I wasn’t so impressed by Dan Solin’s previous book, but I was willing to take a second chance on his The Smartest 401k Book You’ll Ever Read because it got endorsements from John Bogle, founder of Vanguard, William Bernstein, whose books I like, and Taylor Larimore, a co-editor of The Bogleheads’ Guide to Retirement Planning, to which I contributed a chapter.
I don’t know what’s wrong about publishing these days. Or maybe it’s always been this way. It seems you have to make an outlandish claim in order to grab people’s attention. The book isn’t necessarily bad but it’s way overhyped. The back cover has these in large bold colored font:
Everyone is telling you it’s a “no-brainer” to invest in a 401(k) or 403(b) plan because of the employer match.
What if everyone is wrong?
That sure arouses your interest, doesn’t it? Then it continues with (italics are original):
“[the book] challenges some basic assumptions about traditional retirement plans to reveal that:
- 401(k) and 403(b) plans are laden with Porky Pig fees, poor investment choices, and conflicts of interest.
- There is a simple way to make the smartest choices in these plans — and this book shows you exactly what to do and which funds to avoid.
- There is one investment that could be the key to a successful retirement plan. You can do it yourself, with pre-tax or after-tax money. Create your own inflation-proof pension plan that is guaranteed to provide you with monthly income for as long as you live, and beyond!”
By this time, if you happily fork over $19.95 or whatever the selling price is, you will be disappointed. I was.
It turns out everyone isn’t wrong about the no-brainer 401(k) or 403(b) plans. Dan Solin admitted in the concluding chapter:
“I agree with most advisors who believe the corporate match of a 401(k) and 403(b) plan is too good to pass up. Investors probably should contribute to these plans — at least the minimum amount necessary to obtain the maximum employer match.”
So what about that thought-provoking question on the back cover, Mr. Solin? He could only plant some FUD about the possibility of retroactive taxation on 401(k) money and tax rates going up in retirement.
And what about the three bullet points on the back cover? It turns out:
- Some plans have high fees, but the match largely negates all that.
- “exactly what to do” is a short list of actively managed funds that look like an index fund. With so many different plans and different fund options, that short list can’t possibly show everyone exactly what to do.
- That one investment that could be the key to a successful retirement plan is immediate annuity, which the author says is best bought at or near retirement, with 401(k) or 403(b) money. Solin only gave the topic 3 pages anyway.
I can’t help but feel duped. I thought it was going to show me I did it all wrong all these years by faithfully sinking the maximum into my 401(k) plan.
Don’t cut off your nose to spite your face. Yes, 401(k) and 403(b) plans can and should be better. But even if there’s no match, in all likelihood they still beat taxable investment after you max out your own IRA (either Traditional or Roth depending on eligibility and tax deductibility). Just remember to roll it over when you change jobs. See previous post Alternatives to a High Cost 401k Or 403b Plan.
I have serious doubt over the book market’s efficiency. This book got on the New York Times Best Seller list, but not John Bogle’s The Little Book of Common Sense Investing. Why? Is it because Solin advertised “smartest” but Bogle only wrote “common sense”? Who wants common sense when you can have the smartest?
Give me John Bogle or William Bernstein any day. I’m done with Solin’s books.
[Links to Amazon.com are affiliate links. Amazon pays me 4% – 6.5% if you make a purchase within 24 hours.]
Say No To Management Fees
If an advisor is charging you a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice: Find Advice-Only.