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Opinion Editorials

Why great retirements do not come from the fed or employers

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A “must achieve” goal

This time of year brings out the planning demons in most of us. Our jobs, hobbies, family, even our bodies. If there’s a goal, at least if there’s a serious goal, there’s a plan of some kind. We all pretend that every year on February 14th, love is in the air. It’s also the day most people realize they’ve ignored many if not all their goals, and the plans to attain them. This, even though they were the architects of both the goals and the plans.

We pretty much know, though, that the things we make happen are the ones for which we hold no ambiguity. And yet . . .

The one goal virtually all of us view as a ‘must achieve’, is retirement.

The average American man reaches his 58th birthday with, give or take, around $60,000 in their job’s retirement plan. Betcha that inspires confidence. Think that’s bad? Women are pretty much in worse shape. It comes from thinkin’ that the government, or your employer, or both, have your best interests at heart. That they have a plan to generate a superb retirement for you.

Let’s look at the government’s motivation first

Beginning with Boomers as the prime target initially, the 401k and IRA were created. They were slickly marketed with a campaign touting tax deferral, and visions of huge piles of stored earnings, warehoused for Boomers’ abundant and richly deserved retirement. Here’s how it works, by definition. This assumes there are never any 2008s in the picture, a fantasy if ever there was one.

For 25-40 years, the taxpayer pays a chunk of their earnings to the ‘qualified plan’. In return for this wise decision, they’re given a tax break. For every dollar they divert into the plan, that amount is no longer counted as income, that year — and not taxed. How cool is that?!

According to the consensus, it’s very cool indeed. 

Take the couple who put in $10,000 a year, every year, for their entire working lives. Let’s say they make roughly 5.25% annual yield for 35 years. Every month, month in and month out, they dutifully fork out $833.34 as a team. They arrive at retirement with around a million bucks in their plan. They’re set, right?

You tell me. The bottom line principle here, is that the government’s plan grants tax deferment on relatively small sums — in the hard working years leading to retirement. Typically $5-14,000 annually. But when the taxpayer hits retirement, they’ll be paying taxes on 4-12 times that much every year. Furthermore, even if they produce a yield more than the 4% financial planners typically tell them to expect, that’s a lousy $40,000 a year — before taxes — state and federal.

In plain English, government baited the hook with tax breaks on amounts roughly 1/5 – 1/12 of what they’ll be collecting from you upon retirement. Geez, hurry up and tell me where I can sign up for that smokin’ good deal.

Oh, and that 4%? Quote that yield to retired folks today, who, as of last Friday were gettin’ less than 1.9% on a 10 year government treasury. Can’t find those people? They’re easy to find. Just go to the nearest Wal-Mart. They’re the ones with the big smiles, welcoming you.

‘Course, we all know that for every worker bee who amasses a two comma pile of cash in their 401k, there’re 100-200 who never hit $100,000. The takeaway?

The only reason ‘qualified plans’ exist in their present form, is to ensure the government maximum tax dolllars when your generation reaches retirement. Guess you might say, it’s Uncle Sam’s retirement plan, not yours. You save around $60-100,000 in deferred taxes. They usually get that much from a successful taxpayer/investor (401k) in the first 5-10 years of retirement. In other words, you gladly agreed to save yourself a buncha pennies in taxes each year for 25-40 years, for the privilege of paying a buncha dollars every year you’re retired. Ouch.

Then there’s your employer’s motivation

First off, shed any notion you might have about their noble intentions when it comes to the quality of your retirement lifestyle. They’d hafta climb three rungs up on the ‘I care’ ladder to reach apathetic. No, retirement plans for their employees is purely a matter of not having to fund generous pensions, as they did for so many generations up ’til around 1980.

Sure, they do the matching thing. But compared to funding pensions for all their full time, vested employees? Gimme a break. This begins and ends with limiting their costs, which, by the way, I’m all for. The government handed the gift that never stops giving with ‘qualified plans’, which was a sea change in our culture. It took retirement planning from the employer and thrust it upon the employee, making all of us responsible for our own post employment lifestyle. Again, I’m all for that. Being responsible for our own lives is what America is all about.

But the government, with the too willing help of employers, presented it as something it obviously isn’t. If it was so effective, why aren’t there millions retiring well, living more than comfortably off the income generated by their robust 401k’s?

Of course, all the preceding begs the question, doesn’t it?

Before we continue, I challenge the reader to conduct a search through the month of January. Find just one retired couple who’s living the retirement for which they worked so hard the last several decades — from the fruits of their 401k or IRA. You be the one to define what a ‘solid’ retirement is. Fine just one couple.

