The Massive Debt Tsunami Is Coming!

We all know that the FDIC is broke, right?  When Obama bailed out banks with TARP (Troubled Asset Relief Program) money six years ago, the reason was because the FDIC did not have any money.  Banks are supposed to pay insurance money into a fund so when a bank goes broke, this reserve pays depositors who would otherwise lose their savings.  But you may also remember Obama increased FDIC insurance from $100,000 per each account to $250,000 just to calm fears of total bank failures. It’s a nice thought, but since the FDIC is broke, it doesn’t matter too much.

Now turn your attention to the Pensions Benefits Guarantee Corporation or PBGC insurance plan.  Have you ever heard of this?  Through this program, in a like manner to the FDIC, all pension plan administrators are to pay insurance into a reserve for when pension plans go broke.  If you have a pension, this should be a comforting guarantee.

But here’s the problem: Director Thomas Reeder said that 10,000,000 workers with pensions are expected to run out of money in the next 10 to 20 years.  He said they have $2.2 billion available against a required pay out of $61 billion.  If a pension plan goes broke, plan participants will get something, but certainly not what they are supposed to get.  Here is how some numbers would work if you have a pension plan and the program goes broke.  Say your employer has a formula of 60 percent of your highest three years of earnings to be paid for  your lifetime.  Your income level averaged $80,000, so therefore you should receive $48,000 per year for life.  But if the pension plan fails, then the guarantee is reduced to just $8,580 a year as per Director Reeder’s numbers.

Social Security benefits are also in trouble and even the Social Security Administration says the fund will be out of money in 10 to 15 years.

Workers that participate in a 401(k) are also going to get much less than they bargained for since the average amount of money squirreled away by all workers is less than $3,000. Plus, think of all the risks 401(k) savers take with the market… If it takes a serious dive and you’ve actually accumulated a descent retirement fund of say $350,000 or more, there is no way you are going to recoup your loses in the time you have to do so.

And what about savings? Average savings per worker is less than 1 percent of their income.  The 2010 U.S. Census shows that all people reaching age 65 have less than $60,000 in total assets, including equity in their home.

Finally, let’s review the grim number associated with our nation’s debt at $20 trillion!!!!  

Are all these problems going to come together at the same time and swamp us in a huge financial tsunami? The odds don’t look good for us as a general population. But what can you do personally to protect yourself?

First, know the facts and learn the rules about the programs you put your money in. I have reviewed some of the grim facts here in this post.

Second, quickly change your spending, borrowing, and savings habits. And that means now. If you are still over-spending each month and  have consumer debt hanging over your head, you are more likely to be a victim of a terrible financial storm.   For help in creating a spending plan that will get you in immediate control of your spending, go here. For help creating a debt elimination plan that can have you out of ALL debt, including your mortgage in under 10 years, go here. If you want to talk about all the other, better options for creating a predictable retirement that do not rely on the FDIC, PBGC, Social Security, 401(k), or any other paltry savings programs, contact me for a no-cost conversation. I will be happy to outline some great ways you can get in complete control of your finances and create a future that will not be affected by the national debt tsunami that is about to sweep over us:

Retirement Crisis is Happening Now Because Most Employers Have Switched from Defining Life-long Pension Benefits to Defining Yearly 401(k) Contributions

Lack of adequate income at retirement is the next gigantic financial shoe to fall, and it is going to fall hard.   

Consider in 1981 nearly two out of three workers had a quality pension plan, not a 401(k).  Employers would agree to pay 60 percent of the last 25 years’ salary each month for the life of the employee and their spouse.  This was not a “do it yourself” 401(k) like what employers “offer” today.  This was not “everyone is on their own and good luck.”  This was not a “you have to be your own investment adviser.”  It was cash-solid and backed by life insurance companies with guarantees.  

Let me explain a defined contribution plan.   In today’s world, most people have a 401(k) where an employer defines what they can afford to place into your individual tax-deferred account (a 401(k) or 403(b) or 457, etc.) as a percent of your income.  Example:  5 percent of your salary would be saved for you in this tax-deferred plan.  Sometimes you are required to save the same amount or the employer will not contribute anything.  The cost to the employer for doing this plan is just the 5 percent and administration expenses.  If your salary is $60,000, then the employer puts $3,000 each year into the plan.  

