Certain Doubt

How to Become a Millionaire.

Friday, April 29th, 2011

I am constantly amazed at the naiveté of people seeking financial advice about retirement. Advisors usually begin and end by telling us to save, save, and save again. Admonishments to save money are not a bad thing. However, the unfortunate fact is that the promise of fiscal independence in old age is largely illusory. Why?Most of us will simply not make enough money to last us till we die. Consider the following article:

Start With $10,000 and Retire a Millionaire

by Jonathan Burton
Wednesday, April 27, 2011 MarketWatch

The 7% solution: Let money and time work for you, no matter your age.
The millionaire next door could be you.
All it takes is money and time; it always does. But what this really means is you have to save money over time, and that’s where so many of us struggle.

The premise here, the hook in the con if you will, is that all you need to do to have a million dollars in the bank is be frugal and save money.

Reaching age 65 with $1 million saved requires strong discipline and sustained effort. You need to recognize the importance of starting early and putting money away regularly. But even if you don’t have as much time, you still have options other than a last-ditch Hail Mary pass.
It can be done — even if you start with just $10,000.

To my way of thinking this is a huge leap from the initial premise. First we are told that all we need do to reach age 65 with $1 million large is to save money. Now it appears that before you embark on this savings journey you must first scrape together a stake of $10,000. The authors’ rationale for this nice round figure?

“Whether you’re 25 or 45 or even 55, you’ve got to start somewhere,” said Nathan Dungan, founder of financial education firm Share Save Spend.

Okay, for the sake of argument, let’s assume I have a rich and generous uncle who has left me $10K. How am I to get from that to $1million?

Call it a 7% solution. Assume a 7% inflation-adjusted return from a portfolio of U.S. and international stocks, bonds and cash — not overly aggressive, but an expected return that requires taking some risk — and living well within your means.

Assume a 7% inflation adjusted return? From stocks, bonds and cash? This is a huge assumption. Grand Canyon huge. And what do the authors mean by “some risk?” The mere fact that the author introduces risk into the equation means that there is a chance that if the economy tanks your 7% return could just as easily become a 7% loss. The author conveniently leaves this possibility out.

“In order to save, you have to understand your spending,” said Eric Kies, a financial adviser with The Planning Center, an investment manager in Moline, Ill. “Build some awareness of where you are now, where do you want to be, and what are you willing to do to get there.”

Of course there will be bumps along the road — potholes, even, that challenge your resolve. The financial markets love to shake and stir individual investors; don’t give up, because it may be hard to get back in.

“It’s less about where the money is invested and more about your ability to be disciplined,” Dungan said. “Ask yourself, What is realistic? What can I achieve? The best savers don’t have magical thinking about money. They’re honest with themselves.”

If we’re really to be honest about our money, starting out with assumptions like: a.) I have $10,000 to throw around and b.) that I can manage to find investments that cumulatively total 7% is the very essence of magical thinking. My Chase bank savings account yields a whopping .10%! If I purchase a one year CD I can raise it to .20%! Where is this magical investment that yields a 7% return? The author doesn’t say.

25 Years Old: Starting Out
Forty years is a long time. So long, in fact, that it’s easy to put off saving for the future. There are bills to deal with, college debt to pay, stuff to buy, vacations to take, a career to build.
Savings — sure, but who has money for that? Indeed, one of every three Americans between the ages of 18 and 33 have no personal savings, according to a recent Harris Poll survey. What’s more, 53% of this age group has zero in the way of retirement savings.

They’re missing out, big time. If a 25-year old with $10,000 invested $320 a month at a 7% annual compound rate of return until they turned 65, they would wind up with $1 million.

Okay, freeze the frame here. The author quotes a Harris poll saying 30% of young Americans have no personal savings, yet he also states that for his roadmap to work, everyone somehow has to magically have access to $10K. This makes no sense. If I have no savings, if I’m living from paycheck to paycheck, where the hell am I going to find $10,000?

Moreover, $320 a month doesn’t sound too bad. But multiply it by twelve and it adds up to $3840a year. If I’m making 10 dollars an hour, I’m clearing $400 a week and 1600 a month. This translates to $19,200 a year. Take out the cost of food, rent, utilities, and health care and the chance of having enough left each month to put $320 into a personal retirement investment account is slim to none. And we haven’t even mentioned money taken out for social security and taxes.

“There’s a reason why Albert Einstein called compounding the most powerful force in the universe,” said Jonathan Guyton, a principal at investment manager Cornerstone Wealth Advisors in Minneapolis.

