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The Personal Finance Industry Is a Scam

32 points by smn1234 7y ago

johnwheeler 7y ago
Can someone elaborate on the Annuity provision in the SECURE act the author is referencing? “And Congress is batting around the SECURE Act, a cheekily named effort to allow the half of all Americans who are eligible for employer-offered 401(k) plans to potentially lose those retirement funds when their employer, under this act, becomes legally able to offer sketchy annuities as part of those plans. “ The way the author writes it is that your employer can essentially confiscate your 401K and repurpose the funds towards a ‘sketchy annuity’. That obviously can’t be right, right?
- PopeDotNinja 7y ago
  I used to sell life insurance and annuities. As far as I can tell, the major concern seems to be about the risk that comes from the downside risk of annuities, which is that you can lose all your money. A close relative of mine bought an annuity from someone, that someone spent all the money from the annuity, and my relative ended up losing everything. Think of it this way... A 401k is a piggy bank into which you put your retirement savings. You pay a pig farmer a small fee every year to invest the retirement funds in various forms of stocks and bonds. The money is always yours, and you get to keep whatever is in the piggy bank, plus all of the gains/losses, after the pig farmer's fee. An annuity is going to a casino and making a bet. You give the bookie all of your money, and the bookie agrees to give you your money back in the future in regular payments over some period of time (e.g. pay in 10x now, and starting in 20 years, you get X per year until you die). If you live long enough, you can come out way ahead, but the bookie is really good at spreading the risk across people who, on average, collect less than they put in. The risk is that the bookie outright steals your money, or maybe puts the money in a safe, but someone steals the safe. If the bookie loses your funds, you may very well get nothing. Think Bitcoin - you give me 100 Bitcoins, I agree to pay you 1 Bitcoin a month until you die, I put the coins in a secure wallet, and forget the wallet's password.
- mikestew 7y ago
  Previously, plans limited the selection of annuities (if they were offered at all) to those from solid companies you might have heard of. That’s good, because as sibling comment points out, if the company goes under, so do your retirement funds. What the SECURE Act does is loosen the restrictions on who can offer the annuities. Before, it might been just Fidelity and Schwab. Now, in addition to those two, you can also choose Joe and Mary’s Bait, Ammo, and Annuities. Your employer won’t get to confiscate your 401K, but Joe and Mary have two kids to put through college. But you have to willingly, and foolishly, choose Joe and Mary’s product. Your employer can’t force you, but I suppose they could make it the default.
canada_dry 7y ago
Suze Orman is to finance as Dr. Phil is to psychotherapy. Sadly they are in high demand in this age of quick, easy clickbait solutions to complicated problems.
deleted 7y ago
[deleted]
throwawayram5ey 7y ago
I've recently had a major aha moment with personal finance where I realize that "simple" maybe better than "correct". While many (and that maybe an understatement) dislike Dave Ramsey I've been listening to his podcast for a couple months. I'm pretty good with money (no debt) and have a good household income ($350k). I assumed I did not need any tips as I was aggressively saving anyways. It took a few weeks but Dave Ramsey's principles finally clicked. If you can get past his brashness and ideologies which you may disagree with his advice is very sound - even when it's not the most efficient. Here's an example. Many people keep their mortgage for the full duration (often 30 years) while maxing out investments because they earn a higher interest rate then the mortgage charges. Mathematically this makes the most sense. However, he always asks people if their house were paid off if they would take a loan against it to invest in the market. The answer is an obvious no --- but he equates that to what people routinely choose to do by delaying paying off their house. It took me many times hearing it before I started thinking he maybe right. We often don't factor in the risk of paying off a mortgage but it's still there if you look at it the way he explains. Anyways...TL;DR is that me and my wife went all in on his approach (basically never borrow money and get on a budget). Here's what I've noticed. - 1) We're spending about 25% less than we were before getting on a budget. - 2) It doesn't really feel any different which means we were wasting that 25% anyway. - 3) My wife and I's communication improved drastically. - 4) I realized we could pay off our home ($1.1M) in about 10 years --- prior I had always stressed about being able to pay it off before retiring. - 5) We're planning a remodel which we likely would have taken a $300k loan for - but instead we are planning to cashflow it by saving that money and postponing the acceleration of paying off the house (now 14 years instead of 10 - still better than 30) - 6) Meanwhile we're still contributing to retirement (15% of income as recommended) so by retirement we'll be okay too All that to say --- I stopped trying to over optimize and this feels so much better and I've quickly become debt averse (even though the only debt I carry is the mortgage).

