Interesting Piece on Retirement

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.


That stat came from Our Ridiculous Approach to Retirement Planning by Teresa Ghilarducci, a supposed expert in retirement planning.

Not clear what “nearing retirement” means but the number is pretty sad for anyone over 30.

Her piece is interesting. I’ll share a couple of highlights:

…it is irresponsible for Congress to deny that regardless of how much you throw 401(k) advertising, pension cuts, financial education and tax breaks at Americans, the retirement system simply defies human behavior. Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs.

Not yet convinced that failure is baked into the voluntary, self-directed, commercially run retirement plans system? Consider what would have to happen for it to work for you. First, figure out when you and your spouse will be laid off or be too sick to work. Second, figure out when you will die. Third, understand that you need to save 7 percent of every dollar you earn. (Didn’t start doing that when you were 25 and you are 55 now? Just save 30 percent of every dollar.) Fourth, earn at least 3 percent above inflation on your investments, every year. (Easy. Just find the best funds for the lowest price and have them optimally allocated.) Fifth, do not withdraw any funds when you lose your job, have a health problem, get divorced, buy a house or send a kid to college. Sixth, time your retirement account withdrawals so the last cent is spent the day you die.

Her solution?

The coming retirement income security crisis is a shared problem; it is not caused by a set of isolated individual behaviors. My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities. This is a sensible way to get people to prepare for the future. You don’t like mandates? Get real. Just as a voluntary Social Security system would have been a disaster, a voluntary retirement account plan is a disaster.

Professionally managed? Did you catch that?

UGH! I don’t like this at all. I would rather the government require people to save a certain percentage of their income and invest it how they see fit than to have some sort of one-size-fits-all approach to retirement planning. Afterall, if I read and understand how to save for retirement, why should I be penalized? Her solution is nothing more than another social program. If people don’t want to save for their own retirement, then they should be left to suffer the consequences. I know for a fact that some people did not save for retirement because they knew social security would be there for them. In other words, social security provided an incentive NOT TO SAVE.


Politics: Thoughts?

WARNING: For those of you who think politics has no place on AFM, I suggest you not watch this video.

President Obama and Elizabeth Warren are on the same page:

There appears to be a movement from this administration to pin any success in this country on the government. I have never heard it spun like this before.

It’s interesting in that Ms. Warren doesn’t talk about business failures and the risk involved in starting a business. She only focuses on those businesses that are successful. She also doesn’t address the wages paid to employees (that are taxed).

All this just sounds like nothing more than class warfare, which ironically, she tries to dismiss in the beginning of the video.

Quote of the Day – Thomas Sowell on Freedom

This quote comes to us from Thomas Sowell’s latest column:

Freedom is seldom destroyed all at once. More often it is eroded, bit by bit, until it is gone. This can happen so gradually that there is no sudden change that would alert people to the danger. By the time everybody realizes what has happened, it can be too late, because their freedom is gone.

Little by little, inch by inch…

Charles Schumer on the DOJ’s Lawsuit Against Apple

Charles “Chuck” Schumer weighed in with his opinion on the Department of Justice’s lawsuit against Apple on e-book pricing. I’m pretty sure this is a subscriber-only piece so I’ll have to summarize it here for you.

Recently the Department of Justice filed suit against Apple and major publishers, alleging that they colluded to raise prices in the digital books market. While the claim sounds plausible on its face, the suit could wipe out the publishing industry as we know it, making it much harder for young authors to get published.

The suit will restore Amazon to the dominant position atop the e-books market it occupied for years before competition arrived in the form of Apple. If that happens, consumers will be forced to accept whatever prices Amazon sets.

So…let me get this straight. He’s not against this form of collusion because without it the publishing industry would be wiped out? Interesting.

My question: Where do we draw the line? Should all goods manufacturers be allowed to set their prices and refuse to do business with those who sell for less than the agreed upon price?

I think people like Apple and are therefore blind to what is going on. And by the way, e-book prices are MUCH HIGHER now than they were before Apple kicked off this agency pricing program. I’m guessing Chuck doesn’t buy e-books.

Chuck lays out his real motivation for his opinion in this paragraph (bold mine):

All of us will lose the vibrant resources a diverse publishing universe provides. As Scott Turow, president of the Author’s Guild, has explained, the Justice Department’s suit is “grim news for everyone who cherishes a rich literary culture.” These losses will be particularly felt in New York, which is home not only to many publishers, but also to a burgeoning digital innovation industry.

