October 4, 2018
‘Retire Rich!’ Don’t Believe the Sales Pitch
If an alien were to drop in to study earthlings’ retirement, it would have to conclude that saving is either nearly hopeless or super easy.
Many Americans approach retirement planning with dread – hardly surprising, given that only about half of working-age adults are on track to have sufficient savings to retire in the lifestyle they’ve grown accustomed to while working.
But there purports to be an easier way – and it’s on YouTube. Googling “retirement” turns up all kinds of outlandish promises of nirvana for regular folks. Examples of YouTube titles are: “Retire Young. Retire Rich.” “Guaranteed Ways to Retire Rich.” “How to Retire in 10 Years – Much Easier Than You Think.” You get the picture.
Don’t be fooled. In a 401(k) world, what workers need is determination, planning, and persistence to ensure they’ll be prepared for old age. YouTube offers only magic bullets.
Many of these exploitative videos are targeted to 20-somethings new to the financial world, who may be more vulnerable and persuadable. But perhaps they are also able to attract hundreds or even thousands of viewers because they offer easy solutions to what may be our most anxiety-producing financial challenge: Will I ever be able to afford to retire?
Yes, one video claims. Retire at age 40! The self-appointed retirement expert in this video, who does not identify himself, hides behind cartoon illustrations on a white board to display his mathematical comparisons of workers who started saving at different ages. The point of this exercise is that people who start early will wind up with a better-funded retirement, due to compounding investment returns, than those who start in their 40s or 50s. So far so good.
But things quickly go downhill when he claims that it’s possible for a 23-year-old to retire in 17 years. You “don’t have to work another day in your life, and you’re still able to do the things you want to do,” he says, allowing this tantalizing prospect to sink in with the audience. But his retire-at-40 scheme has a catch – and it’s a big one. To achieve this goal, a 23-year-old would have to save half of his or her income. Young adults are trying to achieve independence – not move back in with their parents to follow his financial prescription.
Another pitchman claims that a 27-year-old who saves $28 a week can retire at 67 with $665,000 in the bank. He throws around a lot of fuzzy math to explain how he arrives at this figure. But plugging his basic assumptions into the SEC’s investment calculator, investor.gov, clarifies what’s behind his inflated claim: a $665,000 nest egg at age 67 would require an unrealistic investment return of more than 9.5 percent every single year for 40 years.
The goal of this video is revealed only at the end. Viewers are encouraged to visit the narrator’s website, where, with a few clicks, they can open up an IRA and start investing. A sounder option: start contributing to your 401(k) at work. Unlike robo-IRAs, employers will often match a small percentage of their employees’ weekly or monthly contributions. This approach will get you to your retirement goal faster than a promise.
Another fantastic claim of instant wealth comes from a real estate investor who tells viewers of his call-in show that saving money in a 401(k) is “dumb.” “Your mom and dad’s rules will not prepare you for retirement,” he says. “I’m the guy who will help you with it.”
Nearly 29,000 people have watched his unintelligible sales pitch, but let’s hope that no one asked for his help. The narrator claims he can turn a $700,000 investment in multifamily properties into $3.5 million when the properties are sold. He is at best irresponsible in peddling a high-risk investment as part of a retirement plan and at worst a fraud: he informs potential customers that he would keep $200,000 of that $700,000 initial investment for himself and $1.2 million of the $3.5 million payout at the end. “The more I make the more you make!” he says.
It’s understandable that people would look for easy answers, because it’s extremely hard to delay gratification, say no to spending, and save. But retirement planning will never be as simple as these videos claim.
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