Retirement: The Impending Doom

In the spirit of Halloween I thought I would write about something truly scary, the impending retirement crunch.

The first of the Baby Boomers turned 59 1/2 this year. This is a significant age because they are now able to withdraw from their 401K and IRA's without penalty. With the impending retirement of millions of America, do people realize the serious problems our country faces in the next decade or two?

It use to be that Social Security would be enough. We all know that isn't going to be the case. Then there were those who could depend on their employer's Pension plan. But even those promised benefits are now being attacked, thanks in large part to our own government who are not only allowing employers to reneg on their promises, but are in many ways actually encouraging it. Airlines like Delta and Northwest found it easier and advantageous to pass on their plans to the PBCG. Auto parts maker Delphi (and maybe even GM eventually) will likely follow suit. And these are the lucky people. There are those like Joy Whitehouse whose husband died on the job for Pacific Intermountain Express who gets absolutely nothing.

But of course now most American's have 401K plans. After all, your employer can't cut that right? Well, lets forget the fact that the average amount in a 401K plan is only $61,000. It gets even worse if you look at the median which is only $18,000 (meaning there are some with very large accounts. These are the same people who probably don't need the 401K). The problem is that most Americans have no idea how to actually manage their investment portfolio. People are told to diversify and forget it but most don't really even know what this means. Most people don't even know what Asset Allocation is and are thus in for a nasty surprise.

I'm not sure what is going to happen when all these people start retiring, and there just isn't enough to support them. Is the government going to step in and make sure these people are taken care of? This poses a very difficult problem because there will be a lot less workers for a lot more retires. The only thing government can do is start more programs and thus raise more taxes, but that has the effect of driving out business and making the working even poorer. This would feed on itself, causing more to lose their jobs, meaning less workers and tax revenues, and thus a need to raise taxes again.

Sometime soon, we as a country need to stare this problem right in the face and figure out how we are going to solve it. Otherwise, there are going to be a lot more stories like Joy Whitehouse.

Why Some People Will Never Be Rich

I was talking to my girlfriend the other day and she was telling me how she knew someone who was planning a child's birthday party. This person was by no means a wealthy person but planned on spending upwards of $2,000 on the birthday party, complete with a Jump House and all.

I would probably be considered by most to be a wealthy person but I have rarely in my life spent $2,000 on any single thing or event. I have bought my car, and paid for my Lasik surgery, but that's about it. I have had some huge birthday parties myself, with enough alcohol to supply an army, but have never come close to spending that much on a party.

What sense does it make to spend that much money on a child's birthday? What does that teach the child? The problem that most people have is not that they don't make enough money, it is that they spend too much. Even if they made more money, these people would find a way to spend it. They see what the Jonses have and they want it too, even if they can't afford it. (chances are the Jonses can't afford it either). They want their child to "have everything they never did" so they shower gifts and parties on them when the more prudent thing to do would be to save the money. Kids learn by watching their parents and it is a shame that the thing most American's teach their kids is that spending beyond your means is the thing to do.

Thanks A Lot

My girlfriend always teases me that Asian men are destined to be single. The main reason behind it is because the media always portrays Asian men in an unflattering light (when they portray them at all). Asian men are always asexual. They are always the wise old Confucius type or the nerd.

These two Chinese students certainly aren't helping the image. Watch the whole thing. Pay close attention to the facial expressions and the coordination. Thanks for making sure all Chinese men stay celibate.

Wal-Mart: Raise the Minimum Wage

In a page from the "Good PR , really underhanded move" Book, Wal-Mart CEO Lee Scott will ask Congress to raise the Minimum Wage.

Most of you know that I am not in favor of raising the minimum wage as I believe it actually hurts those it is trying to help. But this move by Wal-Mart is disingenuous at best.

Wal-Mart is the world's largest retailer and the world's largest private-sector employer. It has an effect (but admittedly limited) on the wages in this country. Most of it's employees are low-paid workers. If Wal-Mart wants to raise the standard of living for the poor in this country all it has to do is look in the mirror. If Wal-Mart makes a unilateral move to raise the wages it pays its low-cost workers than the other employers will follow or risk losing their workforce. There is no reason they have to wait for a government fiat to accomplish this.

Now Think About It. Why does Wal-mart really want to do this? I tend to think they have an ulterior motive other than trying to be nice guys. First, like I stated, it is a good PR move. But underneath that there may be something more sinister. This wage hike may put out of business the Mom-and-Pop stores Wal-Mart competes against. The Mom-and-Pop stores already face tremendous price pressures against Wal-Mart. They can't negotiate the same deals with suppliers that Wal-Mart has nor do they have the tremendous infrastructures that helps Wal-Mart keep prices down. Force them to raise their labor cost, and you just might be able to squeeze the very last competition that Wal-Mart faces. Of course, what is Wal-Mart going to do when it doesn't face any more competition?

