It’s Time For REAL Investing
The financial toll of the coronavirus pandemic has been unprecedented.
In the U.S. alone, tens of millions of people have filed for unemployment and we’ve seen rates higher than any other time in history. Millions of people are relying on the government to take care of them without any idea of what the future holds.
My wife Kim and I have felt the same uncertainty. In 1985, Kim and I were homeless. We were unemployed and had little money left in savings. Our credit cards were exhausted, and we lived in an old brown Toyota with reclining seats that served as beds. At the end of one week, the harsh reality of who we were, what we were doing, and where we were headed began to sink in.
Our homelessness lasted another two weeks. When a friend realized our desperate financial situation, she offered us a room in her basement. We lived there for nine months. We kept our situation quiet. For the most part, Kim and I looked quite normal on the surface.
Eventually, we came to the point where we simply had had enough of this chaos that we created. We came to the conclusion that no one was going to make our life better and that it was time for bold measures.
We decided to stop feeling sorry for ourselves and stopped blaming everyone else for our circumstances. And the two of us simply made the decision to take control of our future and to get to work. So we pulled ourselves up by the bootstraps and moved forward.
As if the current financial climate isn’t bad enough, there’s another crisis that I’ve been saying is about to happen that could affect millions more.
It’s the pension crisis.
One year ago, I released my book, Who Stole My Pension? and it’s probably the most important book I’ve released to date.
Written along with former SEC Attorney, Edward “Ted” Siedle, this book is our attempt to unveil the wealth stealing forces at work on employees across the world.
It’s important to understand a few things about this pension crisis. First, even if you don’t have a pension or a 401(k) plan, you are about to have your financial life severely disrupted by forces outside of your control.
And second, regardless of whether you’re a Baby Boomer who is about to retire or a Millennial just starting out in life, this systemic crisis will affect you.
In the book, we discuss both Defined Contribution and Defined Benefit plans because both have major problems.
As Ted sees it, the truth is that the 401(k) will never provide the level of retirement security that a pension provided. The average 401(k) account for a 65-year-old is only $50,000. For most people, that will barely cover expenses for a full year.
As far as Defined Benefit plans are concerned, John Maudlin, Senior Contributor to Forbes Magazine, wrote in 2019, “A decade ago I pointed out that public pension funds were $2 trillion underfunded and getting worse.5” And it has gotten much worse since 2009.
In the decade since nothing has been done to address the problem. Nothing. Just as politicians in every government district, town, state, and DC do, the problem has been kicked down the road time and time again.
How did it get so bad?
Mismanagement, greed, vote-buying, unrealistic investment return projections, excessive fees, poorly estimated longevity tables… you name it. A lot of factors have gotten us to this miserable place, but there is still time. The problem is that too many people don’t want to open their eyes.
Annual Payments Cut
Below is a real-life story from Ted about when he was contacted by a UPS driver for an investigation into their pension:
When Mark Greene, a 30-year UPS truck driver from upstate New York, contacted me in late 2016, he was on an impossible mission, and time was running out.
Mark was President of the Teamsters Alliance for Pension Protection, a non-profit organization with hundreds of members all of whom participated in the $1.2 billion New York State Teamsters Conference Pension and Retirement Fund. The pension he and his organization’s members were counting on for their retirement security was in an acute financial crisis.
His membership desperately needed an expert in pensions—a Wall Street expert not beholden to Wall Street—who could help them understand what had caused their retirement plan’s collapse.
The folks running the pension had spent millions—millions paid from workers’ retirement savings—for bad advice from so-called experts who had run the pension into the ground. A notice sent months earlier in 2016 to New York Teamsters pensioners explained that the plan did not have enough money to pay all the benefits that had been promised and was headed toward insolvency unless action was taken. The notice also stated that benefit suspensions, i.e. benefit cuts, “are almost certainly necessary in the near future.”
With a funded percentage of 45.8 percent and liabilities exceeding its assets by approximately $1.7 billion, the Fund was projected to become insolvent and require financial assistance from Pension Benefit Guaranty Corporation (PBGC), the federal agency that backstops corporate pensions, by 2027.
How could this have happened to a pension that was nearly fully funded in 1999?
Perhaps not surprisingly, the Teamsters pension overseers were not interested in an investigation into the causes of the impending insolvency of the $1.2 billion funds, fearing they might be found culpable. PBGC and the DOL (Department of Labor) didn’t want any forensic examination either, for reasons we’ll get to in a moment.
Those 34,000 New York Teamsters truckers who had driven decades to earn pension benefits were supposed to accept—without explanation—that their annual payments would be cut 30%-50%. Their retirement plans would have to be dramatically downsized.
The American Retirement Crisis
Why is this so important?
Because as I mentioned America is facing a retirement crisis of epic proportions.
A 2018 article from CNBC entitled “Americans are more stressed about money than work or relationships—here’s why,” details the precarious state of most Americans financially.
…Americans are behind on preparing for retirement. Over 20 percent have nothing at all saved for the future, and another 10 percent have less than $5,000 socked away, Northwestern Mutual found. The cost of health care continues to rise faster than incomes as well: Annual costs came out to more than $10,000 per person in 2016.
Of all Americans who have savings for retirement, most are invested in 401(k) plans stuffed with mutual funds, which are exposed to systemic risks, e.g., if the market falls they fall.
Ted says, “The solution to the retirement crisis, I assure you, is not costly 401(k)-type defined contribution plans that put all of the responsibility for the selection of investments onto individuals.” Yet, that is exactly the reality most Americans live with today. And their blind faith both in 401(k) plans and the continued rise of the stock market could be their downfall come retirement.
The only way to survive this crisis is you must increase your financial knowledge through financial education. Pick an asset class you’re interested in—real estate, business, commodities, paper assets—and dig deep. Learn all you can and play the game of real investing, not just gambling on your 401(k) plan.
With the world stock markets taking the average investor for a whiplash roller coaster ride, now is an excellent time to change the way you approach your retirement.
will be the smartest investment decision you’ve made all year.
Editor, Rich Dad Poor Dad Daily