Seven 'slow ideas' in personal finance

Ideas are odd things. Some spread like wildfire, instantly transforming our lives. Others are slow, taking decades to be recognized as basic truths. Here are seven "slow ideas" in personal finance.

• Social Security. Some hate the program and want to get rid of it. I don't agree. If you have any sense of how badly life can go for some, you recognize the need for a basic income for everyone. A universal contributory program is a great response.

Today we need the program as much as we needed it during the Great Depression because the future holds even greater uncertainty about jobs and wages for all but the most skilled people.

• Home ownership. It's still a good idea, but it's not for everyone, and it's not a good idea all the time. The young would be better off focusing on job mobility. Many older people would have better retirements as renters. Live in the right place, and home ownership is a great idea. Live in the wrong place, and it will take you down. Still, if you can live in one place for a long time, it's one of the best life bets you can make.

• Home mortgages. Things change. For decades, borrowing as much as you could, for as long as you could, was a great idea. You'd pay back less in

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purchasing power than you borrowed. Meanwhile, the house increased in value faster than your mortgage payments. Better still, mortgage payments were an easy form of enforced saving. The arithmetic of low interest rates and higher inflation was a middle class dream - it turned our consumption into net worth.

Now, not so much. We've all been expecting old-fashioned inflation to come roaring back, turning all those 4 percent mortgages into real bargains. Instead, they're looking more like 3 or 4 percent real interest. That's a heavy-duty burden. This marks the death knell of our beloved grow-rich-by-consuming economy.

• Pensions. If you have one, treasure it. They were never as good as they seemed, but a few problems are a good trade for a system that reduces the need to save and invest in an economy where consumption is king. Today, you'll have to think about making one on your own. My guideline: Try to have enough from income from Social Security and a pension/life annuity to cover your core retirement expenses. (Hint: Easier said than done.)

• Retirement replacement income. This is the most misused concept in financial planning. Conventional planning continues to suggest we need to target 70 to 80 percent of pre-retirement income as a goal. But an increasing number of experts, including David Blanchett at Morningstar, are now suggesting what I've been advocating for decades - that our needs are smaller in retirement because we're no longer saving, paying employment taxes, raising children, paying off debt, etc. We earn a lot of money we never got to spend on ourselves. So replacement income is more likely to be 60 to 70 percent.

So? The lower the income you need to replace, the lower the amount you need to save. That's good news. It makes a daunting task doable.

• Index funds. At first they were ridiculed by the mutual fund industry: Who wants to be average? Today, the reality is inescapable. Even mutual fund expenses that appear to be "reasonable" work to increase the odds that you will have below-index returns.

There's still pushback from those living off the fees, but the war between hubris and humility is over. Humility won. The humble are benefiting, accumulating more money for retirement. My personal evidence is heartwarming. I've advocated index funds for decades. Now I get thank-you notes on a weekly basis.

• Target-date funds. First dismissed as too cookie-cutter and too different to represent a solution, a smart marketing ploy by the mutual fund industry has revealed itself as a major booster of investor returns. While investors in most funds get a lower return than the fund they invest in due to poor timing, target fund investors have been earning more than actual fund performance, due to consistent investment.

Why does that happen? Simple. The diversification of target-date funds ends market timing and jumping from fund to fund. Get a target-date portfolio made with index funds, and you've got a really good investment tool. Who knew?