In a world with ho-hum investment returns, it's time to save more

A movie I've watched many times with my sons is "Dumb and Dumber," the 1994 comedy starring two nitwits played by Jim Carrey and Jeff Daniels. They follow Mary Swanson (actor Lauren Holly) to Colorado after limo-driver Jim Carey falls in love with her. The highlight of their exchange:

Lloyd (Jim Carrey): What do you think the chances are of a guy like you and a girl like me … ending up together?

Mary (Lauren Holly):  Not good.

Lloyd: You mean, not good like one out of a hundred?

Mary: I'd say more like one out of a million.

Lloyd: So you're telling me there's a chance. Yeah!

What does this dialogue have to do with personal finance? The quantitatively oriented finance firm Research Affiliates uses it to highlight the argument that too many people are too optimistic about their chances of earning lush returns on their retirement portfolios. In other words, we're too much like Lloyd in our "unfounded optimism" about how well our investments will perform.

You can't get rid of uncertainty; still, a reasonable takeaway from this kind of calculation is that most of us need to save more overall, including for retirement. Over the past three decades the financial services industry has pushed the message that retirement planning was synonymous with savvy investing. In essence, the retirement planning mantra has been stocks for the long haul and asset allocation. Don't get me wrong — saving for retirement is important and asset allocation matters. But for the typical saver the message has always been somewhat wrong and, deep down, we've known we can't rely on Wall Street's lush return promises.

Prudence suggests we need to save more, invest in our human capital over the life span, plan on earning an income well into the traditional retirement years, and borrow less.