Whether or not Einstein really said this, the math speaks for itself. At 7%, your money doubles every 10 years.

Okay, assuming the math is correct, what about this 7% figure? Inflation is currently at 2.86%. In recent years it has been as high as 4%. Thus in order to wind up with a total 7% return I actually have to come up with one that is quite a bit larger than 7%. Depending on what the stock market does and how the economy is faring, it might be difficult to build a portfolio that nets a 7% after inflation return.

And what if you haven’t got forty productive years to start socking money away? If you are approaching retirement and have no savings, even coming in to a $10k lottery payout isn’t going to allow you to become a millionaire. As the author admits older workers are up the financial creek sans paddle.

At 55, the amount needed to reach $1 million with a $10,000 bankroll is both comical and sad: $5,700 a month for 10 years.

$5,700 a month? That’s over $58,000 a year. I know plenty of folks who don’t make half that in salary a year. Under this scenario there’s no way for them to achieve the magical million dollar mark.
The sad fact is that even if they start when they are 25 year old, most people will not earn enough salary to be able to sock away even a fraction of the money necessary to achieve the author’s rags to riches scenario.

And even if they did, when they retire, a $1,000,000 nest egg that nets even a 3% return will only provide a fixed income of $30,000 a year. That might seem like a lot. But take out income tax, property tax, food, gas, shelter, and nursing care and the likelihood that our 65 year old retiree will have to start tapping that $1 million nest egg every year to pay for his or her health, maintenance, and welfare is almost certain.
Furthermore, if our saver lives another twenty years, and if they are forced to spend their savings in order to survive, a million dollars may not even be enough to see them through. One major or catastrophic illness and they could be wiped out and just as broke as if they hadn’t saved a dime.

The sad unstated fact in this whole article is that most of us really don’t stand a chance of being able to save our way to financial independence. And if the author were honest with us – and with himself – he would say so and not keep touting some magical, mythical “American Dream” that all we have to do to be secure in our old age is exhibit fiscal discipline and good savings habits.

The only people who really stand a chance at socking away enough money for a comfortable retirement are those who start out with large inheritances or those who earn really large salaries and bonuses.

You can work your fingers to the bone, but unless you’re really fortunate, your chances of even being able to pay your bills at the end of your life are slim. Sorry to be the bearer of bad news but facts are facts.

Tags: economics, investment, Millionaire, nest egg, poor, retirement, rich, savings
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WAKE UP!

Wednesday, April 13th, 2011

In a recent article in Truthdig [and other sites] columnist Robert Scheer sums up the insane nature of the current “debate” about which direction America should take to solve its economic woes:

It’s convenient for them [the wealthy]that the media and the politicians, which they happen to own, rarely connect the dots between the scams that made the rich so rich and the alarming rise in the federal debt that is crushing this nation.

The result of this purchased public myopia is that we are left with an absurd debate over how deeply to cut teachers’ pensions and seniors’ medical benefits while preserving tax breaks for the superrich and their large corporations. At a time when 10 million American families will have lost their homes by year’s end, when $5.6 trillion in home equity has been wiped out, when most Americans face steep unemployment rates and stagnant wages, a Democratic president is likely to compromise with Republican ideologues who insist that further cuts in taxes for the rich is the way to bring back jobs.

Let’s deal right off with that canard. There is currently no shortage of corporate profits or excessive executive compensation to explain away the failure of the private sector to create jobs. On the contrary, as The New York Times reports, “In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years. Collectively, American corporations logged profits at an annual rate of $1.678 trillion.” And to add insult to injury, the top executives, who seem unable or unwilling to create jobs or adequately reward their workers, have increased their own compensation by a whopping 12 percent over the previous year, setting the median pay at $9.6 million per year for those in control of the leading 200 companies.

For the vast majority of Americans – yes, that means you – tax cuts for the rich will not help you. There is nothing about a tax cut for wealthy people and corporations that will guarantee jobs in your neighborhood. All that tax cuts for the rich do is make the rich richer.

The current debate about how best to balance the budget is obscene in the extreme. As a working American how can you even consider balancing the budget by slashing social programs that provide services which you need in favor of providing tax cuts for billionaires? It makes no sense.

