Killing Sacred Cows Blog

After doing my "Fire Your Financial Adviser" workshop and our Producer Power Hour podcast, I wanted to address a topic that I feel is grossly misunderstood.  When I was a traditional financial adviser, I would rattle off some assumed 2000 Bureau of Labor Statistics that came out with a longitudinal report that studied where 25 yr olds in 1960 were in 2000.  It showed 29% of 65 year olds deceased, 66% totally dependent on others or still working, 4% financially independent, and 1% wealthy.  I have never seen any government source confirm these numbers, but I have seen many financial institutions and network marketing companies quote it.  In fact, in my presentation, I would have a tagline that said "People don't plan to fail, they only fail to plan."  This was what I used to convince others to take action and do business with me.  However, even if those numbers were accurate, hadn't more than 5% of Americans implemented some sort of retirement products during their life, like 401(k) and IRA's, some with financial advisers?  Weren't many of these "Prime lifers" born in 1935 strict savers because of the influence of the Great Depression?

 

The Tragic Truth

The reality is much worse.  According to the National Centre for Health Statistics, a 25-year old only has a 16% chance of death before age 65, not 29%.  Of the surviving, the 2000 Bureau of Labor Statistics says that 24.4% of 65-69 year olds were still working and 66% of them depend on Social Security to provide at least 50% of  their income (22% are totally dependent).  The median household income for those 65 and older was only $33,802 in 2002.  In addition, the 2000 U.S. Census said that this aging population had a net worth of $108,885.  However, $85,516 was home equity leaving a measly $23,369 for retirement.  If you read my blog on hidden 401(k) fees (August 8^th), you would also notice that the average balance in a 401(k) for 65 year olds is only about $60,000.  Could you live like that for one year?  Two years?  Ten years?  How about 25 more years? 

 

The Cause

There are many factors contributing to this, but let's address some of the most overlooked. First, most financial planners will quote some "average" return in the markets that someone can likely count on for the long haul.  However, the "actual" return often is different.  See diagram below.

 

This is a pretty drastic example, but it proves the point that the number an adviser or planner puts in the calculator will never match up to reality.  From 1965 to 2004, the S&P 500's (stock market) performance was an 11.74% "average" rate of return but the "actual" return was 10.4% per year.  You may think that 1.34% makes little difference; however, after 40 years, your money is less by about 38%!  This doesn't even include fees that they never factor into your rate of return.  If your fees totaled about 1.25% per year, you would see that number cut by another 36%!  This would mean that you would actually only have about 39% compared to what a financial calculator would tell you based on the average rate of return!  Therefore, in this S&P 500 example, if you were expecting $1 million when you retire, even if it performs how it is supposed to, you would only have about $390,000.  Would you be disappointed?  How would that affect the income you were hoping for?  What if you had to pay taxes on that disappointing figure as well?  How much would $390,000 really be worth in 40 years given the actual inflation rates, including health care, as well as keeping up with certain technological changes and so forth?  To see what other factors do to your money, and to watch how a positive ACTUAL rate of return of 12% could become a negative return in reality, check this out!

 

The Solution

It's simple.  Get further educated on leveraging the assets you have.  One cannot expect to get different results by believing the same things about investing as everyone else.  Misunderstood concepts, like some that were previously mentioned, are contributing to the dilemmas and drain on Social Security.  To hear more on this subject, check out this blog on FireYourFinancialAdviser.com.    

By Chris Miles

I have often heard many well-intentioned Americans tell me that they feel they are on track to their retirement goals merely because they have been saving a good amount in their 401(k)'s or similar qualified plans. Many believe this is their only option.

My purpose is to shed light on a critical factor that is one of the causes for dramatic disappointment to our 76 million Baby Boomers now entering retirement. This covert killer can leave one with LESS THAN HALF of the money when you retire than the financial calculators will show you. Worst of all, no one would never know why because the 401(k) providers are not required to disclose it. This lurking enemy is commonly referred to as "fees."

Hidden fees are one of the most misunderstood components of a 401(k). According to 2007 AARP survey, 83% of respondents said they did not know what fees they were charged, many of whom believed that there were no fees. The reason there is so much confusion is because the disclosure of fees are not required by law. In fact, if they are disclosed, they are often buried several pages in a document called "Statement of Additional Information." At times, it is nearly impossible to even get the information from the 401(k) providers.

According to the US Dept. of Labor, 17 different types of fees can be applied to any 401(k) plan. Many of these fees are 12b-1 fees, soft dollar fees, brokerage fees, redemption fees, shelf space fees, etc. that are sometimes combined into a single fee called a "wrap fee." The combination of these fees can be over 2% per year! This could cut someone's retirement balances by more than half of the expected balance even if they get a certain projected rate of return and make the employer match obsolete. This occurs because fees are not factored in the fund's historical performance charts that many view in the prospectus.

