I am not a financial advisor, I am not licensed to give investment advice, and nothing in this chapter is a recommendation.
That disclaimer is doing more work here than anywhere else in this book, and I want it read rather than skipped.
What follows is vocabulary and mechanics, so that when you sit down with a licensed professional you understand the conversation. Which professional, and what belongs in your specific situation, is not a thing a book can tell you.
Why men avoid this entirely
Three reasons and all three are understandable.
The vocabulary is deliberately alienating. An industry that speaks in acronyms produces customers who feel stupid, and men who feel stupid do not ask questions.
It feels irrelevant. Retirement is thirty years away and the truck payment is Tuesday. That is a real prioritization and it is frequently correct in the short run.
And it has been oversold to them. Nearly every man has been pitched something by somebody whose compensation depended on his yes, and after two of those he stops answering.
None of those are reasons to remain ignorant. They are reasons to learn enough vocabulary that the next conversation goes differently.
The three things that actually matter
Strip out everything complicated and this is what is left.
One: capture the match
If your employer matches retirement contributions, that match is compensation.
A man not contributing enough to receive it is turning down money that has already been budgeted for him. That is not an investment decision. It is a compensation decision, and it is the one thing in this chapter that is close to universal.
If money is genuinely too tight, that is a real constraint and it belongs in Part One as a cost of your current position rather than being ignored.
Two: time is the largest variable
The mechanism that makes long money work is compounding, and compounding is a function of time more than of amount.
Small contributions started early outperform large contributions started late, by margins that surprise people, and this is arithmetic rather than opinion.
Which means the most valuable thing a thirty-year-old can do is start with a small amount, and the most valuable thing a fifty-year-old can do is start today rather than continuing to wait for a better moment.
Three: cost matters and men never check
Every investment product has a cost, expressed as a percentage, and that percentage is deducted whether the account went up or down.
A one percent difference in annual cost, compounded over thirty years, is an enormous amount of money.
Most men have no idea what they are paying. Ask. Ask the person managing it what the total annual cost is, in percentage terms, including everything. That question is entirely appropriate and any legitimate professional answers it directly.
What time actually does
I said compounding is a function of time more than amount. Here is the arithmetic, assuming a seven percent average annual return, which is illustrative rather than a promise and which no professional would guarantee.
Two hundred dollars a month, started at different ages, all stopping at 65.
| Started at | Years | Total contributed | Ending value |
|—|—|—|—|
| 25 | 40 | $96,000 | $525,000 |
| 35 | 30 | $72,000 | $244,000 |
| 45 | 20 | $48,000 | $104,000 |
| 55 | 10 | $24,000 | $35,000 |
The man who started at 25 contributed twice what the man who started at 45 did, and ended with five times as much.
That gap is not effort. It is calendar, and it is the single most important fact about long money.
Now the other direction, and it is the one that matters if you are behind.
Same seven percent, starting at 45, stopping at 65.
| Monthly | Total contributed | Ending value |
|—|—|—|
| $200 | $48,000 | $104,000 |
| $500 | $120,000 | $260,000 |
| $800 | $192,000 | $416,000 |
| $1,200 | $288,000 | $625,000 |
A man starting at forty-five is not out of the game. He has a smaller lever, which means the amount has to do work that time would otherwise have done.
That is a real constraint and it is entirely different from the situation being hopeless, which is what most men in that position have quietly concluded.
And the returns above are illustrative. Markets do not deliver a smooth percentage. Some years are negative. The arithmetic is offered to show the shape of the thing, not to promise an outcome, and anybody who promises you an outcome is selling something.
What one percent costs
I said cost matters and men never check. Here is what the difference actually is.
Same contribution, same period, two different annual costs.
| Annual cost | Ending value after 30 years |
|—|—|
| 0.10% | $244,000 |
| 1.00% | $209,000 |
| 2.00% | $178,000 |
Sixty-six thousand dollars. Same contributions, same period, same market. The only variable is what the product charged.
That is why the question in point three is not pedantic. Ask what you are paying. All in. In percentage terms.
The vocabulary
Enough to follow a conversation.
401(k), 403(b), and similar. Employer-sponsored retirement accounts. Contributions usually come out before you see them. Frequently matched.
IRA. An individual retirement account you open yourself, independent of an employer.
Traditional versus Roth. The difference is when you pay tax. Traditional generally means a break now and tax later. Roth generally means tax now and not later. Which is better depends entirely on your situation, and this is precisely the kind of question a professional answers and a book cannot.
Index fund. A fund that holds a broad basket of securities rather than trying to select individual winners. Generally lower cost than actively managed alternatives.
Expense ratio. The annual cost of a fund, as a percentage. This is the number from point three above.
Vesting. How long you must stay before employer contributions are fully yours. Worth knowing before you change jobs.
Diversification. Not having everything in one thing. The reason it matters is not sophistication. It is that any single company, industry, or asset can fail, and a man whose entire future is in one of them has taken a concentrated risk he may not have chosen deliberately.
The old account nobody thinks about
One practical item that catches a large number of men.
If you have changed jobs, you may have retirement money sitting in a former employer's plan and have forgotten it exists.
Two, three, four jobs back. Small balances that felt trivial at the time and have been compounding, or sitting in something inappropriate, or being charged fees against a balance nobody is watching.
Find them. Old statements, old HR contacts, and there are national databases for unclaimed retirement accounts.
Then talk to a professional about consolidating. Rollovers have rules and doing one incorrectly can create a taxable event, which is precisely why it is a conversation rather than an afternoon project.
And check the beneficiary on every one of them, because Chapter Twenty-Five applies here more than anywhere. An account from a job you held at twenty-six may still name somebody from your life at twenty-six.
What to do if you have nothing
Some of you are reading this with no retirement account at all and a specific feeling about it.
Four steps, in order, and none of them require a decision about investments.
One: find out whether your employer offers anything and whether there is a match. One phone call. If there is a match and you are not capturing it, that is the first move regardless of everything else.
Two: if there is no employer plan, an individual account can be opened by you, in an afternoon, at essentially any major institution. Opening it and funding it are two separate acts and the opening is the one that matters, because a man who has opened it has begun.
Three: put something in. Fifty dollars. The amount is close to irrelevant at this stage. You are establishing that the account exists and that money goes into it, which is the same principle as runway.
Four: then make an appointment and have the conversation about what belongs in it, with the four questions from the section below written down.
Do not reverse three and four. Men wait to open anything until they understand everything, and understanding everything takes a year they do not spend.
The order men usually get wrong
I am not going to give you a plan. I will tell you what almost every professional would want established before the long money becomes the priority.
Runway first. Chapter Six. A man investing while carrying no cash will liquidate at the worst possible moment when something breaks, and that is the most expensive mistake available.
An excerpt from Know What It Costs. The free course is based on this material and is not the same thing.