“Whereas mutual fund advertising accounts for 3.8 percent of advertising revenues at the Wall Street Journal and 1.1 percent at the New York Times, it accounts for 15 percent at Money, 16 percent at SmartMoney, and 28 percent at Kiplinger’s.”
– Jonathan Reuter and Eric Zitzewitz, “Do Ads Influence Editors? Advertising and Bias in the Financial Media,” Quarterly Journal of Economics
Last week, we spent three-and-a-half-days with like-minded colleagues at The Summit for Prosperity Economics Advisors. We discussed the importance of character, the value of privatization (as opposed to allowing the government to control our choices – and our money), and the problem with “typical” financial planning strategies.
It was a breath of fresh air, almost like we had created an “alternate reality” where “up” was actually UP and “down” was actually DOWN! And then, I grabbed the October 2014 issue of Kiplinger’s for the plane ride home and stepped back into the upside-down world of “typical” personal finance in America. Argh!
When I could find the articles wedged between the full and even double-page spreads of advertisements from financial corporations, they made me crazy! As a matter of fact, I couldn’t even get my reaction into one blog post, so next week the rant shall continue as I work to expose exactly what has gone so very wrong with the financial industry in the U.S.A.
Can You – and Should You – Retire?
The opening editorial on page 6, “Smile, You Can Retire,” quoted the frightening advice to be repeated again later on page 48 in the “How Much Do You Really Need to Retire?” article: “You might get along just fine with 60% of your pre-retirement income.”
As my husband Todd Langford is fond of saying, “Every day is a Saturday and you’re supposed to spend LESS!?”
Sure, there are expenses you may no longer have in your later years. Perhaps your home is paid off and surely your kids are long out of college and earning away. (Right?) But can you count on 3% inflation, good health, and only needing to fund a “25-or 30-year retirement,” as suggested in “How Much Do You Really Need to Retire?”
The article irresponsibly cites a survey of third-year retirees to prove that the need for retirement incomes of 70% or 85% of current income may be overstating matters, and to warn readers that they “could be over-saving now” and compromising lifestyle needlessly. Of course, this is terribly misleading, since relatively healthy 68 or 69-year olds have no need for assisted living, nursing care, memory care, or other services that may gobble up assets like a hungry wolf later in life.
Not only does the article under-estimate the true cost of health care (it does cite current costs, which will rise with both inflation and longevity), but who wants to fund a “25-or 30-year retirement” when they may live to be 100 – or beyond? In 2010, 53,364 Americans were centenarians, and more than 1.9 MILLION Americans were in their 90’s! That’s the populations of San Franscisco, Atlanta, and Seattle… COMBINED. Furthermore, that number is expected to reach 9 million by 2050, which means if you’re reading Kiplinger in your 50’s and thinking you’ve got almost enough for that “25-to-30-year retirement,” it might not turn out how you thought.
Perhaps you’ve seen the 114-year-old woman who had to lie about her age to join Facebook – because the “year born” option doesn’t go back to 1900! She’s a hoot, updating her status and even making new friends in her homeland of Germany online! I don’t doubt that she has a few more years of skyping and “Facebooking” ahead of her, but let’s be honest, it’s also clear that she also needs a lot of help at that age, and quality care is not cheap.
Clearly, financial plans that urge you to accumulate now and spend later – without building ownership and equity, without creating cash-flowing assets subject to neither income taxes nor limited by current bank rates – just don’t create financial security.
Retirement plans that last until 85 or 90 are dangerously outdated, but then again, at Partners for Prosperity, we believe the concept of retirement itself is also dangerous, as I’ve argued in Busting the Retirement Lies.
The article goes on to read like a classic case study in all that’s wrong with “typical” financial planning.
- Give up control of your dollars and keep deferring your taxes by putting money into a government-controlled qualified plan to be taxed later at an undetermined rate.
- Put even MORE of your dollars into your 401(k) plan using “catch up provisions.”
- Balance those stocks and bonds and live on 4% of your assets -(if you can stand to still subject them to some market risk.)
- Use guesswork and formulas that might not reflect reality to calculate needs and average life expectancy rates.
- Rely on the government’s numbers for inflation, which we know are skewed and under-reported for political expediency.
- Use “typical” financial planning strategies that limit your flexibility and ability to use your own money.
- Don’t differentiate between saving and investing – just put everything into mutual funds, which do a good job of neither.
- Retire instead of finding work you love that allows you to contribute and be productive – financially, intellectually, socially – well into your 80’s, and beyond.
And that was just ONE of the articles that made me want to throw up my hands in disgust!
Saving for College – What About Other Options?
The article on “The Best College Savings Plans” was fraught with tunnel-vision, with no mention of the true cost of a college education (with opportunity costs included) or other options to the typical college savings vehicles. For instance, what about scholarships, grants, participation of the child through work, or cash-flowing real estate?
Some creative parents may even combine such Prosperity Economics solutions to save in their own or their child’s whole life policy (often at internal rates of return approaching 5%) then use or borrow against cash value for a down payment on a triplex or fourplex near their child’s college of choice. Their child lives in one unit while finding roommates and other renters to turn what would have been a college expense – housing – into a leveraged asset with cash-flow and built-in lessons in business, real estate, and responsibility! Now, rather than coming away from college with a diploma and drained accounts, the family now has an asset that can continue to produce cash flow and gain equity.
In contrast, typical college saving vehicles:
- Assist your child in disqualifying for financial aid, should they have otherwise been qualified.
- Trap dollars in accounts that can only be used for limited reasons with strict rules. (What if they decide not to go to college?)
- Suffer the same problems as other “typical” investments, in terms of high risk, low reward, low control, and limited investment options, often with high or unnecessary management fees.
- Ugh – now there’s even “age-based plans for aggressive investors” that share all the same issues as problematic target-date funds!
But wait… there’s more!
The article that really made my head spin? I’m saving that for part 2 of my “Kiplinger Rant” for next week!
Busting the Retirement Lies
We leave you today with a book recommendation and a fun video to watch. First is Busting the Retirement Lies, Kim D. H. Butler’s most recent book that gives the opposite advice of the Kiplinger article. Rather than telling people to stop saving and go ahead and retire, Kim tells it like it is and gives real alternatives to the work-40-years-then-retire plan, which for many Americans delivers little more than unrealistic expectations.
And finally, please enjoy this video of Anna Stoehr, our 114-year-old Facebook heroine, who we hope hasn’t been following Kiplinger’s advice!