Have you ever watched those ads from investment firms on TV and felt inadequate because you didn’t have a clue what they were talking about? Me too. Have you ever wondered when financial planning for retirement got so complicated? I can tell you exactly when.
It was in 1978 when Congress passed The Tax Reform Act. This piece of legislation contained a tiny provision in section 401, paragraph (k) that opened the door for a seismic shift in the way our retirement plans are funded. Good-bye defined benefit plans (where a company rewards loyal employees with guaranteed pension checks) and hello to defined contribution plans that put workers in the decision-making hot seat. This change, coupled with the trend toward contract work, part-time work and self-employment, means that the majority of us will depend on our own resources for retirement income rather than on pensions. In theory, it sounds good. We love to be in control of our own destinies. The only problem is most of us haven’t a clue how to invest or manage our money much less create an income stream that will last for the rest of our lives. It’s like tossing a teenager the keys to a 747 and saying, “It’s all yours. Take it for a spin and have fun!” Did anyone take Investing 101 in high school? College? Not likely. Add to that the fact that our life expectancies have increased dramatically and people are spending many more years in retirement than in the past which means our savings may have to last a long, long time. Yikes!
Of course, there’s always Social Security but that was never intended to be a pension plan. Social Security benefits are designed to supplement your retirement income and the fate of this program remains to be seen, especially with so many of us reaching retirement age. There’s just no way around the fact that we have become responsible for our own fiscal well-being and that means learning some money skills. Your financial future is in your hands.
After several disastrous and expensive experiences with some—how shall I put this—less than scrupulous brokers (who shall remain nameless), I knew it was time for me to take charge of my own financial future. I had no financial skills or knowledge and I stink at math. I found many books that provide excellent investment advice; however, most of them are written by financial professionals who tend to overestimate the average person’s level of knowledge. Instructions on how to make the value of a portfolio rise like a soufflé are of little use to someone who has never been in a kitchen and who may be hard pressed to identify an egg. I couldn’t find an instruction book basic enough, so I struggled through what was available with a financial dictionary in one hand and Google at the ready until it finally began to make sense. I assembled my copious notes into the book I wish I’d found first and called it Investing Starting from Scratch. First published in 2009 I’m happy to report it has just been released in Kindle version.
In upcoming posts I will share some of the things I’ve learned. Next we will focus on demystifying investing by defining terms and explaining the basics of how you make money. As always I encourage you to join the conversation so we can learn from each other.