Periodically, the company that runs the retirement funds at Mr. T’s employer sends out a retirement newsletter. This is the standard single-fold document that tells you to save more money, think about your future, and think about your taxes.

Here’s the Problem:

I read this newsletter religiously (mail about saving more money!? Yes!). It’s terrible. One of my earliest posts rewrote one of Mr. T’s newsletter scenarios because I think someone should jazz this stuff up!

This past newsletter threw in some more horrible stories. I’m changing the names (so I don’t offend the real fictional dummies), but everything else is the same. I’m not making this up!:

At age 25, Betsy begins putting aside \$150 per month for retirement. After 10 years she stops contributing, but leaves the money in her account for the next 30 years. Assuming an 8% average annual rate of return, by age 65, Betsy would have amassed \$273, 565 which cost only \$18,000 in total contributions.

Alright. We get it. The Power of Compounding is real. \$18,000 turning into \$273,565 is pretty darn good. The bad news? You have to wait 40 years!!! Also, who is this poor woman? \$150/month for ten years and then NOTHING?!

Yay Betsy! You have \$273,565 (and probably a mortgage!) to carry you through retirement. You’re the poster child of compound interest!

What’s worse? Betsy is the GOOD example!

On the other hand, just as Betsy stops contributing, Bobby begins. He puts aside \$150 per month for the next 30 years. At age 65, he has contributed a total of \$54,000, yet his account has \$40,011 less than Betsy’s.

Oh Bobby! You’re such a fool! Not only did you wait until you were 35 to contribute anything, you only contributed \$150/month until 65!

Just one more:

In order to drive the point home, the newsletter gives a low-earning scenario to help demonstrate the power of saving:

A contribution of just 2% from a \$25,000 annual salary is just about \$10 out of your paycheck every week. If you increase your contribution by just 2% each year until you reach the maximum the company allows, for example 10%, and earn a 6% return on your investments, you would have \$321,946 by age 65.

This one at least ratchets the return percentage down to 6%, but assumes that your company is the only place you can invest. Also, \$321,946 isn’t great at age 65 either! There is NO REASON (barring disability or other major calamity) you shouldn’t be able to retire with at least DOUBLE that amount if you are working for 40 YEARS!

Also, there’s a disclaimer!

Rates of return may vary. The illustration does not reflect any associated charges, expenses or fees.

Oh man. Who writes this stuff?! So… if there are ANY FEES AT ALL (which, to clarify, is ANY investment… even if you’re going with Vanguard LOW fee funds), Betsy and Bobby will end up with LESS than those amounts!

DON’T BE A FOOL!

Alright dear friends, let’s go over how to NOT be Betsy (or Bobby!) because YOU are smarter than this dumb newsletter:

1. Start Early – Betsy’s story shows us that the sooner you start investing, the better. Even if you have debt, don’t stop all contributions to your retirement. You will regret that later.
2. Save more than \$150! – If \$150 is how your monthly savings starts out, fabulous! We know the power of making just one change! But don’t stagnate! Saving only \$150/month for 10 years, is NOT good! Don’t settle.
3. Consider Possibilities – If you’ve managed to up your contributions each year with raises, etc., excellent work! Remember that you are not limited to your employer accounts. You can invest elsewhere. Open an IRA. Don’t pat yourself on the back for reaching 10% (especially if you want to retire before 65!).
4. Don’t stop! – At no point in your working career (especially if your accounts are below \$100,000!) should you just think: “Meh. I’m good. I’ve saved for 10 years. I’m over it.”
5. Don’t let the fees eat your savings – Personal Capital has an awesome tool that lets you calculate how much your fees will impact your total investments over time. You would be shocked how much of a difference 1% makes! Stick to low fee Vanguard funds as much as possible. Look at the fees in your employer options. Be aware. And go with the low fees.

I’m sure I’m preaching to the choir, but every time I get one of these “scenarios” I start pumping my fist in the air and yelling “THE PEOPLE NEED TO KNOW!”

Also, if you’re looking for a new retirement newsletter writer for your company, look no further. I can come up with awesome names and awesome scenarios! 🙂

As for you, dear readers, don’t be a retirement newsletter example. You’re better than that!

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1. #### getrichquickish

Financial materials in general are soooooo boring – it’s no wonder our financial literacy rates are so bad! Maybe a jazzy newsletter is just what some people need to get or keep them motivated. Would love to see some of the names you could come up with …. Winchester Soggybottoms. Blanche Couponcutter. Ty Getrichquickish? 🙂

2. #### Britt

This is hilarious, Maggie! Thanks for sharing. I, too, find myself yelling war cries to myself about this kind of stuff. I’m glad I’m not the only weirdo out there 🙂

Hope you’re feeling settled back into normal routine!

• #### MaggieBanks

My husband just laughs at me. He doesn’t even open the newsletter but he finds it hilarious I love reading them and equally love ranting about it!

