The other day, I wrote a quick, fun series of blogs on the impact that presidential candidates may have on retirement and financial planning.
While I’ve always attempted to provide my thoughts on policy in a fun tone, and made sure to pick on both candidates (though I’m sure my bias is evident), I’ve done a little more research on one of the plans, and believe that the public should be more aware of what policies may be coming for your retirement.
Mr. Trump may or may not have extensive plans for retirement; he certainly does in rolling back regulations on financial advisors that I believe will be beneficial. However, it is Mrs. Clinton’s plan that I find detrimental by mandating what appears to be a new, federal retirement program that will by its nature likely replace most average Americans market-based 401(k), IRA, 403(b), and other retirement accounts.
Within the Podesta WikiLeak emails, two of Mrs. Clinton’s advisors on retirement advice have been identified as Teresa Ghilarducci, a labor economist, and Hamilton James, COO of Blackstone, a private-equity firm. Ghilarducci has always been on my radar as someone whose proposal for Guaranteed Retirement Accounts (GRA) would be very damaging to the financial health of individuals if ever taken seriously. The plan pops up every few years, with tweaks, and thankfully has never gone much further than to be mentioned in the liberal press.
Apparently, it now is being taken seriously, and the latest Podesta email leaks show more communication with Ghilarducci.
My first blog on the plan I wanted to steer toward millennials, as they are especially susceptible to the long-term dangers of this plan. Millennial investors have been surveyed to be more conservative, distrusting of financial products, and without the experience to understand the value of investing.
And, I think that’s a shame. Our retirement system has moved from individuals being reliant on a company pension and Social Security, to having a chance to diversify their savings into assets that may grow. This is a result of:
Financial planners not successfully selling the need for their services to you,
Educators not teaching real economics for real people,
And policy makers who likewise do not understand your needs, and how to provide for them with advice, rather than theft and believing they know what’s better for you than you do yourself.
Millennials, you may live through massive currency changes, the default on our debt (yes, you will live through this, whether outright default or the default comes over time). You have a strong chance of living through a trade war like the one that extended the length of the Great Depression, and a good possibility of living through a real major war.
In those times in the past, the methods of protecting your savings have taken in various ways.
This plan strips that ability from you, the saver, the one who knows what is right for you and provides a false sense of security. It takes your savings and invests as a 60-year-old would, ignoring your personal needs. It is not nearly enough to save based on what they suggest; you will have to find ways to save more and save more aggressively than you otherwise would have.
I hope to find the time to deconstruct this idea in greater detail, but it is one of the most damaging plans to be introduced, and especially for millennials.
Here are the basics:
You will be forced to contribute 3-5% (Ghilarducci gives various amounts in past writing, but appears to have settled on 5% in the latest version).
You will have no access to these funds – for any reason – before retirement.
Ghilarducci claims the account will pay a minimum of 3%, which can be more in years where the very conservative investment mix may earn more after insurance, investment, administrative, and marketing costs. The actual amount paid is determined by the committee and may be less than the actual investment returns.
At retirement, you will be paid a life annuity.
The economics behind the plan simply won’t add up for millennials. I hope to cover the details of this in several blogs, but the goal of retirement investing for millennials is to diversify among high growth assets, rather than invest in a portfolio that seeks stable, conservative returns.
Mrs. Clinton has as well suggested that it may be a great thing for the average person to participate in the profits of corporations. It should concern Millennials that you will not be allowed to through investments in IRAs and 401(k) plans that you understand, and can craft a plan that makes sense for you.
Millennials need to learn how to invest. The solution to the current retirement crisis is a lack of personal financial planning knowledge and support from independent advisors. It will not be solved in this plan, and there certainly will be more insecurity by the time young savers need to tap these accounts.
To begin, it is important to speak a common language, and Mike Rowe’s recent viral blog is fantastic advice on where to start, no matter your current political persuasion. It is fantastic advice. And purchase Henry Hazlitt’s excellent book (or audio book) Economics in One Lesson, in addition to other economics and personal investment books. Hazlitt, in particular, will teach you how to understand the fallacies of proposals.
And, I hope to add more reasons why millennials and other investors should be worried about this proposal to the blog shortly.