32 points by smn1234 7y ago

Can someone elaborate on the Annuity provision in the SECURE act the author is referencing? “And Congress is batting around the SECURE Act, a cheekily named effort to allow the half of all Americans who are eligible for employer-offered 401(k) plans to potentially lose those retirement funds when their employer, under this act, becomes legally able to offer sketchy annuities as part of those plans. “ The way the author writes it is that your employer can essentially confiscate your 401K and repurpose the funds towards a ‘sketchy annuity’. That obviously can’t be right, right?

PopeDotNinja 7y ago
I used to sell life insurance and annuities. As far as I can tell, the major concern seems to be about the risk that comes from the downside risk of annuities, which is that you can lose all your money. A close relative of mine bought an annuity from someone, that someone spent all the money from the annuity, and my relative ended up losing everything. Think of it this way... A 401k is a piggy bank into which you put your retirement savings. You pay a pig farmer a small fee every year to invest the retirement funds in various forms of stocks and bonds. The money is always yours, and you get to keep whatever is in the piggy bank, plus all of the gains/losses, after the pig farmer's fee. An annuity is going to a casino and making a bet. You give the bookie all of your money, and the bookie agrees to give you your money back in the future in regular payments over some period of time (e.g. pay in 10x now, and starting in 20 years, you get X per year until you die). If you live long enough, you can come out way ahead, but the bookie is really good at spreading the risk across people who, on average, collect less than they put in. The risk is that the bookie outright steals your money, or maybe puts the money in a safe, but someone steals the safe. If the bookie loses your funds, you may very well get nothing. Think Bitcoin - you give me 100 Bitcoins, I agree to pay you 1 Bitcoin a month until you die, I put the coins in a secure wallet, and forget the wallet's password.
mikestew 7y ago
Previously, plans limited the selection of annuities (if they were offered at all) to those from solid companies you might have heard of. That’s good, because as sibling comment points out, if the company goes under, so do your retirement funds. What the SECURE Act does is loosen the restrictions on who can offer the annuities. Before, it might been just Fidelity and Schwab. Now, in addition to those two, you can also choose Joe and Mary’s Bait, Ammo, and Annuities. Your employer won’t get to confiscate your 401K, but Joe and Mary have two kids to put through college. But you have to willingly, and foolishly, choose Joe and Mary’s product. Your employer can’t force you, but I suppose they could make it the default.

canada_dry 7y ago

Suze Orman is to finance as Dr. Phil is to psychotherapy. Sadly they are in high demand in this age of quick, easy clickbait solutions to complicated problems.

deleted 7y ago

[deleted]

throwawayram5ey 7y ago

I've recently had a major aha moment with personal finance where I realize that "simple" maybe better than "correct". While many (and that maybe an understatement) dislike Dave Ramsey I've been listening to his podcast for a couple months. I'm pretty good with money (no debt) and have a good household income ($350k). I assumed I did not need any tips as I was aggressively saving anyways. It took a few weeks but Dave Ramsey's principles finally clicked. If you can get past his brashness and ideologies which you may disagree with his advice is very sound - even when it's not the most efficient. Here's an example. Many people keep their mortgage for the full duration (often 30 years) while maxing out investments because they earn a higher interest rate then the mortgage charges. Mathematically this makes the most sense. However, he always asks people if their house were paid off if they would take a loan against it to invest in the market. The answer is an obvious no --- but he equates that to what people routinely choose to do by delaying paying off their house. It took me many times hearing it before I started thinking he maybe right. We often don't factor in the risk of paying off a mortgage but it's still there if you look at it the way he explains. Anyways...TL;DR is that me and my wife went all in on his approach (basically never borrow money and get on a budget). Here's what I've noticed. - 1) We're spending about 25% less than we were before getting on a budget. - 2) It doesn't really feel any different which means we were wasting that 25% anyway. - 3) My wife and I's communication improved drastically. - 4) I realized we could pay off our home ($1.1M) in about 10 years --- prior I had always stressed about being able to pay it off before retiring. - 5) We're planning a remodel which we likely would have taken a $300k loan for - but instead we are planning to cashflow it by saving that money and postponing the acceleration of paying off the house (now 14 years instead of 10 - still better than 30) - 6) Meanwhile we're still contributing to retirement (15% of income as recommended) so by retirement we'll be okay too All that to say --- I stopped trying to over optimize and this feels so much better and I've quickly become debt averse (even though the only debt I carry is the mortgage).