THERE’S THE REASON. Chuck is worried about New York since that’s his home state. This has nothing to do with e-book pricing and everything to do with keeping the status quo in New York.

Wait! There’s more…

The e-books marketplace provides a perfect example of the challenges traditional industries face in adapting to the Internet economy. Amazon took an early lead in e-book sales, capturing 90% of the retail market. Because of its large product catalog, Amazon could afford to sell e-books below cost.

Yeah, it’s called BUSINESS! Things change. New technologies move in and replace old technologies. Those who had comfy market positions see their comfort give way to the next big thing (think buggy makers when cars took over). Basically, Chuck is saying that e-book prices should be kept high in order to subsidize paper books.

And the part about Amazon selling books below cost: all companies do that. The publishers are getting what’s theirs and Amazon is deciding to take a loss on the books. That’s Amazon’s decision.

Further in the piece…

Then the market changed. Apple entered and negotiated an agency model with publishers, in which the publisher could establish a retail price and Apple would take a percentage cut. The result was increased competition. Amazon’s market share quickly eroded to 60%, and consumers had multiple platforms through which to purchase digital books. Amazon was forced to expand its catalog, invest in innovation, and reduce the prices of its Kindle reading devices.

Most importantly, the average price for e-books fell to $7 from $9, according to a filing in the case.

“…the average price for e-books fell to $7 from $9…”

Wow! That’s because it’s an average of ALL E-BOOK SALES, which includes self-published works. I can tell you for sure that the prices of most books went up 30% to 50%. It’s nothing for an e-book to retail for $15. That’s crazy if you ask me.

Can you imagine this setup in other industries like groceries? Do you think Chuck would be in support of that? I think not.

Anyone Ever Watch “Secret Millionaire”?

I came in from mowing my yard Sunday evening, grabbed a beer, sat down, turned on the TV, scrolled through the channels, found “Secret Millionaire,” and decided to give it a try. This particular episode was about Jeff Usner, an “internet millionaire.”

From what I could gather from the show, Jeff was a workaholic. He built a business making money off the internet and then at the request of his friends, he started teaching other people how to make money off the internet. All this is very vague but supposedly what Jeff did made him rich.

His life wasn’t all peachy, though. His wife lost one of their babies. As you can imagine this was a tough experience in Jeff’s life. Then, Jeff suffered a stroke (Jeff was only 37 at the time of the taping). These two events made him realize that he needed to take a break and focus on something bigger than himself.

The point of the show is to take millionaires, take their identity, put them in a different environment and encourage them to find ways that they can help others. In this particular episode, Jeff helped out a woman who helped handicapped kids, a Hispanic man who taught kids how to box, and a woman who provided services for the elderly and food for the poor. Jeff was touched by each of these charities and ended up giving each one thousands of dollars of support ($40,000, $35,000, and $85,000, respectively, if my memory is correct).

There were two things I did not care for about the show:

1. Guilt about being rich. Jeff felt he needed to “give back.” I never really thought much about that phrase until I used it once here on AFM and Jack pointed out that it’s a bad phrase. Unless Jeff was stealing from people or being dishonest, there was no need for him to feel he needed to “give back.” I know, it’s just a phrase. But, it’s the wrong phrase. A more appropriate phrase should be something like, “Share my wealth” or “Help my fellow man.” Maybe I’m splitting hairs but it bugged me.

2. When it got to the point in the show where Jeff had to reveal himself, the dialogue went something like, “There’s something I didn’t share with you. I’m actually a very successful business man. In fact, I’m a millionaire…” The whole speil sounded a bit “braggy” to me. He could have said, “I’ve done well for myself and I want to share some of it with you…” I’m sure ABC had a script for him to follow.

Overall, I thought it was a good show. I do like charity and I do think it’s important to help others. The cool thing about this particular show (it’s the only episode I have seen) was that Jeff helped those who were helping other people. That’s what giving should be about, in my opinion.

GIVEAWAY: “Basic Economics” by Thomas Sowell

I haven’t held a giveaway in a while. This should be a good one. If you have never read a Thomas Sowell book, ENTER THIS GIVEAWAY!

All you have to do is leave a comment below. All I ask is that you remember my two rules:

1. You must be a resident on the U.S. (I won’t ship internationally).


2. You can only enter one time.

I’ll announce the winner at Friday morning.

Good luck!

UPDATE: If your comment goes to moderation, don’t worry. I will approve them all. All first-time comments go to moderation as a way to fight spam.