Now let me explain the cost of a defined pension plan. This is  where the employer promises to pay, say 60 percent of your income to you at retirement using the top three years of your salary as the average. Plus they will pay this for your lifetime and continue to pay it to your spouse after you die.  Let’s put some numbers to this kind of a plan.  If your salary is $60,000 then you would get paid $36,000 per year for life.  Assuming you live to age 83 and you turn on this pension at age 68, you will receive $540,000 (and let’s not forget, if your spouse continues to live on after you, this $36,000 per year will continue, thus increasing that $540,000 amount possibly).  

How much money will it take your employer to deposit enough in your accountmoney-nest-egg each year to achieve this $36,000/year goal?  Answer:  $7,000 a year, as long as the employer can earn 5 percent on this money.  Let’s say the employer can only get earnings of 2 percent each year?  Then they would be required to deposit into your pension account $10,500 a year.  Don’t miss this point: Under the old pension plans, the employer assumed all the risk!  Even if the funds lost money, the employer had to make up the difference.  This got so expensive employers could not afford to offer pensions anymore and started switching over to defining the annual amount they could put into you account using deferred 401(k)s.

When people retired at age 65 and died at age 69, the employer was in good shape financially.  But think of how long people are living today.  If a couple reaches age 65, they will live well into their 80’s.  No employer can afford to pay this kind of money.  Using my example above, the difference is either $3,000 a year or $10,500.  Which do you think your employer can afford?

The Social Security Administration states that 90 percent of all retired folks are totally dependent upon their Social Security monthly income.  For those retiring right now, that income isn’t half bad, but as more people retire and the system becomes drained, there won’t be much of that income to live on. Therefore, people will have to work longer, even into their late 70’s.  And what about other things that eat into traditional retirement savings programs such as IRAs and 401(k)s, things like fraud, inflation,, out-living income, needing long-term care, market risk, lack of organization, more taxation, not understanding how to get the most out of Social Security, and a host of other problems attending retirement decisions?

What is the answer to the nonsense of the traditional retirement “planning” formula?

To be successful in retirement, a person must think in terms of the following:

First, stop going with the herd and start looking at new options for funding retirement that are a lot less risky than a 401(k).

Second, learn how to control spending so you don’t add any more debts to your load.

Third, learn how to pay off all debt quickly, including your mortgage, in under 10 years. Impossible you say? Not hardly. It is mathematically possible for anyone with five or more debts to eliminate all of them in under 10 years by applying debt Power Down principles.

Fourth, change the way you think about accumulating money for retirement.  A person has to switch from focussing on a rate of return, and start locking down guaranteed income for life.  Most people work and try to save, but want the best return.  How well was that retirement strategy working for those people who were ready to retire in 2008?  When you lose 40 percent of your nest egg because you had it in a 401(k) that was invested in the market, you have to keep working.  If those folks locked down a guaranteed income for life, they would not have lost one penny.

The conclusion to draw here is anyone that has a 401(k) or it’s look-a-like, has to be their own investment adviser.  They have to assume all the risk. They have to be the one in control, but unfortunately, they don’t control what happens in the market. I hope you know that no one else has your best interest at heart.  If you are going to continue playing the defined contributions game it is imperative that you become a savvy and skilled investor, something that takes a lot of time and effort, in addition to working your job and taking care of family. If you would prefer to take a different retirement road, one that does not require that you learn how to play the stock market in order to build a solid financial future, please contact me: or visit There are lots of ways to build wealth on ANY income that do not involve defined contribution plans. Learn about them now!   

Money Is Emotional, at Every Level

I have discussed how emotional money can be many times now.  Emotional issues circling around money have been going on for thousands of years.  Well, here is a huge emotional event that I wrote about a year ago, how in the near future cities, counties and state governments will not be able to afford the pensions they are obligated to pay:  Pensions Are Creating a Huge Financial Risk.  It is easy to agree to pay something in the future to get elected today, but when time passes, the future elected officials are in a hard spot.  They have a mess to clean up they did not create.  This is a very emotional issue that will bring a lot of trouble and heartache to a lot of people.

I ask, how do you think the people living in Stockton, California liked their garbage sitting on the curb and not being picked up for weeks due to government woes over pensions and inability to pay government employees to provide basic services. Some of Stockton’s citizens were so mad they  talked about burningScreen shot 2016-08-31 at 4.13.36 PM down the mayor’s house. The mayor had no choice… he filed bankruptcy and pushed off the debts of the city, plus all the pension payments for previous employees and was able to pay to get the garbage cleaned up and restore other services.

My second question is, how do you think the retired Stockton city employees felt after they worked a lifetime and then their pension got pushed off with a bankruptcy?  Emotionally charged?   YES!  Do you think they will vote for that mayor or county commissioner again?  NO!