Some fees are so excessive that there are class action lawsuits against the 401(k) providers. One lawsuit in Washington State has a fund that charges 12.17% in fees each year!

Fees are not inherently bad but ignorance is not bliss when time is no longer on one's side. How are these fees affecting your retirement? What could happen if these fees are charged as your balance is declining? Do you realize that an annual fee as small as 1.35% can cut your end balance in half after 40 years of accumulation?

I invite you to watch this video to learn more about this critical issue.

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Our last blog post introduced a recent book review by Helen Huntley, the personal finance editor of the St. Petersburg Times.

This is the first response of a series.

 

Deception Vs. Value Creation

Helen begins her review by writing, “I don't ordinarily do book reviews, but I often read portions of the books that publishers send me. Sadly, quite a few of them are little more than thinly-veiled sales pitches for the author's business. One of the worst of these promotional books just came across my desk, Killing Sacred Cows: Overcoming the Financial Myths that are Destroying your Prosperity by Garrett B. Gunderson.”

She makes the implicit—and valuable—point that there are often very negative aspects of salesmanship which cause people to take faulty action and spend unnecessary money. There are many unscrupulous individuals that use deception to prey on naivety in order to make money.

We join with Helen in condemning this insidious practice.

Page 120 of Killing Sacred Cows has a long section on why deception is so destructive, including the following excerpt:

“[Money is the receipt that says that we have either created value for another person, deceived them into thinking we have, or coerced them into giving it to us anyway. Of course, deception and coercion destroy human life value, our own and that of the people whom we deceive or coerce…Deception and coercion are the opposite of freedom and lead to poverty, misery, and dishonesty.”

As we write in the book, the only moral way to make money is to create value for others, to give them a reason why they should value what you provide for them more than the money they give you (see pages 120-129). On page 39 we write, “…in a world of cause and effect, value creation is a cause, and money is an effect…Money is never manifested and exchanged until value is created, and thus is an expression of value creation.” We also give our definition of value, which is, “anything of worth or service that, when provided to another, creates joy for both parties.”

To be clear, the promotion of Garrett’s products and services throughout Killing Sacred Cows, such as the Producer Power Hour and the Freedom FastTrack, was never intended to be “thinly-veiled”—it is deliberate, calculated, and very transparent. For most non-fiction authors, the entire point of publishing a book is to establish their credibility in their particular niche and to market their businesses.

For example, Mark Victor Hansen and Robert G. Allen promote the Enlightened Wealth Institute through The One Minute Millionaire. Stephen Covey promotes Franklin Covey through The 7 Habits of Highly Effective People and others. T. Harv Eker promotes Peak Potentials Training through Secrets of the Millionaire Mind. Robert Kiyosaki promotes a wide array of products through his books. Michael Gerber promotes his entrepreneurial institute through The E-Myth. Seth Godin uses all of his books to promote his businesses such as Squidoo. Ken Blanchard promotes his consultation business through his books. Steven K. Scott promotes his mentoring programs through his book The Richest Man Who Ever Lived and others.

All of these authors are doing amazing, uplifting, and inspiring things in the world. They have much to offer beyond their books, and their books are an excellent way to market their value to society. With as much good as they are doing, it would be irresponsible of them to not market their products and services through their books.

If Garrett or any of the authors mentioned above are using their books to deceive people in order to make money, that would be worthy of a scathing review indeed. However, hundreds of testimonials from ecstatic clients attest to the fact that Garrett is creating value for others, not deceiving.

We warmly and openly invite anyone reading this to take advantage of the fabulous programs that Garrett has created to help you implement the principles you are learning in Killing Sacred Cows. No deception or coercion—we simply invite you to make the personal choice of whether or not they create value in your life.

An excellent place to start is with the Producer Power Hour Membership. In fact, we encourage you to click here to take advantage of our offer to receive one month of the membership for free. If you find that the membership does not create value for you, simply cancel your membership at any time.

Every person and business wants to and should profit from their efforts. In the absence of deception or coercion, profit is evidence of value creation—it is the hallmark of every successful and worthwhile individual and business. Furthermore, not only should every individual or company that creates value in the economy want to profit, but they also have a moral obligation to market their products and services as effectively as possible in order to reach and serve as many people as they can.

There's nothing "sad" about using a book as a sales pitch for one's business, provided that the business creates value rather than deceives or coerces. If a person is creating value for others--helping them to achieve more, be more, become more wealthy and fulfilled--then not only is it smart to use a book to promote their business, but it is also their duty to do everything in their power to reach as many people as possible. In this case it would be sad if an author created value for people in a book then did not provide further resources for readers to continue their education and tools for practical implementation.

Mrs. Huntley is right on the money if an author has deceitful intentions or if they are not creating value for others. Deceitful sales pitches are the worst kind, and many legitimate individuals, companies, products, and services are negatively impacted by those who perpetrate them, and we thank Mrs. Huntley for raising this valid point.

| Book Review | Response #2 |

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