The moral of the story

Take your own after tax money. Generate your own retirement goals and a Purposeful Plan to get you there. Use real estate as your primary, but certainly not your only vehicle. Stop relying on the bait ‘n switch, ‘we gotcha covered’, ‘you don’t hafta do much’ plans provided by a loving and caring government and employer.

Or, simply ask yourself: How’s it been workin’ out for Americans lately?

Jeff Brown specializes in real estate investment for retirement, has practiced real estate for over 40 years and is a veteran of over 200 tax deferred exchanges, many multi-state. Brown is a second generation broker and works daily with the third generation. With CCIM training and decades of hands on experience, Brown's expertise is highly sought after, some of which he shares on his real estate investing blog.

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14 Comments

14 Comments

  1. Roland Estrada

    January 2, 2012 at 1:17 pm

    As Ronald Reagan once said, "The scariest thing a citizen can here is – We're the government and we're here to help".

  2. Jeff Brown

    January 2, 2012 at 2:35 pm

    In a nutshell, Roland. Nothing's changed.

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Opinion Editorials

How to find the sweet spot between procrastination and desperation

(EDITORIAL) Many intelligent people find themselves stuck in analysis paralysis (procrastination) and missing their window of opportunity. Others make decisions without enough information. How do you find the sweet spot between the two?

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I need to confess something to you

So, a little confession’s good for the soul, right? I feel like I need to confess something to you, dear reader, before we jump right into this article. What follows is an article that I pitched to our editor some months back, and was approved then, but I’ve had the hardest time getting started. It’s not writer’s block, per se; I’ve written scores of other articles here since then, so I can’t use that as an excuse.

It’s become a bit of a punch line around the office, too; I was asked if I was delaying the article about knowing the sweet spot in decision making between procrastination and desperation as some sort of hipster meta joke.

Which would be funny, were it to be true, but it’s not. I just became wrapped up in thinking about where this article was headed, and didn’t put words to paper. Until now.

Analysis by paralysis

“Thinking about something—thinking and thinking and thinking—without having an answer is when you get analysis by paralysis,” said St. Louis Cardinals pitcher Matt Bowman, speaking to Fangraphs.

“That’s what happened… I was trying to figure out what I was doing wrong, or if I was doing anything wrong. I had no idea.” It happens to us all: the decisions we have to make in business loom so large over us, that we delay making them until it’s absolutely necessary.

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Worse still are the times that we delay them until after such a time as when making the decision no longer matters because the opportunity or market’s already moved on. So we try to find the avenues for ourselves that will give us the answers we seek, and try to use those answers in a timely fashion. Jim Kaat, the former All-Star pitcher said it well: “If you think long, you think wrong.”

Dumpster Diving in Data

In making a decision, we’re provided an opportunity to answer three basic questions: What? So what? And now what?

The data that you use to inform your decision making process should ideally help you answer the first two of those three questions. But where do you get it from, and how much is enough?

Like many of us, I’m a collector when it comes to decision making. The more data I get to inform my decision, and the sufficient time that I invest to analyze that data, I feel helps me make a better decision.

And while that sounds prudent, and no one would suggest the other alternative of making a decision without data or analysis would be better, it can lead to the pitfall of knowing how much is enough. When looking for data sources to inform your decision making, it’s not necessarily quantity, but an appropriate blend between quantity and quality that will be most useful.

You don’t get brownie points for wading through a ton of data of marginal quality or from the most arcane places you can find them when you’re trying to make an informed decision. The results of your ultimate decision will speak for themselves.

“Effective people,” said Jack Welch, former CEO of General Electric, “know when to stop assessing and make a tough call, even without total information.”

Great. How do I do that?

So, by what factors should you include (and more importantly, exclude) data in your decision making?

Your specific business sector will tell you which data sources most of your competitors use already, as well as the ones that your industry disruptors use to try to gain the edge on you.

Ideally, your data sources should be timely and meaningful to you. Using overly historical data, unless you’re needing that level of support for a trend line prediction, often falls into “That’s neat, but…” land. Also, if you’re wading into data sets that you don’t understand, find ways to either improve (and thus speed) your analysis of them, or find better data sources.

While you should be aware of outliers in the data sets, don’t become so enamored of them and the stories that they may tell that you base your decision making process around the outlier, rather than the most likely scenarios.

