This week on the Retire With More Show we were honored to be joined by special guest Charley Ellis. At Rebalance Charley Ellis is on our Investment Committee, and he is a luminary of the investment business. He spent three decades managing Greenwich Associates, oversaw the Yale Endowment as a trustee and was Chairman of the Yale Investment Committee. He is a distinguished author whose newest book, Falling Short, was recently published.

simple, but not easy

The road to retirement can be tough for many Americans. As Warren Buffet would say, “Investing is simple, but it is not easy.”

“It is simple to say that you want to invest for the long term. You want to think through carefully what you are trying to accomplish and if you get those two fundamental factors right, then you can just stay with it. Getting it really right is not easy, but it’s simple if you’ve got the right destination and you understand yourself. That’s what’s critical, and that’s what’s simple. Now implementing it? That’s not easy, but it can be done.” — Charley Ellis

Investing is not easy. In his new book, Falling Short, Charley talks about the “coming retirement crisis.” Once upon a time, you worked for a company, they gave you a defined benefits package and you knew that at the end of the road there would be something there. Today, we have replaced defined benefits programs with defined contribution plans.

“A defined benefit pension was perfectly designed for somebody who, in years gone by, would go to work for a company and stay with the company for an entire career. There was a lot of loyalty to the company, and the company was very loyal to the employees. There was a profound understanding that there would be a real need for financial security in the retirement years. But we have been making a change and gradually corporations are shifting away from defined benefits to defined contributions or 401(k) plans.” — Charley Ellis

With this new approach, you are building up your retirement on your own. With a defined benefits program or the traditional pension fund, the company made all the decisions and the company had all the responsibilities, including bearing all of the risk.

“With the defined contributions or 401(k) plans, the individual makes all the decisions. The individual bears all of the risk and the individual pays all of the costs.” — Charley Ellis

social security

But what about Social Security? Will Social Security be there when you are ready to retire?

“There is really no risk that Social Security is going to run out of money. Don’t worry about Social Security not being available, that’s not the most important question. In many ways for most people, a much more important question is which Social Security is going to be yours.” — Charley Ellis

The government allows you free choice when it comes to claiming your Social Security between ages 62 and 70. The secret is the amount you could be collecting varies a lot. If you claim at age 70 instead of age 62, you would get 76% more money every month, every year for the rest of his life. That’s a very big difference.

“If I can convince someone to wait until they’re 70, not only do they get 76% more than they would have gotten then if they had quit working at age 62, they then have a chance during those eight years to put money in and to get a return on your investments. Even if the market doesn’t do too well, you will have increased your 401(k) by 150% and, if the market is good, you’d be increasing it by 200%. That’s really important because that means that your payouts can increase by that magnitude, too.” — Charley Ellis

So you get the bigger Social Security and the bigger 401(k) payout. This combination has the possibility of lifting 10 million to 20 million people from the level where they do not have enough for their retirement to being financially secure. People are often surprised by how much benefit they can get by working eight more years and how valuable it would be for them to be able to sit down and to make their own choice, for themselves and their family.

“Saving is a wonderful idea because the only person you’re saving for is your family and yourself. I’m all for free choice, but I don’t think anybody is making a free choice if they haven’t got the information they need to make a good free choice.” — Charley Ellis

Make sure you tune in live next week to Retire With More. Join me and John Rothmann Saturdays at 9 a.m. on KKSF Talk 910.

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