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An Approach to Retirement That's Not So Ridiculous

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For the unawares, the Baby Boom generation is on the verge of retiring with nowhere near enough in the way of assets to see them through their old-age.

Two recently published articles make this point all too well. The first was written by New America Foundation senior research fellow Phillip Longman and published in the most recent issue of Washington Monthly. The second, authored by longtime retirement expert and advocate Teresa Ghilarducci and entitled "Our Ridiculous Approach to Retirement," was published in the New York Times last Sunday and has clearly hit a nerve: it is, almost a week later, still on the paper's most read list.

Both authors describe a scary future. Ghilarducci points out that three-quarters of Americans coming to the end of their work lives had little more than $30,000 in their various retirement accounts in 2010. Longman showcases a recently published survey by the Employee Benefit Research Institute, which demonstrates that 44 percent of Baby Boomers and Gen Xers lack enough savings to fund even a modest life in retirement.

In the view of both Longman and Ghilarducci, the ways we got to this place are manifold, but two roads in particular stood out when I read their pieces. First up: left to our own devices, many of us fail to save enough money. Many lack access to employer-offered retirement accounts like the 401(k), others don't use them when offered, seemingly overwhelmed by other priorities and needs.

Savings causes problems in other ways, as well. The amount of money we need to put aside flummoxes many of us and, by the time we figure it out, is next to impossible to achieve. As Ghilarducci points out, start saving for retirement young enough, and you can get away with 7 percent of your salary. Wait till your fifties and you are looking at just under a third of pay (and we all know how likely that is!).

Is the solution to just get people to put more aside? Well, not exactly. Even the most disciplined of savers run into problems. Why? Well, as Longman writes, "We were telling Americans to trust their savings to the sharks on Wall Street."

After all, the vast majority of us have no idea what we are doing, which just makes it easier for Longman's "sharks" to dine on our savings. To put it bluntly, ripping us off is not exactly a hard job. We can be sold on almost anything: high fee mutual funds with subpar returns, the idea that flipping houses was the way to wealth, sure thing stock tip screamed out by a talking head on CNBC. The list is endless.

Nor will having an advisor you trust save you. As Ghilarducci points out, many people have their "guy," the investment advisor they are sure is the one with the mostest but, when queried, have no idea if their "guy" (or gal) has a duty to put their interests first, or even whether their money is beating "a standard low-fee index." In other words, trust does not equal competence or good intentions.

We are, in other words, bad investors. And Wall Street knows it.

All of this points to why I founded Betterment. In a former life as a consultant to big banks, I used to tell friends that my job was to help banks make more money. The mere description should tell you that I found the task unfulfilling to say the least.

I started Betterment because I believe there should be a product that's good for the customer and good for the company. Betterment is designed to pre-empt behavioral biases by automating good behavior, and prevent investing inertia by minimizing the decisions an investor must make.

It's clean, intuitive and frictionless. It's not perfect -- as Ghilarducci would no doubt point out, Betterment cannot predict periods of unemployment, health care crisis or pretty much any life event you don't tell us about. But we can tell you how much you need to put aside based on your goals and salary, and help you save for the things that matter to you. We think that's an approach that's not so ridiculous.