With every New Year it seems the media goes a little overboard, at least for a few weeks in January, with headline stories of forecasts, predictions, and general prognostication. Newspapers, magazines, and the internet offer up one nugget after another of what they think we’re all fated to experience in the coming days, weeks, and months.
Of course there’s just one little problem — there are no crystal balls and no one knows the future.
Now, while speculating on how future events may unfold can be entertaining, most agree wisdom and common sense are far more useful tools for those forecasting or trying to peer into the world of tomorrow.
One bit of wisdom I find myself referring back to more often lately is the quote by American author and entrepreneur Jim Rohn. He said, ‘If you don’t have your own life plan, chances are you’ll fall into someone else’s plan. And guess what they have planned for you? Not much.
Reading those words I can’t help but wonder if Mr. Rohn might have been reflecting on Wall Street, the banking industry, or the Federal Government as he was putting his thoughts to paper — that is, when you consider the remarkable number of financial fumbles, policy failures, and economic folly we’ve witnessed for much of the last decade.
In fact, it’s hard to imagine this particular group having anything other than ‘not much’ in mind when it comes to the rest of us.
Think of it as heads, they win, tails, we lose. In other words, while they often go to great lengths to assure us they’re working with our best interests in mind, reality would suggest something altogether different.
Back to the Future
The renewed prosperity of the nineteen fifties and sixties increased the level of awareness and interest in retirement planning for a growing number of Americans, but memories of the great crash and the prolonged hardship that followed was enough to keep many out of stocks.
But this was a new age, and Wall Street was determined to make everyone an investor while at the same time positioning themselves for what some in the industry saw as an enormously profitable opportunity for the market. They succeeded on both counts.
The street’s initial foray into the world of retirement savings came in 1974 with the introduction of the individual retirement account, commonly known as the IRA. That was followed up seven years later with the roll-out of the 401k plan.
At first glance these tax-exempt savings/investment accounts appear to have merit, and it’s difficult to argue with the level of popularity and acceptance they’ve enjoyed virtually from the beginning.
But, are they really the best financial tools for your retirement?
A little math can help answer the question. A typical 401k plan with total combined fees and expenses of just 1.5% per year can easily transfer nearly half the value of your account right back over to Wall Street in about 30 years. That seemingly small expense each year quickly adds up to 15% over ten years, and presents a direct cost to you of 45% in the span of three decades.
Meaning, for anyone with a quarter of a million dollars in a IRA or 401k today, your balance would be a lot closer to a half million without Wall Street having had its hand quite so deep in your pocket.
Ask yourself, if you could go back in time, would you still consider investing in a plan requiring that you put up all the money, assume all the risk, and pay all the taxes, while the company holding your funds is compensated by an amount equal to nearly half the total value of savings?
The real question, can anything so lucrative for the financial industry also be considered good for the individual? Sounds a little bit like, ‘not much’ to me….
Recessions are a Banker’s Best Friend
When the Federal Reserve Bank forced interest rates all the way down to zero in the weeks following the financial crash of 2008, the banking industry became beneficiary of trillions of dollars that would have otherwise gone into the wallets of seniors and savers here in the U.S.
How’s that, you ask? Easy, the reported amount of savings held on deposit in banks over the last decade averages about ten trillion dollars per year, with the majority of these deposits belonging to those saving for retirement or to those already retired.
You may remember prior to the ‘great recession’ banks were routinely paying 4% or more on savings accounts and CDs, but up until recently those same accounts have returned almost nothing to account holders. Four percent of ten trillion dollars works out to 400 billion dollars annually, and when multiplied by each of the last nine years, it adds up to at least 3.6 trillion dollars.
All this isn’t to suggest the banking industry profited directly (dollar-for-dollar) at the expense of account holders, but Americans in fact have lost a safe, reliable means of earning additional income, while a generation of responsible savers may never again have the chance to earn returns at more traditional levels of interest.
In other words, more of the ‘not much’ Mr. Rohn was talking about.
Does Uncle Sam Have A Plan?
Putting aside for a few moments the many questionable decisions and bad policy making from government prior to, during, and since the most recent financial crisis, let’s focus on just one element of the economic safety net: Social Security.
Everyone understands Social Security is one of the largest and most important pension programs on the planet, with literally tens of millions of Americans dependent upon it at any given time.
But did you know each year the Social Security Board of Trustees issues a report, signed by the Secretary of the Treasury and other high-ranking government officials, detailing the overall health and viability of the fund? Further, did you know that the current report reveals trust fund reserves will be depleted by the year 2034?
Think back to when you first remember hearing reports of budget shortfalls with the Social Security program — it’s been at least a couple of decades, right? Yet, in all that time, and despite all the assurances to the contrary, nothing has been done to address the problem.
Today, beyond the occasional mention here or there in the press, it’s something getting little attention in the media and a problem no one in Washington seems to be taking very seriously.
That said, it becomes apparent what we’re seeing may in fact be the government’s plan — it’s a plan to do nothing, at least not until something actually breaks.
Chronic, long-term government neglect of this sort is the kind of thing that leads to the formation of Congressional investigatory committees, creation of a special task force, and ultimately an emergency bail-out to ‘save’ the program.
So, is the government’s plan acceptable to you, and if not, what are you going to do about it? Will you be happy having less, the ‘not much’ all of this implies?
It doesn’t matter which side of the fence you get off on sometimes. What matters most is getting off. You cannot make progress without making decisions.
I found this quote from Mr. Rohn to be just as powerful and illuminating as the first. What he’s saying here is something actually quite profound — nothing can happen in our lives until we decide to make a change.
Take a look around, almost everything happening anywhere right now, good or bad, right or wrong, is the direct result of someone else’s plan. Companies scale up attempting to beat out the competition, lobbyists work to ensure future success for the industries they represent, and politicians continue to say or do anything to advance their agenda and get re-elected.
In short, everybody else is working with some kind of a plan.
But, do you think the plans of industry or big government have anything to do with the betterment or enrichment of you and your family?
If you answered no, then don’t you think it’s time you had a real plan for yourself, and your retirement?