Who is to blame?  Who can be held responsible?  Do you hold employees responsible for pushing elected officials to give them raises, give them strong pension plans, to give them 401(k) contributions beyond anything you see in the private sector? Of course these past employees are really the responsible party to their own loss of income!  They pushed and prodded and threatened not to support, or not to vote for this official or that official until they got what they wanted.  Do you think these past employees realize they were the cause of bankrupting the city of Stockton?  Of course not. The current mayor cannot go back in time and see how much pressure was brought to bear to give them strong pensions and pay raises.  This is a perfect illustration of why money is so emotionally charged.

It has always been said throughout my lifetime that if you can get a government job, you are set for life.  This may no longer be the case.  Be aware of what is happening right now in IIlinois, and California and watch how Detroit and other cities filing bankruptcy handle the mess created by former employees. It is sure to get worse.

As elections draw near and healthcare costs soar, watch how everything plays out financially for the nation.  All the big health insurers have pulled out of the Obama exchanges.  One of these providers lost $2 billion this year! 

How will all this affect you… personally? The only way to weather what’s coming is to get in control systematically  using time-proven financial principles. Answer a few questions and test yourself for self-reliance:

  1. Do you save money on a regular basis?  
  2. Do you argue about money with your spouse?  
  3. Do you have a simple will or trust?  
  4. Do you have a pension plan and is it fully funded, or just numbers printed on a paper?  
  5. How much consumer debt do you have?
  6. Do you have any emergency savings?

Your answers to these questions will give you an idea of how healthy you are financially.  For more help go to and learn how to improve your personal situation… before it’s too late.

Illinois Is on the Brink of Financial Disaster

Last year, about this same time I wrote about Greece’s economic woes in the post entitled, Why Greece Is On the Brink of Financial Disaster.  This year, the new spot the world that’s just about in the same disastrous place economically is Illinois. They have over-spent in much the same way Greece has. I’d like to take a look at what this means for you, even if you do or do not live in Illinois.

Illinois is the fifth most populous state.  Democrats have controlled cities, counties and state governments for three decades.  Because pension income for all employees up and down the state are so high, there is little room for any growth, or investment within the state. Emergency reserves in case of catastrophe are virtually zero.  The state’s revenues for this year are projected to be $33.5 billion, while spending is scheduled for $38 billion.

My article about Greece and how they got in big financial trouble has repeated itself with the state of Illinois.  No checks and balances, no balanced budgets, no opposition to fixing higher pension pay outs. Thus businesses are being forced to leave because of higher taxes and reduced services.  

Unemployment is rampant and to their next door neighbor, Indiana, reveals what irresponsible spending will do to any nation, state, county, city, business or person.  Indiana has surplus, on the other hand. It is expanding businesses and growing in many ways.  Principles of money management make a huge difference.

Here is exactly what I offered as the solution for Greece, and it applies to Illinois, and it applies to you:

Principles will save people, families, corporations, and governments.

The Money Mastery Principles can solve all this financial foolishness. Building a spending plan, as taught by Principle 1, that must make expenses and income balance and then track that plan as taught by Principle 2, is basic to sound personal money management (and works well with corporations and governments as well!). Then, ALL debt must be eliminated as taught by Principle 4.  Debts bind you down and take away all your options.  When a person doesn’t have debt, they are free to decide what to do with their life and build better relationships, give money to the poor, travel to interesting places, help a child through college, relax on a beach somewhere, or just enjoy reading a book and not worrying about paying next month’s bills. For more information about all 10 of the Money Mastery Principles, go here.

A History of Pension Plans and Why You Probably Don’t Have One…

Let’s go back 70 years to begin this history.  The Great Depression was a huge economic problem of the 1930s that changed America, and the world, forever. But World War II helped solve this problem. Spending for military arms and supplies employed every able working person, including women.  Ranchers grew sheep to make warm coats for the military and rubber manufacturers and ship builders were in full production.  The attack on Pearl Harbor on December 7, 1941 woke up Americans to the reality of war and brought the United States into the conflict.

Once in the war, a potential problem weighed heavy on everyone’s mind: When the war ended and soldiers came home, would there be enough jobs for all of them?  But at war’s end in 1945, returning soldiers created the “Baby Boomer” generation and a demand for housing, schools, automobiles and much more, projecting the U.S. economy towards its 24773043 (b:w)healthy upward climb for the next 50 years.   To illustrate the magnitude of this growth, realize that currently 10,000 people are turning age 65 every single day.  This will continue for 17 more years and this is why our economy exploded and created the longest expansion cycle since America was born!