And don’t fall into this trap

Another trap with data analysis is the temptation to find meaning where it may not exist. Anyone who’s been through a statistics class is familiar with the axiom correlation doesn’t imply causation. But it’s oh so tempting, isn’t it? To find those patterns where no one saw them before?

There’s nothing wrong with doing your homework and finding real connections, but relying on two data points and then creating the story of their interconnectedness in the vacuum will lead you astray.

Such artificial causations are humorous to see; Tyler Vigen’s work highlights many of them.

My personal favorite is the “correlation” between the U.S. per capita consumption of cheese and people who died after becoming entangled in their bed sheets. Funny, but unrelated.

So, as you gather information, be certain that you can support your action or non-action with recent, accurate, and relevant data, and gather enough to be thorough, but not so enamored of the details that you start to drown in the collection phase.

Trust issues

For many of us, delegation is an opportunity for growth. General Robert E. Lee had many generals under his command during the American Civil War, but none was so beloved to him as Stonewall Jackson.

Upon Jackson’s death in 1863, Lee commented that Jackson had lost his left arm, but that he, Lee, had lost his right. Part of this affection for Jackson was the ability to trust that Jackson would faithfully carry out Lee’s orders. In preparing for the Battle of Chancellorsville, Jackson approached Lee with a plan for battle:

Lee, Jackson’s boss, opened the conversation: “What do you propose to do?”

Jackson, who was well prepared for the conversation based on his scout’s reports, replied. “I propose to go right around there,” tracing the line on the map between them.

“How many troops will you take?,” Lee queried.

“My whole command,” said Jackson.

“What will you leave me here with?,” asked Lee.

Jackson responded with the names of the divisions he was leaving behind. Lee paused for a moment, but just a moment, before replying, “Well, go ahead.”

And after three questions in the span of less than five minutes, over 30,000 men were moved towards battle.

The takeaway is that Lee trusted Jackson implicitly. It wasn’t a blind trust that Lee had; Jackson had earned it by his preparation and execution, time after time. Lee didn’t see Jackson as perfect, either. He knew the shortcomings that he had, and worked to hone his talents towards making sure those shortcomings were minimized.

Making trust pay off for you

We all deserve to have people around us in the workplace that we can develop into such a trust. When making decisions, large or small, having colleagues that you can rely on to let you know the reality of the situation, provide a valuable alternative perspective, or ask questions that let you know the idea needs more deliberation are invaluable assets.

Finding and cultivating those relationships is a deliberate choice and one that needs considerable and constant investments in your human capital to keep.Click To Tweet

Chris Oberbeck at Entrepreneur identifies five keys to making that investment in trust pay off for you: make authentic connections with those in your employ and on your team, make promises to your staff sparingly, and keep every one of them that you make, set clear expectations about behaviors, communication and output, be vulnerable enough to say “I don’t know” and professional enough to then find the right answers, and invest your trust in your employees first, so that they feel comfortable reciprocating.

Beyond developing a relationship of trust between those who work alongside you, let’s talk about trusting yourself.

For many, the paralysis of analysis comes not from their perceived lack of data, but their lack of confidence in themselves to make the right decision. “If I choose incorrectly,” they think, “it’s possible that I might ________.” Everyone’s blank is different.

For some, it’s a fear of criticism, either due or undue. For others, it’s a fear of failure and what that may mean. Even in the face of compelling research about the power of a growth mindset, in which mistakes and shortcomings can be seen as opportunities for improvement rather than labels of failure, it’s not uncommon for many of us to have those “tapes” in our head, set to auto play upon a miscue, that remind us that we’ve failed and how that labels us.

“Risk” isn’t just a board game

An uncomfortable fact of life is that, in business, you can do everything right, and yet still fail. All of the research can come back, the trend lines of data suggest the appropriate course of action, your team can bless the decision, and you feel comfortable with it, so action is taken! And it doesn’t work at all. A perfect example of this is the abject failure of New Coke to be accepted by the consumer in 1985.

Not only was it a failure to revive lagging sales, but public outrage was so vehement that the company was forced to backtrack and recall the product from the market. Sometimes things just don’t work out the way they’re supposed to.

You have to be comfortable with your corporate and individual levels of risk when making a decision and taking action. How much risk and how much failure costs you, both in fiscal and emotional terms, is a uniquely personal decision, suited to your circumstances and your predilections. It’s also likely a varying level, too; some decisions are more critical to success and the perceptions of success than others, and will likely cause you more pause than the small decisions we make day-to-day.

In the end, success and failure hinge on the smallest of factors at times, and the temptation is to slow down the decision making process to ensure that nothing’s left to chance.