Ben Bernanke: The New Fed Chair

Bush announced today that Greespan's successor will be Ben Bernanke. I personally think this is a fantastic announcement but for very personal reasons.

Ben Bernanke was chairman of the Princeton Economics department while I attended. Hopefully, being trained as a Princeton Economist under his watch will give me some insight to what he is thinking when he starts messing around with iterest rates. In reality, I'm sure this will mean very little to me but it still is a source of pride.

I never took a class with Professor Bernanke. Several of my friends did of course as he taught one of the introductory Economics course. It's funny. I remember people then talking about him maybe one day becoming Fed chair. I didn't think anything of it at the time but it is funny to see it come true. It makes me kind of wish I took better advantage of Princeton's very liberal open door policy for its professors. I wish I would have taken that opportunity to invite him to lunch and speak with him about his thoughts.

Home Loans: More Regulation

The Office of the Comptroller of the Currency is about to make it harder for people to qualify for interest-only loans and other exotic mortgages. They still will not admit that this will cause a fall in housing prices but say that there might be a "slowdown or even stop some price appreciation".

Aren't these people a little late to the party? I for one would love to see a precipitous fall in housing prices as I'm not in the market and would love to be. I also would love to see them tighten lending requirements as I don't know if the people who are taking out these loans actually know the inherent risk involved with them. But why now? They keep claiming that this won't hurt the national housing market because these types of loans are most prevalent in the high price housing markets out west.

Are these people just dumb or plain ignorant? I am not saying I know that housing prices will tank. I'm saying that can't be so dumb to think it can't happen if they do what they say they are going to do. Markets that have seen this tremendous growth are fueled by expectations. People now expect housing to continue to appreciate at a 10-20% rate year over year. In California, people's expectations are even higher. Markets like these follow a mob mentality. People see how rich their neighbors are getting and joy in on the fun causing even greater demand. When the slightest sign of problems arise, they will be the first to get scared and run for the exit. This causes the exact opposite problem as people see demand softening and try to cash in on profits before its too late.

So now they want to change the rules mid-game. They don't like what the market is doing and want to "fix it". Where were these people earlier when thousands of Americans jumped into these types of loans in the first place? I swear this feeds right into my conspiracy theory of how the rich get rich and stay that way. I'll have to post about it some other time though.

"Investing" On Faith

To stay on the topic of retirement plans does anyone else worry that I'm the only one in my company who asked to see the prospectus of the mutual funds that are available in our new 401K plan? The company eventually sent out a link to everyone so everyone could read them but if it weren't for me continually asking it would have never happened. I'm certain I will be the only one who actually reads it and contemplates how each investment fits with my retirement goals.

This should worry everybody whether you are invested in the stock market or not? Why? Because I believe this will have really bad consequences down the road for the entire U.S. population. The government decided to make people responsible for their own retirement by allowing IRA and 401k plans. This moved employers from Defined Benefit plans (pensions) to a Defined Contribution plan. The problem was that they didn't teach anybody about investing. You can legislate a plan, but if you don't teach people how to use it becomes a very dangerous weapon. The forced people to invest but they didn't teach anybody to become investors. Don't people see the problem with this?

I liken it to playing basketball. I love basketball. I feel totally comfortable playing with people who know how to play the game. However, any idiot can lace up a pair of sneakers and call himself a "player" but that doesn't mean he actually knows what he is doing. The problem in playing in games like this is that people get hurt. These "players" don't have good body control and don't know what they are doing so they just run into people. The chance of injury skyrockets when these types of players are on the floor.

The same can be said with these retirement plans. People have been blindly told to invest in the plan, save for retirement, etc. but not really taught how to do it. As a perfect example of this, during the 401K meeting an older worker complained about how her portfolio was losing a lot of money. All I could think to myself was, "Why on earth are you in investments that have high volatility?" What happens if the stock market crashes and doesn't recover for 10 more years. It has happened before and it will happen again. What happens to these people? The investment strategies they preach are good if you have a LONG investment horizon (even then there are problems but I won't get into that).

