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A SAFE HARBOR FOR MUTUAL FUND PIRATES!
Soft dollars, a form of legal kickback, is a sly way you can get ripped off by mutual fund managers. Full service brokers give these kickbacks to non-indexed mutual funds in the form of a “rebate” to purchase research, software, and even...
Getting Started With Online Investing
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How to Invest Your Money
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No Load Mutual Funds: Boost Your Portfolio's Returns
Investors who exclusively use broadly diversified, no load mutual funds for their stock investments often lose out on opportunities to increase the reward potential of their portfolios. This article looks at two methods investors may use to...
Santa Claus Rally: Is a Year-End Stock Recovery Coming to Town?
Now that we are in the holiday season, you will be hearing more
about the so-called "Santa Claus Rally." It is a well-known
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Are Social Security Private Accounts a Good Deal or Raw Deal for African Americans?
Whew! I almost wrote a really long article about the Social
Security System and what it means to Black folks.
Fortunately,I fell asleep while writing it just like you would
have reading it. Ican't think of anything more boring then an in
depth analysis of what is wrong with Social Security.
I think that one thing the under 40, Black American, internets
savvy crowd already knows is that the system is in trouble and
that it won't be there for us when we retire the same way it is
for our parents and grandparents.
One thing is definitely true, the Social Security system won't
exist in the same form and with the same level of promise that
it has now.
So, with all the boring stuff out of the way, I want to say a
few things about private accounts and what I think they mean for
African Americans. I'll start with the bottom line up front. I
think that Social Security private accounts are a good deal for
African Americans but with some very serious reservations.
First of all, a private account is the government's attempt to
add an ownership component to the system. However, in this case,
your ownership rights will be severely restricted.
I can invest MY money in stocks, bonds, cash, real estate,
businesses, mutual funds and any other investment vehicles I so
choose. The private accounts system will likely offer a limited
range of choices in nothing but paper assets like stocks, bonds
and money market accounts that are managed by large Wall Street
brokerages and mutual funds - the so-called experts.
Ownership with restrictions is merely the illusion of ownership.
Very few things you own will have as many complex rules,
restrictions and legal entanglements as private account will
have attached to it.
Second, the government is forcing every American to become an
investor without committing the resources to raise the level of
basic financial literacy in this country. Alan Greenspan has
said that basic financial literacyshould be taught in our public
schools.
The government did this very thing before when they created the
401K retirement system. That system has been a boon to Wall
Street, Corporate America and many fellow Americans. However,
the pain felt when the 401K gets hurt is not shared as freely as
the benefits. Ask employees at Sun Microsystems, Enron, Martha
Stewart Omni Media and other companies that have gone belly up
or otherwise taken a brutal pounding in the stock market.
Who will get hurt when Social Security private accounts take a
beating? Will the average citizen be the last to know as is
already the case, when their private accounts hit rock bottom?
Without a major, national effort to boost the financial literacy
in this country, how will people react to negative news about
private accounts? Will the government restrict our ability to
react to negative news?
Third, what will the government do should you out-live your
private account? Because the account only offers limited
ownership not real ownership, I expect that we won't be able to
bet their private account at the casino on the day they retire.
I do expect the withdrawals from our private accounts to be
amortized over a period of time based on something like the
average life expectancy. What happens if you are the lucky
somebody that lives a long, healthy life to 120 years old? If
your account goes broke, what will the government do for you? If
you enroll in private accounts, you agree to a cut in your
benefits. Will you suffer if your private account suffers?
Fourth, the new promises are just as shady as the old ones.
Private accounts will salvage the system for some time but
ultimately will become plagued by their own, new and different
challenges that will need to be fixed by a future generation.
No one in either political party wants the truth to get out
about Social Security. Socialism is a miserable failure. Taxes
will ultimately have to be increased on us no what fix we decide
today for the system. When and by how much are the only
questions that need to be answered. Cuts and elimination of some
benefits are inevitable. Retirement will become anathema in
the
future.
In the past 10,000 or so years of human history, retirement
didn't exist in any way, shape or form as it does today. People
either got too sick to work or died. We've tried to change
history with our current system but we can't change humans.
If you send someone a check and tell them they don't have to
work anymore, they won't work. There are able-bodied and
able-minded senior citizens that are not working because the
governments sends them a check every month regardless. The truth
is, a system set up like this will collapse one day on its own
because its not the way of humanity.
I think its good that my generation believes more in UFOs then
in Social Security being there for us when we retire. Maybe that
belief will be the motivation we need to save outside of Social
Security to secure our own retirement.
So, with all of these reservations, you may wonder why I think
that Social Security private accounts are a good for Black
Americans. The answer to that is simple math.
--Simple Math Reason Number One: Black males live to an average
age of 66 years old. The average Black male now collects one
year of full Social Security retirement benefits. The age of
full retirement for the under 40 crowd is now set at 67. Watch
for proposals to raise that age even more. The average Black
female has a live span of 72 years meaning that she collects 5
years of benefits. The average White male and White female have
life spans of 76 and 78 years, respectively.
Personally, I would rather pass my life time of Social Security
tax dollars on to my children and grandchildren then to a
little, old white lady I've never known in my life like we do
now under the current system. You may not like this truth but
that is who is getting your benefits now.
--Simple Math Reason Number Two: It is not hard at all for the
to earn more then the 2% return on investment that Social
Security provides now. A money market mutual fund is paying
anywhere from 3% - 5% interest at this time. You could easily
and safely earn double what Social Security offers.
--Simple Math Reason Number Three: The average Black American
has a net worth less then $5,000 and that is only one-tenth of
the average White American. Social Security private accounts,
because they are form of forced savings, will add to the
networth of Black Americans. All other Americans will see their
personal wealth build also so I don't expect that private
accounts will close the racial wealth gap. I do believe that
private accounts will inject much needed wealth into the
accounts of African Americans and we need the boost most of all.
Also, because we don't live as long beyond the retirement age
(which I hopewill one day change), more of the wealth in our
private accounts will get passed to our children, helping them
to build wealth. So, a legacy of wealth will begin to grow from
the seeds of investment into private accounts.
--Simple Math Reason Number Four: This relates to what I said
about bucking human history by creating this artificially
constructed, man-made system of retirement and actually
believing that it will sustain us unchanged in perpetuity. The
system is breaking down. We need to start taking complete
ownership - and control - for our retirement security.
Partial privatization is a step in the right direction. Even if
the step is one small incremental one, we must begin somewhere.
I don't think the destitute and disabled should be left out in
the cold without our help and support. I do believe that the
truth needs to be told and that no one is telling it today.
So, here is what I have to say: make a plan to provide for your
own financial independence, invest heavily into your own
financial education (including www.blackwealthnow.com), invest
your money wisely, prepare for the absolute worst and hope for
the absolute best.
God bless
About the author:
Bret Searles wrote the book titled "The 7 Simple Secrets to
Wealth Building:An African American's Guide to Wealth Building
in the 21st Century and Beyond" and publishes the monthly ezine
Black Wealth Now at www.blackwealthnow.com.
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