3. #### Fervent Finance

Those ARE some terrible stories for sure! Where is the one where Betsy contributes the maximum every year for 12 years and then RETIRES 😉

4. #### Pamela

This is funny and information, Digging the humor. You are absolutely right. I think the habit of savings is like building a muscle. It’s equivalent to saying hey if you worked out a lot in high school and was super athletic, you can pretty much stop once you get into the working world. Cause, hey your body will continue to stay healthy from that time in high school…good luck with that.
On a real note though, I think it’s good that the newsletter is trying to highlight the importance of starting early when you don’t have as many responsibilities (i.e. a mortgage and kids), but you are right, you can’t just stop there. And \$250k-\$350k is nice, but it will not get you far in Canada at least. Especially if you have good jeans, plan to retire at 65 and live till 95. Good luck with that.

• #### MaggieBanks

I agree. It’s worth bringing up the power of compounding. But I think it’s easily worthwhile to point out how easily it is to become a millionaire if you plan to work for 30 years! It’s really not that hard!

5. #### Pamela

this is why I don’t blog on my phone. Correction: genes not jeans. and I meant to write ‘funny and informative’

6. #### Route To Retire

Haha, that’s some good stuff! I think your wrap-up steps would make a much better newsletter!

I will tell you though that my office employs just under 50 people who you might consider very smart knowing the work that they do. And almost all the employees invest in the 401(k) there.

However, a good portion of these people only put in \$10 or \$15 every 2 weeks with each paycheck… \$10 or \$15!!!! They’d be better off following the crappy newsletter Mr. T’s employer sends out.

— Jim

• #### MaggieBanks

I can’t tell you how much this HORRIFIES me! At least the automatic payments at Mr. T’s work are over 10%! There are NUMEROUS studies about how setting it up automatically and making it an opt-out scenario increases savings by HUGE AMOUNTS. ALL companies should set the automatic to at least 10% in my opinion

7. #### Mr. PIE

Oh, and as for those cover shots that have the grey haired couple dancing whimsically along the sun-kissed beach in their white cotton Ralph Lauren pants and shirts. Makes me cringe and squeal with pain. Aargh!!

• #### MaggieBanks

That’s EXACTLY what they look like! Right out of an ED commercial! 🙂

8. #### earlyretirementnow.com

Great post. It looks like the people writing this newsletter are not really that financially competent.

On top of all the issues you pointed out, let’s not forget the impact of inflation over 40 years which will likely diminish the purchasing power of this small cash stash by another 50%. There is a real problem with setting expectations and aspirations so low. And the people managing the money would benefit too if everybody started saving more. Inexplicable how they set the numbers so low!

• #### MaggieBanks

I know! Seriously! I get that they don’t want to bring up the possibility of early retirement (the employer wouldn’t be too thrilled with that), but never mentioning a final savings number at 65 greater than something in the \$300k range is CRAZY!

• #### earlyretirementnow.com

For what it’s worth, I suspect that the response of the people who wrote this would be “we target those who currently don’t save at all. Using numerical examples with monthly savings rates much higher than \$150 would only intimidate them more and discourage retirement savings”
Very lame excuse, of course. If you ask people who got their financial life back together and went from financially irresponsible to FI, I’m sure not many people will say someone should have found a more “sensible” way to “nudge” them to financial literacy. Most would probably say “geez, I wish someone had slapped me in the face (figuratively!) much earlier”

• #### MaggieBanks

I repeat: “THE PEOPLE NEED TO KNOW!”

9. #### allroundbetterme

Ha ha ha ha! You are so good at making things funny! 🙂 You should totally take over writing those newsletters. They would be read so much more!

• #### MaggieBanks

Thanks! I’m flattered. I honestly think that would be the greatest job ever!

10. #### Our Next Life

I get the Fidelity retirement newsletters, and they are completely terrible like this. Like “start out with \$10 a paycheck and watch your savings soar!” Um, what??? It makes me nuts what bad advice *retirement advisors* give (or at least that’s how most people see them), and I am always trying to tell my junior colleagues to save as much as they possibly can. 🙂

• #### MaggieBanks

THE PEOPLE NEED TO KNOW! There’s really no excuse for working a good-paying job and NOT retiring after 30 YEARS with at least a million dollars. It’s not that hard if you have 30 years and save SOME money! But it will take more than \$10/month!

• #### Our Next Life

100% with you. If you do the math, \$1M is pretty easy actually, assuming you’re consistent with saving. Now, saving that much in a few years is a different matter, but in a 30-year career? Piece of cake! Assuming you DON’T listen to those BS retirement newsletters.

• #### MaggieBanks

Two maxed out Roth IRAs is all it takes!

• #### Our Next Life

That’s crazy. People need to know that!

11. #### eemusings

I’m in NZ and I believe fees for KiwiSaver (our retirement scheme) are pretty high by international standards (thoughthis might change in the future as it matures and balances grow). The site I work on has a tool for calculating your projected fees paid over a lifetime and it’s staggering! About \$40k for me in my current scheme. I also looked at fees for other providers – one scheme was an outlier and projected nearly \$130k in lifetime fees!!!