In her recent book, “Never Say Die,” author Susan Jacoby points to one area where cuts in social spending will cause untold harm to millions of Americans. “Social security payments account for more than 80 percent of the income of half the Americans over age sixty-five who live on less than $19,000 a year. And when one considers the Congressional Research Service’s finding that three-fourths of Americans over sixty-five have annual incomes under $34,000, it is obvious that Social Security is desperately needed by everyone but the small minority of the super rich.”

Virtually everyone in the Nation knows someone who depends on Social Security, Medicare, or Medicaid. Yet, elected officials like Representative Paul Ryan who stand and blithely insist that, in essence, the way to solve our problems is by balancing the budget by slashing programs that benefit destitute old people, continue to get elected. Why?

Unless you are a multi-millionaire making over a million dollars a year, if you vote for any candidate that proposes lowering taxes on the rich and multinational corporations YOU ARE A FOOL!

If you pull the lever in the voting both for any candidate that proposes slashing social programs, YOU ARE BEING PLAYED!

Wake up people!

Tags: budget, certaindoubt, economics, government, poor, rich, Scheer, Social Security, super rich, tax cuts, taxes, Thomas Vincent, Vincent
Posted in Daily Rant, Ethics, Politics, economics, government, media | No Comments »

Corporatocracy: The Real Evil

Friday, October 22nd, 2010

On “Countdown” on MSNBC recently, House Speaker Nancy Pelosi (D-CA) commented on the flood of unidentified money that is flowing into campaigns as a result of the Supreme Court ruling Citizen’s United. She said: “This election is also about our democracy. If they win – (presumably she is talking about republican candidates who receive the lions share of this flood of new cash) – it would mean we are now a plutocracy and oligarchy…Whatever these few wealthy, secret, unlimited sources of money are can control our entire agenda.”

I hate to break it to her, but in terms of what it means to the future of our democracy, this up-coming election is meaningless. If republicans succeed in retaking the House or Senate in the mid-term elections, it will not mean we have suddenly become a Plutocracy. We already are a plutocracy.

In many ways, the Citizen’s United case was less an influential deciding moment in American history and more of a reflection of what has already come to pass. A republican victory will merely put an honest face on what is already a reality: namely that the wealth distribution in this country has become so skewed that we no longer have a viable middle class and thus everyone, from the sort of rich down to the poorest of the poor is at the mercy of the Uber-rich. Wealth has always played a deciding role in American politics. And it always will. Efforts at “campaign finance reform” well intentioned though they may be, are doomed to failure. Why? It’s obvious. Because campaign finance reform has to be passed by sitting legislators and sitting legislators will never vote for “reforms” that take money out of the pockets of wealthy donors.

An oligarchy is not something that happens as a result of one election cycle. When Dick Cheney met in secret meeting with Oil executives during the first year of the Bush administration it is a sure bet he was not laying down the law and telling them things they didn’t want to hear. Similarly, when the Obama administration gave away the store to big Pharma and caved to the health insurance industry to try and get them on board with his health plan, it was obvious who was in charge. Increases in executive power not withstanding, the real power in America already rests with a small segment of our society distinguished by wealth and family ties.

Even worse than Pelosi’s warning of America as Oligarchy, however is the implications the Citizen’s United case has toward America becoming a Corporatocracy. A corporatocracy is defined as a system of government that serves the interest of corporations., where corporations, conglomerates, and/or government entities with private components, control the direction and governance of a country. To me, corporatism is a far more dangerous threat to democracy than is an oligarchy or plutocracy. Rule by a wealthy few, bad as it is for democratic ideals can be dealt with. People have rebelled against wealthy overseers since civilization began. But how do you wrest popular democratic control from a corporate board of directors? How do you fight against an amorphous hydra-like entity that doesn’t rule directly but simply ensures that no governmental decisions are made that will negatively affect their profits?

Once the corporations have taken over – as I believe they have – how do we get our country back?

Can we get our country back?

I hate to say it, but… I’m doubtful.

Tags: corporatism, corporatocracy, democrat, economics, elections, government, oligarchy, Pelosi, plutocracy, republican, Thomas Vincent, Vincent
Posted in Daily Doubt, Politics, economics, media | 1 Comment »

O’Donnell Loves her Walmart

Sunday, September 19th, 2010

In her speech before the values voters summit (scroll down for text of the speech) – and in other appearances – Senate candidate Christine O’Donnell makes a point of pushing the non-establishment button.