But in the late 1940’s and 50’s employers began to find it hard to recruit quality employees, so pension plans were created to attract and keep good workers.  Employees stayed with the same company for 40 years and then retired with the quintessential “gold watch.”  From the 1940’s until about 1990, when the computer industry became fully developed, pensions were alive and kicking. A “vesting” schedule was created with every pension that would not allow an employee to receive the promised retirement income without so many years of service.  Initially it was 25 years before a pension could turn on income.  But the U.S. Department of Labor started to force this number of years down until the standard length of employment to become 100 percent vested was 10 years.

Pensions were successful at attracting and keeping quality employees until about the mid 1970’s, when innovations, new technology, and improved travel and communication started adding brand new industries to the economy so fast that employees quit their jobs after only a few years for better pay elsewhere.  Also, many people would take their vested pension money and use it to startup a new business and compete against their former employer.  Employers were caught in the middle with the expense of contributing to pension plans only to lose employees after 10 short years.  

Enter the 401(k) and IRA. To “solve” the problem, the 401(k) and shutterstock_261713222IRA were created by Wall Street in the 1970’s to give employers an escape route from the pension expense.  These plans are simple to set up and if the employer doesn’t have the money to match contributions, they just don’t.  And what is worse, the employee is totally responsible to know where to invest his/her money, when to retire, and so forth.  The employee is totally responsible, not the employer.  This is in stark contrast to a pension plan, which guarantees how much money will be paid for the lifetime of the employer and his/her spouse. Pensions have no retirement risks at all. Today’s 401(k) participants are in charge of their contributions, savings, when to retire, and so forth and take huge risks with the volatility of the market. In my opinion, these tax-deferred “retirement” savings programs are mostly a joke and can never replace the power of a pension.

Here is really bad news.  The pension plans of the past are long gone. There are only a few companies out there that still offer such benefits. Government workers and military personnel are about the only people receiving pensions these days and as I noted in a recent post, What Few Pensions that Were Left Are Going Broke, these government pensions are dying now as well. Social Security is a “pension plan” for the poor.  It was established for those starving to death in 1935 and gave them some money to work with.  But the federal government is trying to get rid of this too, and no wonder — it was intended to offer basic benefits for the very poor and is administered through the welfare department.  It was not meant to fund everyone’s retirement, especially the millions of Baby Boomers that shutterstock_284478815were a product of the end of the Great Depression and World War II — the amount required to do this is simply too expensive so it, too, will become insolvent in years to come.

If you only have Social Security pension benefits to fund your retirement income that means you have failed to save, failed to control spending, and failed to get out of debt.

The good news is that you can correct this problem!   If you take action today by hooking up with a good financial coach (not a financial adviser, a coach, which is different) you will learn innovative ways to fund retirement that do not require you to be part of the “herd” and can help you get in control before it’s too late. A financial coach will hold you accountable for every aspect of your finances, which includes how you spend, how you save, how you pay off debt, and how you pay taxes.  The longer you go without taking control of your financial future, the closer Don'tWaityou come to failure.  Failure means you work until you die. Failure means you are like 91 percent of all retirees who are totally dependent on Social Security. Don’t fail! Get the know-how to change your behavior and make your life end with success. Contact me for more information about how to do this:, 801-292-1099, or read the book MONEY:  What Financial “Experts” Will Never Tell You available at

What Few Pensions that Were Left Are Going Broke…

The Pension Benefit Guaranty Corporation or PBGC was created by the Employee Retirement Income Security Act of 1974 as part of the federal government. The PBGC is the government equivalent to pension plans as FDIC insurance is to banks.  The U.S. government requires all pension plan administrators to pay an insurance premium through the PBGC into a savings account in case a plan goes insolvent.  But surprise, the PBGC is now broke so it can no longer bail out soon-to-go-broke pension plans. And unfortunately there are many pensions that don’t have enough money to pay employees the contractual benefits they promised.

So, many people who worked for city and county governments across the country are getting notices from pension plan administrators that money will run out within 10 years.  More and more people are getting these notices, which is sometimes newsworthy, but many times it is not common knowledge.  If you were retired and got a notice like this, what would you do?