• #### MaggieBanks

YIKES! Even a one percent difference in fees can make a HUGE difference over a lifetime. I just moved us from a fairly low-fee fund (0.13%) to an even lower fee fund (0.01%) – practicing what I’m preaching!

12. #### mdbyfire

Like ONL, I also get the Fidelity newsletters, and they 1) suck, and 2) make me feel really great about my savings rate, rather than encouraging me to strive more. They also occasionally encourage dumb things like taking on a mortgage (which in my city is ridiculous) to help improve my overall credit score and worth in the eyes of banks (no thanks). So once you’re done rewriting Mr. T’s newsletter, if you could head on over to Fidelity, that would be greaaaat.

• #### MaggieBanks

Oooh! If only they would ALL hire me. “LISTEN UP PEOPLE: The gravy train of compliments is OVER! You’re NOT saving enough money! Are you sure you want to live on less than \$800 a month in retirement? Where are you living? In a senior hostel? GET A GRIP! Starting tomorrow, you will be transferring an extra \$200/paycheck. No exceptions!”

13. #### Kalie @ Pretend to Be Poor

Oh my, that newsletter really is awful! Thanks for breaking down the lies here. Too bad the newsletter audience can’t get this post in their mailbox. I hope no one else bothered read the real one!

• #### MaggieBanks

I’m not sure whether I hope they read it or hope they throw it away. If they immediately throw it away, does that mean they’re saving LESS than those amounts?!

14. #### Harmony Smith (@CMK_Harmony)

Ugh – those ubiquitous, boring retirement scenarios 😛

We really do need to get the word out: THERE ARE OTHER, BETTER WAYS TO RETIRE!!!!

And I agree, it would be much more helpful to discuss practical considerations such as fees. I used to pay a lot more of my slowly-accruing interest on silly administration fees.

• #### MaggieBanks

Because 1% doesn’t seem so bad… right? These people need more graphs showing the effects of fees and higher savings rates! And awesome names! I think I found my new calling in life… You listening retirement companies? I’m available for hire! 🙂

15. #### Kate

I chuckled out loud the whole way through this post – thank you for that! And of course, you make excellent points while still making me laugh. My company’s newsletters are the same, and I always wonder if there are people out there who read these and follow them as their sole source of retirement planning advice. I’m assuming most people aren’t, but for the younger people (such as the me of ~5 years ago)… I do get concerned haha. I’d certainly give you a reference if you were looking to get a position writing these things!

• #### MaggieBanks

Thanks for the reference, Kate! 🙂

16. #### earlyretirementnow.com

One other thing that occurred to me. Working in finance I sometimes interact with the folks who write the material you referenced. I know exactly how they would justify their low expectations: “we are targeting those who currently don’t save at all and we don’t want to intimidate or scare them with a savings target too ambitious.”
Geez, what a lame excuse! If you ask people who turned their financial lives around, you mostly hear that they wish someone had slapped them in the face much earlier. People normally wouldn’t say, “Gee, I wish someone had sent me more subtle newsletters to *nudge* me away from financial irresponsibility.”
But I doubt any newsletter will say that folks will be eating dog food in retirement if they save only \$150 per month. Folks, we all have that duty. So, tell your relatives, friends and colleagues to save, save, save! 🙂
Cheers!

• #### MaggieBanks

YES! You can get me a job with all the important ones so I CAN tell them they’ll be eating dog food in retirement! 🙂 And you’re right… we need to preach to our loved ones!

17. #### Jacq

I got a coworker to sign up for the 401k (odd way to it but a 4% match on the first 6%). Then I enlightened my cube mate to HSA.
I think I actually scared the HR gal at new hire with some of my 401k questions. She did says ‘you might want to change the 401k % before the bonus check so you can keep more of your money.’ I verified that since 401k contributions are pre-tax, and would be matched (4% of a larger paycheck ), possibly even upping the % to avoid being taxed, by not changing I actually keep more money in the end. She had to think hard & agreed. Because how many people would adjust it back?
Maybe I should start a news letter with Maggie! 🙂

• #### MaggieBanks

Way to set the HR gal straight! Let’s do it. We’ll call it “The Anonymous Millionaire!” (I’m not a millionaire, but anyone would read that!) And people can print it off and anonymously tape copies of it around the office!

18. #### Fulltimefinance

I’ve started to notice that a large part of the world is focused on the less financially astute. You see it in these news letters but you even see it beyond them. Have you ever noticed how many used car dealers advertise no credit no problem? I really wish our schools would teach financial education as a high school requirement. Then we might have a chance of getting a newsletter with useful looks that are less scary.

• #### MaggieBanks

Yes. It is better to get people to save SOMETHING. And financial literacy would be helpful, obviously. But I think the majority of people assume their company’s automatic investments will be enough.

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