I was further dismayed when I asked during the meeting about moving into a money market account. Everyone at the meeting looked at me like I was crazy. Why would he invest in a money market account? Doesn't he know he needs to be in stocks? There is no return in a Money Market. I can easily say that I was probably the most financially astute person in that room. I know perfectly well why I wanted to be in a money market fund and how it fits into my overall strategy. Nobody else in that room knows my personal situation, financial goals, or my investment strategy yet they are willing to blindly believe I have no idea what I'm doing. This coming from a group of people who have no interest in reading about where they are putting the money that will supposedly secure their future and wouldn't understand what they read even if they did. This is not an indictment on these people. The government created this problem by mandating a program and then not teaching people how to properly use it.

All these people playing a game they have no idea how to play. It's dangerous. It's dangerous for everyone.

The Global Shift

We live in a new world economy. Globalization has produced huge benefits to all making products cheaper, quality better, and taming the beast known as inflation.

That is not to say that individuals have not been hurt by this trend. Many workers, both active and retired, are waking up finding out that they are not worth as much as they thought they were. Just yesterday, GM announced they had reached an agreement with their union to slash health care benefits. GM claims it has a cost of $65 an hour for each hourly worker it employs (when health care, retirement benefits, etc. are factored in). In contrast, Delphi's operations (a fromer subsidiary of GM) in China cost it only $3 an hour per worker. We have moved from the industrial age to the information age and it just isn't cost effective to pay the guy who assembled the widget more than the guy who designed it in the first place.

Here is the reality. You can not depend on any one thing or entitity for your financial security. These people are dependent on the health of American auto industry for their livelihood and they are quickly finding out that the American auto industry simply can't compete. Those that are in retirement are now reliant on GM and Delphi to honor its retirement benefits (which they can shed if they declare bankruptcy). What happens to all these people who are too old to reenter the work force yet the benefits that were promised to them are all of a sudden gone?

Here is a lesson for everyone. Don't put all your eggs in one basket (by the way, I hate this advice when it is given to people and their 401K plans but that is another story). This is your financial well-being we are talking about. Don't plan on the government, your company, or anyone else for that matter to be there when you retire. Heck, I would be wouldn't depend on your 401K either. You need to have a broad comprehensive plan, not just a bunch of hope and prayers.

Real Estate: Oh Crap

I feel like all I speak of is the doom and gloom of the financial markets. Here is another tidbit.

Tom Barrack, one of the wealthiest real estate investor in the world, is getting out of the U.S. market. He states, ""I feel totally safe playing polo on a field full of pros. But when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don't know when to hold back." It's the same with the U.S. real estate market right now: "There's too much money chasing too few good deals, with too much debt and too few brains.""

Seriously folks. The peak has been reached. Get out now. The bubble is about to burst. I wasn't as adament about calling the top before but I am now. When the smartest minds declare its time to get out, you best listen up and pay attention.

Talk Radio - I'm Getting Old

I have found that I almost exclusively listen to talk radio now. First, it was just sports talk radio but lately I've been listening to things like shows about money and health. I'm not sure when this happened, but I use to think that only old people listened to talk radio.

I just find it much more interesting to listen to talk radio, which is always different, than listening to the same 20 songs over and over again on the music stations.

Why Social Security Tax is Evil

I hate Social Security. I hate the idea of the government taking money form me in order to serve my "best" interest in the belief that I'm too stupid to be able to save my own money (Probably true for most Americans but I should not be punished for the actions of stupid people). But this is not what this post is about. This is about the Tax that they take from you every paycheck. It is a truly evil tax.

1. It is the largest tax most people pay - Yes it is, even higher than most people's federal income tax. That's because not only do you have to pitch in your 7.5% but so does your employer, effectively making it a 15% tax. And it isn't a marginal rate. (You have to earn just under $35,000 for it to break even)

2. It's a stealth tax - You probably don't think about the above reason and thus, completely ignore how large the tax really is.

3. Taxing you multiple times - You pay income tax on your contribution to social security yet NEVER see the money. That's right, your social security contribution is not taken away from your taxable income, thus you pay taxes on it even though you never saw the money. Then, when you actually receive your Social Security check, (if you get that old) you are taxed again.

4. It encourages the government to overspend - since the government currently takes in much more in Social Security than it pays out it is an incentive for the federal government to spend more now since the deficits don't look as big as they actually are. Of course all this does is delay the inevitable, taxes must always equal government expenditures either now or later.

5. It's regressive - That's right. It hurts the poor, the very people the program is supposed to help. How can this be? Because there is a cap on the maximum amount you can be taxed on, about $90,000. After that, you stop paying social security tax. That effectively drops your tax rate by 7.5% as soon as you enter this income bracket (even more considering your employer doesn't have to pay his half either)

This system just keeps giving me more reasons to not like it.