“And the ruling class elites may try but they will never have the last word on liberty. There’s something about our national DNA that insists on shouting at those who would be our masters you’re not the boss of me…The small elite don’t get us. They call us wacky. They call us wingnuts! We call us: We the people. (Cheers and prolonged applause) We don’t always agree; we don’t always share the same strategy memos; we don’t always endorse the same candidates or speak off the same talking points. We’re loud, we’re ratty we’re rowdy we’re passionate.

This kind of aw shucks populist rhetoric popularized by Sarah Palin may play well in Topeka, but one wonders how it truly plays among those Republican “ruling class elites” whose favor O’Donnell will ultimately have to curry in order to advance on the national stage. Karl Rove’s recent trashing of O’Donnell was curious for it’s vehemence, especially given that she and other Tea party candidates are being so effective at energizing the conservative base.

In his article in Salon, Glenn Greenwald
advances the idea that the reason O’Donnell is being trashed by the leadership of the Republican party is because she doesn’t come from old money.

“Much of the patronizing derision and scorn heaped upon people like Christine O’Donnell have very little to do with their substantive views – since when did right-wing extremism place one beyond the pale? – and more to do with the fact that they’re so… unruly and unwashed. To members of the establishment and the ruling class (like Rove), these are the kinds of people – who struggle with tuition bills and have their homes foreclosed – who belong in Walmarts, community colleges, low-paying jobs, and voting booths on command, not in the august United States Senate.”

While I can’t bring myself to be quite as cynical and snarky as Greenwald, it is easy to see his logic. However, it seems to me that just as wacky far-right ideology is seldom a barrier for nomination in the Republican party, sheer poverty shouldn’t be enough of a barrier either. There has to be more to it than that. I think that Greenwald is closer to the mark when he opines that candidates such as O’Donnell rile the conservative leadership simply because they don’t know how the game is played…(i.e. who is really in charge.)

“The Republican Party has thrived by keeping much of its real agenda and many of its tactics hidden from public view. These unsophisticated Tea Party candidates are unpracticed in those skills of deception… It’s all perfectly fine to crave cultural and religious wars, to start actual wars, to despise marginalized minorities, to want to slash the safety net for an already vulnerable population, to adhere to extremist religious dogma, to endorse lawlessness in the name of Security. You’re just not supposed to say any of this – at least without obfuscating code.”

Greenwald’s comments notwithstanding, I don’t see O’Donnell’s positions or even the tone of her speeches to be lacking in code words. In fact I can’t see that her speeches are heretical to conservative orthodoxy in any way that counts. For all her revolutionary, “grassroots” references, her speech to the values summit was practically reverent towards the rich moneyed interests. (in other words, elites.)

“The golden arches went up in Moscow. And here in our own country family businesses became national chains. Walmart, Home Depot. Only in America could that happen! My generation saw American economic genius and glory on display on our store shelves. We saw what freedom can do. We saw what happens when people have control over their own money, their property, their labor, their ideas, their risks, and their reward.”

Still, the thing that amazes me is not that the Republican leadership is unsupportive of candidates like Christine O’Donnell. What mystifies me is why someone like Christine O’Donnell should want to hitch her wagon to the Republican party in the first place. If part of her schtick is to run on the fact that she is so non-establishment, why does she want to be part of a party (the republicans) that is the epitome of “establishment?” If she truly wants to answer the question she credits to Thomas Jefferson: “The issue today is the same as it has been throughout all history, Whether man shall be allowed to govern himself or ruled by a small elite,” then why does she run as a candidate for a republican party who are the very essence of a small elite? If she truly believes in Gingrich/Armey style no-government, why does she want to run at all?

The only answer that I can come up with is that she – like Gingrich et al do not really believe in small government at all. That they are all just using it as a talking points – like “balanced budgets”, “de-regulation,” and “free markets,” — code words for “Congress shall pass only laws that benefit rich white guys.”

The question is not whether Christine O’Donnell is not ready for prime time nor whether she is showing enough deference to the great God Capitalism. The question is why should she, a woman candidate from modest circumstances, want to abase herself by genuflecting before the holy Trinty of McDonald’s, Walmart, and Home Depot?

And why should the Tea Party faithful – if the movement truly has any such – want to follow and vote for someone like O’Donnell who is so ready and willing to kiss the corporate sphincter? Are obediently shopping at Walmart and eating at McDonald’s really Tea Party values?

Think about it.

Tags: economics, government, Greenwald, o'donnell, Palin, Politics, speech, summit, tea party, Thomas Jefferson, Thomas Vincent, values, Vincent, voters, Walmart
Posted in Daily Rant, Ethics, Politics, economics, media | 2 Comments »