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. …Learn More

October 2, 2018

Subprime Crisis Lingers for Minorities

As Americans were riveted to the spectacle of teetering Wall Street behemoths in 2008, another ruinous tragedy was beginning to unfold: a national foreclosure crisis.

Black and Hispanic homebuyers were hit hardest by the foreclosures that resulted from unbridled sales of predatory subprime mortgages, which exceeded $500 billion annually at the market’s peak.

In the decade since the financial crisis, the stock market has rebounded smartly, but the damage to minority communities remains.  At the height of the foreclosure crisis, entire neighborhoods were littered with bank foreclosure sales and realtors’ signs advertising sales of the properties.

About 30 percent of black and Hispanic borrowers’ homes in total have gone into foreclosure in the years since the housing market crash, compared with 11 percent of whites’ homes.

“For [minority] families, financially destructive foreclosure events delayed and potentially derailed the dream of homeownership,” the Federal Reserve Bank of St. Louis concluded in a report on the continuing impact of the financial crisis.

But the damage goes deeper than that. Because home equity is often the most valuable asset that people own, the foreclosure crisis “severely damaged the balance sheets of minority families,” the Fed said. …Learn More