitutes paid investment advice the proposal we're discussing today will amend a 35-year-old regulatory interpretation the rule would require all financial advisors to put their customers interest before their own whenever dealing with retirement accounts today there are trillions of dollars in each of these markets the variety and complexity of financial products have increased and made fee arrangements far less transparent the financial services industry lobbied hard against the new rule it just seems that the financial services industry is really concerned about they got the attention of congress our job here in congress is not to preserve the business model that has existed for 35 years but if you're going to upset that business model we better know why and we better know where we don't need an alternative we just don't need to do this the labor department pulled back their proposal people in the suitability business have very good lobbyists and they've done a very effective job of creating doubt in washington and concern about how something like this would be administered about how the fiduciary standard would be enforced about the costs of making whatever transition you would need to make the full political power of the financial institutions and the mutual fund industry was completely engaged in making sure that that that that rule never saw the light of day they were saying the rule is too tough they were saying they don't want any rule they don't want to be have fiduciary applied to them they don't want to because they're not really dispensing financial advice they're just dispensing uh information and educational services yadda yadda yadda give me a break they're steering you to the funds controlled by their company the otherwise you might leave and go somewhere else i asked the head of retirement at jpmorgan asset management why anyone would want to take advice from someone not bound by a fiduciary pledge shouldn't i want to only work with somebody who has a fiduciary obligation not necessarily no no isn't it better that can it's different it's not better it can cost more you may not get any different advice or outcome and it can cost you more right but make this simple for the investor i sit down with somebody and they give me some advice you say i should ask a lot of questions i want to know whether or not one of those questions shouldn't be whether they have a fiduciary response yes that's a i think that's a very good question and if they don't ask them so ask them what that means and and see what you think about the world make it simple should i prefer somebody with a fiduciary responsibility so that's a question that can only be answered on a personal basis based on what your level of need is what your risk appetite is and how much of the investment decision you want to delegate this isn't making it so if well i wish it was simpler [Music] over the past couple of decades we've handed over more than 10 trillion dollars of our retirement money to the financial services industry they've built a pretty good business out of it but how well is it working for you and me so far most efforts to reform the industry have fallen flat recently the government has forced through some new rules on fee disclosure and the department of labor says it will try to reintroduce a new fiduciary rule soon unless there's a game changer unless there's a law passed or laws passed or scrap the system and start over as i advocate oftentimes no nothing will change because there's no incentive for the market to change people just keep on saving this is the only option they've got and companies will keep on raking in the profits so saving for retirement remains a bewildering and frightening challenge for millions of americans for the people we met in making this program the outcomes are mixed some are confident i definitely couldn't retire right now but the fact that i'm planning ahead and you know investing wisely is is hopefully you know going to help and i i don't think i'll run out of money i am concerned about running out of money but i'm a survivor and if i have to downsize into a tent i will do something special retirement dream i mean we we we're living it right now this is it this is it you know it's life gives you these opportunities we never plan to learn about investments until and until we got slammed in the gut then oh we better start paying attention here others are worried i'm leery i'm really really leery i don't know what i'm gonna do i feel like i'll be working for the rest of my life absolutely for the rest of my life it's hard to imagine even at this point in my life being retired yeah i just don't see just don't see it either i don't see it [Music] my retirement plan is is fingers crossed and pray basically yeah win the lottery um hope my dad has more money than he does and the truth is just have to find a way to save way more than you should have to meanwhile what about hilton smith's research he is now finishing his phd dissertation on america's retirement crisis but the grant money he needs to support his continuing work has dried up as for me over the last several months i've spent a lot of time playing with different online retirement calculators some were optimistic others very discouraging i will keep working [Music] for more on this and other frontline programs visit our website at pbs.org frontline [Music] front lines the retirement gamble is available on dvd to order visit shoppbs.org or call 1-800 play pbs frontline is also available for download on itunes [Music] you

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