The NBA Dress Code

This upcoming year, the NBA is instituting a dress code for its players. Players will be required to wear a suit for all team events which includes travelling with the team. Many NBA players have come out against the dress code. Some of the choicest quotes include:

"It sends a bad message to kids. If you don't have a suit when you go to school, is your teacher going to think you're a bad kid because you don't have a suit on?" - Allen Iverson

"I don't see it happening unless every NBA player is given a stipend to buy clothes," - Marcus Camby

I usually support NBA players and sports athletes in general. Remember, I'm the one who thinks athletes are not overpaid. But the NBA players make it very hard to defend them.

If Allen Iverson thinks that it sends a bad message to a kid because he WEARS a suit he has to get a clue. It's a fact of life. People judge you by the way you look but what kid is going to think to himself, "Gee I don't wear a suit to school. I suck." What? This kid doesn't see other people wearing suits on TV all the time? What is to prevent the kid from feeling bad because Iverson wears $100,000 earings. What about that huge diamond studded necklace he sports? Are kids going to feel bad because they don't wear THAT to school?

But Marcus Camby just takes the cake. This guy is going to make $7 Million this year and about $40 Million over the next 5 years. He thinks the NBA should give him more money to buy clothes? Hello! Get a real job and ask them to give you a stipend to buy some clothes.

Imagine not being able to wear whatever you want to work! In almost every place of work there is a dress code. I can't come to work in tattered clothes or open-toed shoes. I am required to look presentable. My company doesn't compensate me for these clothes. If you really don't like the new NBA policy I suggest you go find another job.

Fewer Can Afford California Homes

A "recent" study shows that fewer and fewer Californians can afford the median California home. (I emphasize "recent" because everyone who lives here has known this for quite some time).

The median price of a California home is now $568,890. To afford a traditional mortgage you would need to earn an income of $133,800. This means that 14% of California households can qualify for a traditional loan. This of course assumes you can put down 20% of the purchase price which amounts to about $115,000. Now how many households have that much cash lying around?

How on earth do people think this can be sustained? When only 14% (if that) can afford to buy a house in an area something is wrong. What I view as the real problem is that the people this really prices out are those that are younger and just entering the job market. This will cause more and more younger families to look elsewhere when deciding where to settle. This will have serious long term effects as the working population will age and the infusion of young (and cheap) talent will erode California's economy.

What Are the Knicks Thinking?

He might just be the stupidest man on earth. What makes him more dangerous is that he wields a huge checkbook.

Yesterday, Isiah Thomas, GM of the New York Knicks, traded for Eddy Curry. In case you don't know, Eddy Curry was formally of the Chicago Bulls. He had a very contentious fight with the Bulls over his heart (not that he has shown any heart in games but that is a different story). Eddy Curry had to miss the playoffs last year because of heart problems. One heart specialist has suggested that Eddy Curry undergo a DNA test to see if he is prone to heart problems. Eddy has steadfastly refused and demanded to be traded. No Insurance company will touch the contract so if any team signs him, they are on the hook for the FULL amount of the contract.

Now, I back Eddy Curry on his refusal to take the test. It all seems like a scene straight out of Gattaca for me, requiring you to take a DNA test to see what your potential (both good and bad) really is. But there is no way I do what Isiah Thomas does. Give a man with a potential heart problem a GUARANTEED 6 Years and 60 million dollars.

In Isiah's small defense, the contract is reportedly only guaranteed for six years if Curry can play for three years. But my real concern is that Eddy Curry is

• Fat
• has a poor work ethic
• He is a horrible rebounder
• He is a horrible defender
  

My concern if I'm Isiah is not that Eddy Curry will have heart problems. It's that Eddy Curry is going to suck and I will have to pay him for six years (The contract only becomes void after three if Curry can't play, not if he sucks). What's worse, Eddy has an out in four years. So if Eddy turns up to be any good he walks after four years. So you take a huge gamble on a guy, it works out, but when you start reaping the benefits the guy can leave you.

But wait, it gets worse. Since Curry's contract is uninsured he is essentially untradeable. No other team is going to take on such a huge contract when insurance won't cover it, the Knicks are the only team with that kind of money. So you are definitely stuck with Curry no matter how bad he is. Add that to the fact that the Knicks essentially traded a bunch of draft picks that will only get better the WORSE Curry is than you have a really bad deal.

Look up idiot, and Isiah Thomas may have a picture there.

I'm Going to Be Rich

I've decided I want to be rich. I'm serious. I made the decision last night.

I know what you are saying. Everyone says they want to be rich. But few people actually understand what it means to be rich and even fewer go out and do anything about it.

