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“THE REALITY IS THAT most working Americans will continue to struggle to achieve retirement security because the ownership of financial assets is highly concentrated among the wealthiest,” wrote Dan Doonan, executive director of the National Institute on Retirement Security, for Forbes.com.
I read and re-read that statement, especially the word “because.” It seems Doonan has concluded that the great wealth held by the top 1% somehow inhibits the rest of us from saving and investing. How can that be true? It can’t be unless there’s a finite pool of assets to be had and only a few have grabbed them.
The fact that many Americans are not saving for retirement, are not financially literate and choose to place short-term wants ahead of long-term goals is indeed a problem. But it isn’t one created by America’s billionaires. In fact, considering the jobs and opportunities created by many of the super-wealthy, I’d argue that the opposite is true.
I played a game of “what if” and looked at where I would be financially if I’d made modest investments in the early days of Microsoft, Apple, Amazon and a few others. With $100 here and $1,000 there, plus years of stock splits and dividends, I’d be well ensconced in the top 1% and I’d be booking a world cruise (but maybe not this year).
Like most people, I wasn’t savvy enough or a big enough risk-taker to grab those rewards. But the opportunity was there. On the other hand, like tens of millions of other Americans, I did fund my 401(k) and IRA. I bought a few stocks and bonds, and I reinvested my dividends and interest payments. I did this in small increments over many years and, during all those years, I never gave a thought to how others were accumulating billions—but I did enjoy using my iPhone, getting bargains via Amazon, and maybe someday I’ll help the environment and buy a Tesla.
There are some Americans, perhaps 20% or so, who live pretty much paycheck-to-paycheck and struggle to cover life’s necessities. But for the majority, there’s opportunity to amass wealth. That ability to do so has nothing to do with the level of wealth of any other American.
A year ago, I wrote about ways most of us can save money and accumulate wealth. A little earlier, I wrote about setting priorities for spending the money we have. In both cases, it boils down to the choices we make. For most Americans, there’s simply no excuse for failing to save enough for retirement.
It’s not black and white. The billionaires don’t preclude others from saving, but they do rig the system in their favor. A fact that might support this is the growing wealth inequality. It’s the golden rule – the people with the gold make the rules.
My wife and I started with little, but we went through college, had decent careers and are looking at a comfortable or better retirement, precluding some black swan event. We’re fine, perhaps in part due to reading people like Jonathan Clements.
The wealthy make campaign contributions and employ lobbyists to get the laws made in their favor – i.e. carried interest deductions, capital gains deductions, step up on death, inheritance tax reductions, and hundreds of other provisions I don’t know about. There was recent article about Senator Ron Johnson saying he would not vote for the the republican tax cut until a provision was put in that made a campaign contributor millions, so it got put in. That’s just one recent example.
No doubt great wealth also can mean power and influence, while the numbers are vastly different, those tax provisions apply to everyone and a close exam of the IRC will reveal many provisions that benefit everyday Americans.
Three words: Faith, Patience, and Discipline…
Faith in free markets and their long-term rewards (with dividends reinvested) provided to equity share-owners.
Patience – in up markets and down markets alike – focusing on the long-game and the inevitable miracle of compound interest.
Discipline – keep dollar-cost averaging new money into an IRA (or an employer’s TQ plan) every month (via payroll deduction or direct transfer from a checking account) – whether it’s $500 a month or just $25 a month is of little consequence…the key is establish this crucial behavior early and often during our working years.
Sadly, these three simple concepts are not instilled in today’s youth with any consistency; they are inevitably learned (typically by trial and error) for most later on in life, when the benefit of compounding is still helpful but signficiantly less impactful. The result is a hard worker who, absent these 3 fundamental behaviors, inevitably gravitates to the instant gratification of short-term consumption and long-term debt accumulation.
This financial “road less traveled” is not popular in our modern world, but in the long term, it makes all the difference.