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It's Not Too Late!
You Can Still Build A Solid Nest Egg

Advice from celebrity economist Ben Stein

Only 18% of American workers have retirement savings of more than $100,000. Less than half have even calculated how much they will need for retirement.

Rectifying this situation has become a personal mission for economist Ben Stein. The notoriously frugal Stein based his Emmy Award–winning TV game show, Win Ben Stein's Money, on his passion for saving. Most recently, he served as spokesman for National Retirement Planning Week, sponsored by a coalition of financial education organizations, and testified before Congress about America's retirement savings problem.

Bottom Line/Personal spoke to Stein about America's growing retirement crisis and how he is investing his money...

Ben Stein's Winning Money Strategy

My portfolio is effective but complicated. After all, it's my hobby. Here's how you can do essentially what I do, but in a simplified way...

Exchange-traded funds (ETFs)
Allocate 40% to 60% of your retirement savings evenly into the following three low-cost ETFs. Two of the three are foreign funds, which provide better relative value than US stocks and will benefit from the weakening dollar...

Diamonds Trust (DIA). This fund mirrors the performance of the Dow Jones Industrial Average. Yield: 3%. Performance: 1%.*

iShares MSCI EAFE Index Fund (EFA). This tracks the Morgan Stanley Capital International Europe Australasia Far East Index. Yield: 1.6%. Performance: 10.5% since inception August 14, 2001.

streetTRACKS Dow Jones Euro STOXX 50 (FEZ) tracks the European equivalent of the Dow. Yield: 2.3%. Performance: 16.4% since inception October 21, 2002.

REITs/mutual funds

Keep the rest of your retirement portfolio in income-producing REIT funds and stock and bond mutual funds. Smart income-investing strategies will become crucial in the next 15 years as millions of baby boomers retire.

Keep about one-third of your income-oriented assets in dividend-paying stock funds. These include...

  • Closed-end REIT funds — buy these when they sell at a discount to the net asset value of their shares. A good one...

    Cohen & Steers Quality Income Realty Fund (RQI). Yield: 7%. Performance: 22.2%.

  • Equity income mutual funds, which invest in dividend-paying stocks. I like...

    Alpine Dynamic Dividend Fund (ADVDX). Alpine trades in and out of stocks to maximize dividends that qualify for the 15% tax rate. Yield: 10.2%. Performance: 14.1% since inception September 22, 2003. 888-785-5578,

    Spread the remaining two-thirds of your income-oriented assets evenly among these bond funds...

  • iShares Lehman TIPS Bond Fund (TIP). The principal of these US Treasury bonds is adjusted to eliminate the effects of inflation. Yield: 3.8%. Performance: 9.9% since inception December 4, 2003.
  • Templeton Emerging Markets Income Fund (TEI). This closed-end fund invests in government bonds of countries such as Brazil, Indonesia and Russia. It is a good bet if the dollar continues to fall and the natural resources sector remains strong. Yield: 7.3%. Performance: 12.7%.

    PIMCO Corporate Income Fund (PCN). A top-performing closed-end intermediate-term bond fund. Yield: 9%. Performance: 13.8%.

    Vanguard Total Bond Market Index Fund (VBMFX). A broad, market-weighted bond index fund. Yield: 4.3%. Performance: 7%. 800-523-7731, www.

    *Performance figures, according to Morningstar Inc., are the funds' five-year annualized rates of return through April 30, 2005, unless otherwise noted.

Can Americans count on the Social Security privatization plan to boost their savings?
No. It's actually a distraction from real retirement planning. Squeezing extra returns from your government benefits — the average payout for retirees currently is just $958/month — is not going to enable you to retire comfortably. That will happen only if you make saving an everyday priority.

How much do you put away?
I have been worrying about my retirement since I was 13. I'm 60 now, and although I expect a modest pension from the Screen Actors Guild, I'm also trying to save very aggressively on my own — about 20% of my annual income.

Few people can afford to save that much. How can the average person squirrel away more money?
Look, people in China, which has only 14% the gross domestic product per capita that we have, save 40% of their incomes. Americans save roughly 1%, so we can do a lot better.

A clear-cut goal makes it easier to deprive yourself of indulgences. You can calculate how much you will need in retirement at the AARP Web site, Be sure to use 100% of your current living expenses as your goal.

You can live on less — but a man of 65 today is likely to live to 80... a woman of 65 is likely to live to 83 1/2. Prices could increase by 75% or more by then, so you must generate income in excess of what you need today.

Where do you invest additional money after you have maxed out retirement plan contributions?
Any additional money goes into variable annuities. That advice came from my father, who served as chairman of the Council of Economic Advisors under Presidents Nixon and Ford. He did not earn a lot of money in his lifetime, but he had a comfortable retirement because owning annuities meant that he never had to worry about outliving his money.

Haven't a lot of people been burned by variable annuities?
Annuities have taken a lot of heat in recent years because of overaggressive selling by the insurance industry and lots of hidden fees. But if you do your homework, you'll realize that transferring the financial risk of living a long life to the insurance company and away from yourself is worth a look. For a primer on annuities, visit investor/pubs/varannty.htm
...or research low-cost offerings from TIAA-CREF (800-842-2252, and The Vanguard Group (800-523-7731,

How do you invest your retirement money?
I have always been very diversified, so I have never suffered a catastrophic loss. I spread my money around the way a large institutional investor does. I use different brokerage firms. I manage some of my accounts myself ...I hire money managers for others. I own wide-ranging global asset classes — from emerging-market bonds to real estate investment trusts (REITs). [For more on Stein's portfolio, see below.]

What mistakes have you made?
The mistakes I have made as an investor have come from ignoring my own advice. I bought Berkshire Hathaway when it was cheap — $900 a share — but I didn't buy with conviction and should have scooped up a lot more. It's now worth $82,800 a share. I also got caught up a bit in the quest for Internet stock riches, even though my indicators told me that the market was overvalued.

You detailed those indicators in your book, Yes, You Can Time the Market. How do you use this strategy for retirement investing?
My definition of market timing bears no resemblance to that of most financial gurus. No one can consistently predict what will happen in the stock market within the next year or the next five, but you can identify when stocks are cheaper by historical standards. If you buy stocks in those periods, your likelihood of making money over 20 years or longer is far better than if you dollar cost average into stock investments year after year, as many advisers recommend.

Tell us more about your research.
I sifted through 100 years of stock market data and found four simple measurements, or “metrics,” that indicate with uncanny consistency when the S&P 500 was over- or undervalued. They include the current inflation- adjusted average price of stocks in the index...the index's average price-to-earnings ratio based on the trailing 12 months...average dividend yield...and average price-to-book value. You can find current figures, along with historical returns, on my book's Web site,

Next, I compared each of these metrics to their own 15-year moving averages. The optimal time to buy is at market lows — when the dividend yield is above its moving average and the rest of the metrics are well below theirs. You avoid stocks when the situation reverses itself.

Following this strategy, you would have bought stocks in 15 out of 15 of the best years to invest since 1926 and would have avoided the worst 15 years.

What do you do during overpriced stock market cycles?
Stay invested in the stocks I own, but I use new money to buy bonds (or bond funds), REITs (or REIT funds) and shares in a money market fund.

What do your charts say now?
The broad stock market is moderately underpriced — add to equities

Bottom Line/Personal interviewed economist, attorney, actor and comedian Ben Stein, who lives in Beverly Hills, California, with his wife and teenage son. He was a speechwriter for former presidents Richard Nixon and Gerald Ford at the White House. His most recent book is Yes, You Can Become a Successful Income Investor! Reaching for Yield in Today's Market (Hay House).

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