Retirement Crisis Part I: Waiting For Godot

All is pattern, all life, but we can't always see the pattern when we're part of it.

—Belva Plain, 1915-2010, American Author

When you come right down to it, almost any problem eventually becomes a financial problem.

—Frederic Donner, 1902-1987 former CEO of General Motors

We need education in the obvious more than investigation in the obscure.

—Oliver Wendell Holmes, 1841-1935, associate justice, U.S. Supreme Court

In a 2015 issue of the Financial Analyst Journal a nerd titled his article: “After 70 years of Fruitful Research, Why is There Still a Retirement Crisis?” The author identifies a number of possible reasons, but one assumption kept him from hitting the mark. The assumption that decades of research have been “fruitful.” Fruitful to who? Other finance nerds?

I joke, but the lack of a common language between nerds and regular people is a severe problem and key reason for the retirement crisis.

The result: According to one study by the Insured Retirement Institute, roughly 24% of baby boomers report to have zero retirement savings and 23% of baby boomers report more than zero but less than $100,000 — according to the Insured Retirement Institute. Between those two boomer groups that’s 47% of the total!

Decades of research and ideas meant to provide their audience with the knowledge they need failed to strike a chord. Yuval Noah Harari’s great book Sapiens: A Brief History of Humankind "well frames" how we got to this point:

In order to understand the universe, we need to connect observations into comprehensive theories. Earlier traditions usually formulated their theories in terms of stories. Modern science uses mathematics.

He later states:

There is an irresistible drift towards the exact sciences – defined as ‘exact’ by their use of mathematical tools. Even fields of study that were traditionally part of the humanities, such as the study of human language (linguistics) and the human psyche (psychology), rely increasingly on mathematics and seek to present themselves as exact sciences. Statistics courses are now part of the basic requirements not just in physics and biology, but also in psychology, sociology, economics and political science. In the course catalogue of the psychology department at my own university, the first required course in the curriculum is ‘Introduction to Statistics and Methodology in Psychological Research’. Second-year psychology students must take ‘Statistical Methods in Psychological Research’. Confucius, Buddha, Jesus and Muhammad would have been bewildered if you told them that in order to understand the human mind and cure its illnesses you must first study statistics.

And at the heart of the fruit-failure:

In 1620 Francis Bacon published a scientific manifesto titled The New Instrument. In it he argued that ‘knowledge is power’. The real test of ‘knowledge’ is not whether it is true, but whether it empowers us. Scientists usually assume that no theory is 100 percent correct. Consequently, truth is a poor test for knowledge. The real test is utility. A theory that enables us to do new things constitutes knowledge.

For academia, transforming math-heavy investment/retirement knowledge into “utility” hasn't worked out and likely never will. John Abele perfectly explains why in Harvard Business Review’s book 10 Must Reads on Collaboration:

Academic collaboration, I’ve learned over the years, is something of an oxymoron. More often than not, what is described by that term is really non-collaborative, or worse, pseudo-collaborative work, driven by the long-standing rituals of institutional seniority and the professional and financial incentives to build higher silos with thicker walls. That’s a shame since it is our universities that are supposed to have the intellectual force and license to find bold solutions to important problems.

Better understood is the failure of nonacademics. This group include Wall Street with their “innovative” strategies, discount brokers with their “powerful” tools, registered investment advisors who often sell their fiduciary duty as a clear sign they are superior in every way (In my view a fiduciary duty to clients should be a requirement, like being sober behind the wheel, but sober drivers are not always good drivers!), Get Rich Quick books, free-but-costly dinner party advice, mutual funds, and low-fee index funds.

Yes, I said it…..even low-fee index funds do not solve the knowledge-to-utility problem — though lately they are advertised that way. More on that later but the point isn’t that low-cost funds are bad, just often mishandled by Wall Street, Main Street, and now Robo Street. Especially Robo Street! Maybe that’s why John Bogle, advocate for the little guy and founder of the index firm giant, Vanguard, said:

No intelligent investor should fail to read and understand the works of Benjamin Graham.

Come again, Mr. Passive Management? Index investors should also read and understand Benjamin Graham? Buffett’s mentor? That doesn't sound passive.

In reality most people do not read Bogle, let alone Graham. Heck, most investment professionals haven’t read Graham's work. Then again, we do have a retirement crisis.

But if Buffett and Bogle can’t drive a wide audience toward such wisdom as Graham, what are the odds I can? Zero.

Dealing with zero. On one hand I’m ok with it as this website enjoys its focus. But instead of just finger pointing I’ve opted to build out a method for addressing what I believe to be a sizable gap in investors' decision process. On one side of this gap is “avoid credit card debt, make sure you save and invest” wisdom, on the other side of this gap is Benjamin Graham type wisdom. When the gap goes unfilled odds are needlessly tilted against the investor.

Next week I'll take my swing with the introduction of the method in Retirement Crisis Part II: CryptoKitties. Time permitting, and with permission from my six-month-old daughter, I’ll eventually place the material on a separate yet-to-be-built website, fiveframeworks.com