Detroit is a vivid example.  It filed bankruptcy because retirement plans represented 84 percent of their entire debt.  Illinois was just in the news in November of 2015 saying it will have to cut retirement income payments, or file bankruptcy.  California is also in deep trouble. Its pension debt amounts to 74 percent of all debt.  Pension benefits are becoming just too big to be paid for by many state, county, and city governments, so the notices keep going out and the bankruptcy threat keeps climbing higher. Only the federal government has been able to keep paying out employee benefits but we all know that’s only because they can just print more money. Since states and counties can’t just make more money all they can do is file for bankruptcy. A search on the Internet will reveal how many cities that have recently failed due to pension debt. Stockton, San Bernardino and 10 other cities in California have filed bankruptcy and there are many more local governments and companies on the ragged edge of filing as well due to financial mismanagement.

Headlines like this one, which appeared in January of this year on the Internet, will start cropping up more often as this year goes along: 

“This Is Going To Be A National Crisis” – One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits 


So What to Do? You can prepare yourself.  If you have a pension plan, do not take it for granted — don’t assume it will be able to pay you as stated.  Check out your pension’s health and get a copy of the annual report and stay tuned in.  If you find your pension is in trouble, it is better to know now and not continue working for your employer for another 15 years or more, only to lose your benefits.  Take action and learn the rules.


Why Greece Is on the Brink of Financial Disaster (And What that Means for the U.S.)

We have some lessons to learn…from countries like Greece.

News reports indicate that Greece’s unemployment rate is 25 percent and climbing (a rate that is approaching that of the world’s unemployment rate during the Great Depression of over 35 percent).  Its banks have lost 99 percent of all values as depositors grab their money and flee to Switzerland and other more stable places. Interest rates have soared to 28 percent.  The Greek government has cash available to last but a few months and leaders have had to search all public accounts like hospitals, city governments and the like to find enough money to pay retired people and their public employees salaries that were due on July 1.

Many countries in Europe are arguing that Greece has not cut back spending like it agreed to do.  Greece’s newly elected prime minister is saying the country cannot cut any more.  Members of the European Monetary Union say they are done helping Greece.  Greece is calling attention to the fact that it was the first country to establish a democracy a couple of thousand years ago, so it’s arguing that if it goes from a first-class nation to something less overnight, it will take all of Europe into a huge depression with it.

I will not argue either side of this financial disaster in this blog.  I am asking that we all watch and see what Greece has done to get into this horrible situation and learn what it will take for the United States to avoid doing the same thing to itself.

Observe that the major debt Greece has is in retiree pension plans.  Can you recall the amount of money Detroit filed bankruptcy against?  Nearly 84 percent was for pensions to retired employees.  And did you know that all the huge debt the state of California owes is in pensions — to the tune of 74 percent!?  Go online and check out why Stockton and San Bernardino filed bankruptcy, as I noted in my recent blog Pensions Are Creating a Huge Financial Risks for City, County, and State Governments  and you’ll find that it’s because of retiree pensions.


What Could Happen to the U.S.

The “Long-term Budget Outlook” for 2015 by the Congressional Budget Office has recently reported that the Federal Reserve Bank is on the brink of folding. You can read about it here:    According to the report, if interest rates go up slightly in the coming years, the United States will beshutterstock_123534982 forced into insolvency.  Consider the unfunded liabilities of our own Social Security program.  Much has been said about the current national debt reaching $18,000,000,000,000 ($18 trillion).  But when the Congressional Budget Office calculates the unfunded liabilities of Social Security benefits, it tops out at a whopping $115 trillion!

What are the lessons to be learned from why Greece can’t limit their spending to their national income?  Why have they over-spent their revenues for over 100 years?  And what might this mean for the citizens of the United States?  When can we control our spending and balance our budget?  As Greece goes, so goes the United States.  We should know that country’s fate before the end of 2015.  We need to learn from Greece.  And if it is not too late, we need to determine what we must do on an individual basis to survive a complete currency meltdown.  Greece could become a mirror image of what will happen here in the United States.


Principles Will Save People, Families, Corporations, and Governments

The Money Mastery Principles can solve all this financial foolishness. Building a spending plan, as taught by Principle 1, that must make expenses and income balance and then track that plan as taught by Principle 2, is basic to sound personal money management (and works well with corporations and governments as well!). Then, ALL debt must be eliminated as taught by Principle 4.  Debts bind you down and take away all your options.  When a person doesn’t have debt, they are free to decide what to do with their life and build better relationships, give money to the poor, travel to interesting places, help a child through college, relax on a beach somewhere, or just enjoy reading a book and not worrying about paying next month’s bills. For more information about all 10 of the Money Mastery Principles, go here.