More Fear and Loathing in 401(k) Land

The buzz article of the month seems to be Time’s Why It’s Time to Retire the 401(k) which came out October 9th. It is not to be confused with Time’s Should the 401k Be Killed? from last winter. And I am sure the serious print Train_wreck_at_Montparnasse_1895_2journalists at Time would be offended if I likened their work to the 60 Minutes  piece from the spring Retirement Dreams Disappear With 401(k)s. (See my comments on that here.)

I suspect there are many more such articles and TV news segments out there telling us how 401(k)s are terminally broken. I don’t have the heart to search for them. These particular three say roughly the same thing, with similar quotes from experts and profiles of folks in their sixties who are poorer than they expected to be and, we presume, than they deserve to be.

There is an unavoidable, and I think completely unhelpful, undercurrent in this genre that the 401(k) is not a good idea with some serious implementation issues, or even a noble experiment that failed, but a scam perpetrated on workers by Evil Big Business. 401(k)s, we are told, were designed by our beneficent law givers in Washington as a nice side dish to the main retirement course of corporate pensions. Somehow, when we weren’t paying attention, employers pulled a switch on us and passed off the side dish as the whole meal.

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Conventional Wisdom: The Emergency Fund

This is the second in a series inspired by a simple toy at CNNMoney that probably doesn’t deserve the attention. (See the first post in the series here.)

Question three in the financial health quiz is "How many months of expenses do you have in an emergency savings account?" The right answer is pretty Car in Flood crop simple:

You should keep three months’ worth of living expenses in a bank savings account or a high-yield money market fund for emergencies. If you have kids or rely on one income, make it six months.

In other words, you should have six months expenses in cash unless you are a two income household with no kids, a.k.a. DINKs.

Now I happen to think that six months is generally too much, but what makes this sort of conventional wisdom truly infuriating is its one-size-fits all nature. I am sure its defenders will say it’s just meant as a guideline or rule of thumb, but that just begs the question of why we need such a dumbed-down guideline to begin with. Can’t some things in our lives be just a little complicated?

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Damned Lies, Statistics, and the Great Recession

Free Money Finance last week pointed me to an AP article from the end of September headlined “Income gap widens as poor take hit in recession”. (Your Soup Kitchen Crop local news outlet may have used a different title.)

The piece recounts how the recession has lowered incomes across the board but hit the deserving poor and ever-wholesome middle class harder than the fat cats on the top. Kinda ho-hum as mainstream media reports on the Great Recession go. The AP story was run in a few places (see link above and here and here too) but hardly made a splash. Why would it? It just confirms what everybody knows to be true.

But it isn’t true. Or, at least, the conclusions in the article are completely unsupported by the data it pretends to be based on.

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Post 200

This is the 200th post at Bad Money Advice. As it is also a cold and rainy Friday morning here in Boston, this seems like as good a time as any to reflect and take stock.Keyboard a-Michael Maggs

I started Bad Money Advice on a much colder morning this past January. My primary goal was, and still is, my own amusement and satisfaction. Unemployment saddled me with a lot of free time and extra energy and I wanted something to do more substantive than on-line poker.

So far so good. BMA amuses me. I’ve got something to say and, apparently, have found an audience of people willing to listen.

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Conventional Wisdom: The Housing Payment

The Digerati Life had a post last week linking to a tool at CNN Money. It asks you a few questions and then gives you a letter grade for your financial health. It’s Victorian Housejust as subtle and sophisticated in its analysis as you would expect from a web applet on

But it does nicely encapsulate the conventional wisdom on personal finance. So nicely, in fact, that I will use it as the structure for a new occasional series here at BMA, The Conventional Wisdom.

Today the topic is the first question in CNN Money’s quiz: How much is your housing payment? If you enter in more than 28% of your gross income you flunk this one.

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