I realized something about me. I have an fear of being poor. This fear of being poor is probably holding me back from being rich. Strange huh? But I have almost nothing to be afraid of. I easily take in more in income than I spend. This is due in large part because I have the discipline to control my spending (which by the way is one of the keys to becoming rich but that is a topic for another day). I also have no debt so even if I lose all my savings it's not like they are going to start repossessing my belongings. Even if they did, I wouldn't care since I, unlike most Americans, do not base my happiness on my material possessions.

So why do I hesitate to take risk and go for broke? I have so little to actually fear but we are taught from such a young age to go to school, get a good job, save money, and play it safe. If I stay on the course I am on now I could be moderately wealthy in about 20 years all the while working hard, saving diligently, and not enjoying myself very much. Is that what I really want? How many really rich men got that way by playing it safe? When in life can you be successful without first failing? Sure, I'm going to take my lumps but isn't that what life is about?

Food Portions

I had lunch the other day at Denny's. I'm not a huge fan of the restaurant but it was conveinent to somewhere else I had to go. I ordered the meat lovers special for $5.00. It seriously had enough food to feed 3 as I only ate about 1/3 of it. Two eggs, two strips of bacon, two sausages, hash browns, a slice of ham, and 3 pancakes. That is just way too much food.

How delusioned are we all in the U.S.? For a mere $5 we get a meal with all that food that we couldn't possibly eat. And then I read a story like this which talks about how americans are overweight. Is their any confusion why this is the case? American food portions are just too big.

The problem is that restuarants have a big incentive to overfeed us. The incremental cost of a restuarant to provide more food is small but the incentive to do so is huge because people's ratings of restaurant are due in large part to how satisfied they feel when they leave. Feeling full is one sure way to make the customer feel satsified. So restaurants cater to the greatest common denominator and make sure that the person who can eat the most feels satisfied while someone like me, who can't possibly eat as much, also leaves feeling full.

It isn't the restaurants fault. Americans are taught to finish their plate because there are starving kids in Africa. (as if your food can be boxed up and sent to them) So we dilligently eat all the food that is placed in front of us, even if we have past the point of being hungry. I'm not sure what can be done. I don't expect restaurants to change their policy and I really don't see American's being more concerned about it either.

Online Dating

I have now dated my girlfriend for a little over 5 months and I thought it was time to put down my thoughts on online dating, and specifically the service I used, eharmony.

First let me say that I'm very happy in my relationship. The girl I'm dating is wonderful and we are very compatible. Other than the fact that she is a USC Trojan she is great, but hey, not everyone can be perfect. I'm actually shocked with how well we get along and how much are interest and beliefs match.

I think most can understand that I was a little hesitant to try the whole online dating thing. Even in this day and age I felt it smacked of a little bit of desperation. But I figured that I was a pretty normal person and there must be other normal people contemplating such a move. I just had problems meeting any new people as doing the whole bar thing isn't for me (even though I have a knack for being able to just talk to complete strangers). In the end I reconciled it by just chalking it up to a change in our society that technology has enabled. After all, why is it any better to meet someone in a complete stranger in a bar than to meet a complete stranger through the internet?

So I took the plunge and signed up. The process is long but I suppose better than say Match.com which just feels like a meat market.

So what is the final verdict? I can't recommend it. What? How can that be if I met someone wonderful online? Well I think I was one of the lucky ones. Of all the people I was "matched" with this is the only one that worked out. I talked to a few people and went on a few dates but didn't really feel like I was all that compatible with any of them except for my current girlfriend. Most of my dates' experiences were the same. They weren't really meeting a lot of compatible people. I think for a few of them it made them feel even worse as if they couldn't make it work with someone online, how hopeless must they be?

Also, just like in the real world, you get a lot of fake people. People who say they are looking for one thing, but really aren't. My girlfriend is guilty of this. She put she was open to meeting anyone from anywhere but rejected anyone she met who lived to far away. You have an option to specify how far away someone can live that you would consider dating, so why even put "anywhere in the world" if you really only mean "within 100 miles"? I also found that a lot of women who think they are open minded aren't. Most women don't think they are racist but more than a few women did not want to date me simply because I was Asian.

I also don't like how Eharmony will match you with people who can't respond back to you. I had my account closed for months but still received "request for communication". These request just remain unanswered and you have no idea what is going on on the other end. They do this to maximize the number of matches they provide to people but don't let communication happen unless both sides are paying members. This can be somewhat frustrating.

But I guess it only takes one, and thus far it is working out for me. Dating is a process, and just like anything else, you probably have to have a few failures before you finally have success. So if you set your expectations low, and treat online dating as just one part of your dating strategy, it might work out for you.