Debunking Charles Schwab

Jun 30, 2023 | Uncategorized


So here I was, just minding my own business when I get an email from Charles Schwab referring me to their article “4 Retirement Rules of Thumb Explained”.

Now, be advised, I like Charles Schwab. Most of my portfolio is there. In fact, Charles Schwab, the man, has done a huge amount of good in terms of savings investors on overpriced commissions. Remember, until the Carter Regime, commissions were regulated by the Feds.  Crazy, isn’t?

So, this isn’t to bash these guys. But to set the record straight. We talked about this in detail in last night’s Locals live stream by the way. You should join, right this very minute!

They say:
Rule of thumb: “Save 10% to 15% of your income for retirement.

The detail most people miss here is that a 10% to 15% savings rate—which includes any match from your employer—makes sense only if you start saving in your mid-20s or early 30s. If you start later, you’ll likely need to save more to maintain your current standard of living in retirement.”  And then they provide this chart:

This might be one of the dumbest things I’ve seen in my life…and I’ve seen a lot of DUMB things! I’m from Maine after all.  I’d imagine if you’ve been around my stuff for a few years you’ll quickly see the silliness of this.  If not, well, welcome aboard we’re going to open your eyes to something and once you see it, you’ll never unsee it. 

The idea that I, your ole Buddy Josh, needs to save around 40% of my gross income in order to “maintain my current standard of living in retirement” is, frankly, stupid. 

I’m going to refer you to the book that changed everything for me as a professional financial advisor. 

I’ve mentioned this book on numerous occasions but obviously, after reading that Schwab stuff, it needs mentioning again…and again, until people understand what’s at stake here. 

To quote Kotlikoff and Burns, both big libs by the way so the idea I only get my info from “right leaning” people is dumb.  Page 104 “replacement rates come to you courtesy of people who have their very best interests at heart.”  Did you get that? I hope so. Classic!
* Replacement rates assume spending on children continues after they leave the house.
* Replacement rates assume spending on mortgages continue after they’re paid off.
* Replacement rates assume spending on education continues after children are out of school.
* Replacement rates assume NO CHANGE ever in the household’s demographic composition. (See my new book RELAX & RETIRE for more on that. )
* Replacement rates are con jobs – pure and simple.”

Good job, gents. Good job. Consumption smoothing is how you should look at retirement planning. Do not get depressed or panicked because you’re not saving XYZ amount of your income as Schwab states you should be doing.  Again, that’s just STUPID!

Now, Kotlikoff is just an economist.  We know a lot of economists aren’t the brightest bulbs so maybe he’s just wrong?  I’m not sure what Scott Burns’ background is, but if he’s a journalist we KNOW he’s not the brightest bulb, just by definition. 

But there are many, many others, who can’t be looked at as underwhelming in the brain department.  The first that comes to mind is Frederick Vettese, a real-world actuary who did real world actuary stuff in helping plans manage their retirement budgeting.  His book “The Essential Retirement Guide: A Contrarian’s Perspective” is a must read.  If you are doing retirement planning and not reading his book, well, you’re wrong!  Get his book immediately! 

Now there are many other issues in that Schwab article that we can easily debunk. But I’m not going to do that here.  I’d like for you, yes YOU!, to read the article and how easy it is to do yourself.  Again, once you see it, you can’t unsee it and thus you’ll free yourself from the insanity of the perpetual “RETIREMENT CRISIS”.  It’s so old and yet, every year, the same old stupid stories. 

I wonder if there is anything else you could be doing with your time, anything more productive, than wasting an hour, or two, a day in some commute to get to a COJ you don’t like anyway? I wonder…hmmmm…

Now, if you have massive amounts of debt, well guess what? You’ll have to work to pay that off. We’ve ALL been there folks!  I talk to people every, single day, who are sitting on a net worth of over $1 million and I ask ’em all the time, “did you expect 20 years ago, you’d be millionaires?” To which they all say, NO!  And then “I don’t feel like a millionaire.” 

Indeed, because as you paid down debt you were able to reposition that debt payment into building your investment accts.  But you haven’t changed anything from a spending/consumption routine. You’re still you! Just plugging along.  Then one day you wake up and VOILA! you’re a millionaire.  Pretty doggone cool if you ask me. 

I’m not there, mind you. Will I ever be? Who knows? But I do know one thing…when I hit retirement age I won’t be spending the kind of money I am now, not even close to it. Thus, Schwab needs to take their replacement rate chart and send it to the ash heap of history where it can join the “Safe and Effective” trope of the last few years, hopefully never to be heard of again.