Go too slowly, however, and you’ve become the captain of a rudderless ship, left aimlessly to float, with decisions never coming, or coming far too late to meet the needs of the market, much less be innovative. Collect the information, work with your team to figure out what it means, and answer the third question of the series (the “what”) by taking action.

#TakeAction

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Opinion Editorials

Study says women need to be seen as “warm” to be considered confident

(EDITORIAL) A new study reveals that despite progress, women are still successful when they fall into a stereotype. Let’s discuss.

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About 15 years ago, I took a part-time job in a mental health clinic handling bookkeeping and billing. I had absolutely no idea what I was doing, but I attacked the job with what I felt was confidence. For the first few days, I simply felt as if I was an imposter. I kept asking questions and pushing forward, even though I didn’t make much progress. Within just a few days, I felt the hostility of the office manager.

It got progressively worse, and I couldn’t figure out what the heck I’d done to make her so confrontational with me. I thought I was pleasant and respectful of her position, and I was getting along with the other employees. When I talked to our boss, I was told that I intimidated the office manager. HUH? Me? Intimidating? I was a complete mess at the time. I could barely put together a business casual wardrobe. My emotional health was so fragile that I rarely went anywhere new. And she found me intimidating?

Researchers have been studying how people judge others. Susan Fiske, researcher out of Princeton, found that competence and warmth are two of the dimensions used to judge others. Based on that research, Laura Guillén, Margarita Mayo, and Natalia Karelaia studied the competence and warmth at a software company with 236 engineers.  Guillén and her team collected data at two separate times about these engineers and their confidence and influence within the organization.

They found that “men are seen as confident if they are seen as competent, but women are seen as confident only if they come across as both competent and warm.

Women must be seen as warm in order to capitalize on their competence and be seen as confident and influential at work; competent men are seen as confident and influential whether they are warm or not.”

We encourage women to be confident, but based on current research, it may not be enough to close the gender gap in the workplace. A woman must be seen as helpful and dedicated to others to have the same influence as a man. As a woman, it’s easy to be seen as the #bossbitch when you have to make tough decisions. Those same decisions, when made by a man might be considered just “business as normal.”

I guess the lesson is that women still have to work twice as hard as men just to be seen as equals. I know that I have to work on empathy when I’m in an office environment. That office manager isn’t the only person who has thought I’m intimidating. I’ve heard it from it others, but you know what?  As a self-employed writer, I’d rather be seen as undeterred and daunting than submissive and meek.

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Opinion Editorials

“Starting a business is easy,” said only one guy ever

(OPNION EDITORIAL) Between following rules, finding funding, and gathering research, no business succeeds without lifting a finger.

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While browsing business articles this week, I came across this one, “Top 10 Business Ideas You Can Start for Free With Barely Lifting a Finger.” These types of articles make me mad. I can’t think of many successful freelancers or entrepreneurs who don’t put in hours of blood, sweat and tears to get a business going.

The author of the article is Murray Newlands, a “VIP Contributor.” Essentially, he’s a freelancer because he also contributes to Forbes, HuffPro and others. He’s the founder of ChattyPeople.com, which is important, because it’s the first business idea he promotes in the article.

But when I pull up his other articles on Entrepreneur.com, I see others like “How to Get Famous and Make Money on YouTube,” “Win Like A Targaryen: 10 Businesses You Can Start for Free,” and “10 Ventures Young Entrepreneurs Can Start for Cheap or Free.”

I seriously cannot believe that Entrepreneur.com keeps paying for the same ideas over and over.

The business ideas that are suggested are pretty varied. One suggestion is to offer online classes. I wonder if Newlands considered how long it takes to put together a worthy curriculum and how much effort goes into marketing said course.

Then, you have to work out the bugs, because users will have problems. How do you keep someone from stealing your work? What happens when you have a dispute?

Newlands suggests that you could start a blog. It’s pretty competitive these days. The most successful bloggers are ones that really work on their blog, every day. The bloggers have a brand, offer relevant content and are ethical in how they get traffic.

Think it’s easy? Better try again.

I could go on. Every idea he puts up there is a decent idea, but if he thinks it will increase your bottom line without a lot of hard work and effort, he’s delusional.

Today’s entrepreneurs need a plan. They need to work that plan, rethink it and keep working. They have to worry about liability, marketing and keeping up with technologies.

Being an entrepreneur is rewarding, but it’s hard work. It is incredibly inappropriate and grossly negligent to encourage someone to risk everything they have and are on the premise of not lifting a finger.

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