The Baby Boomers are a generation of achievers: They earned college and professional degrees and are scampering up the corporate ladder or starting entrepreneurial enterprises that boost their egos and their bank accounts. They buy sensible "starter homes" and plan to parley them into impressive dream houses through smart real estate deals, all the while deftly juggling their home, family and business lives. If two incomes don't cover all life's necessities and necessary luxuries their credit cards serve as readily available genies to make wishes reality. If their ultimate rewards have always been clear an early and comfortable retirement and a healthy estate to leave for the children why are they now facing the future with fear and trepidation?
In Die Broke: A Radical Four-Part Financial Plan (HarperBusiness; November 1997; $25.00), financial advisers Stephen M. Pollan and Mark Levine explain the economic realities that have rendered the old rules obsolete and offer an innovative approach to financial planning that focuses on getting the maximum use out of your income and your assets during your lifetime and renouncing the foolish (and futile) quest for financial immortality. From the startling recommendation, "quit now," to the heretical "die broke," Pollan lays out the details of a complete financial revolution.
"Viewing yourself and your work as one," Pollan writes, "is a tremendous financial and emotional risk." To prove that the "Self-Fulfillment Ethic" and the false belief in careers must give way to a new work ethic, Pollan cites a ready role model the professional athlete. Free agents in the sports world know their tenure with any team is temporary and concentrate on getting the best financial deal they can. Adopting their attitude is the key for anyone who doesn't want to remain on the sidelines in the next century. Pollan advises that work is not a holistic pursuit. The only way to increase satisfaction and/or income is to job hop with a constant eye toward a work setting that will increase skills (and therefore marketability) and improve quality of life with immediate advantages like premium health insurance, company day care, parental leave and telecommuting and flex time options. "Long term benefits, like pension plans," Pollan reminds readers, "are worthless. Most of you will be fired long before you are fully vested."
What else is keeping people locked in the 20th century? Two little pieces of plastic: ATM cards and credit cards. The convenience is irresistible; the costs are mind-boggling. Offering a strong dose of reality, Pollan insists that spending should be difficult and uncomfortable: "You must resolve to no longer reach beyond your grasp. If you don't have the cash on hand or in your checking account to buy something... don't buy it."
Pollan issues an equally important warning about the biggest purchase most people make in their lives real estate. Home-ownership remains an excellent tax shelter and a desirable form of enforced savings that can help generate income in later years. But with the unpredictability of the real estate market, the benefits of "serial ownership," or "trading up," have become less likely. Pollan's solution is to save your money until you can "buy your second home first," by purchasing a residence that is large enough to accommodate a growing family, aging parents and even a home business in short, a home designed for a lifetime.
Along with demanding a new perspective on work, credit and real estate, the new economic age lays to rest the American "dream" of retirement. Not only are traditional sources of retirement money (government assistance and private pensions) drying up, but people have discovered that long-term leisure isn't all it's cracked up to be. Pollan encourages readers to shift their viewpoint and think about earned income the way they've always thought about unearned income: It may grow, stagnate or decrease. Investing and savings should be used to generate unearned income that will supplement on-going but fluctuating earnings. Among his recommendations: Keep a liquid reserve (in Certificates of Deposit, for example), pile up tax free savings by taking full advantage of IRAs, Keoghs, SEPs or 401(k)s, stick with equity investments like stock mutual funds far longer than traditionalists recommend, insure your income with top-notch health and disability coverage and protect your family with term life insurance that gives them enough to get by so they can adjust to the loss of your income.
There's one last obstacle to living well now and in the future: the obsession with inheritance. Like retirement, the desire to establish an estate is a hold-over from an earlier age and leads to unnecessary sacrifices that far outweigh any future benefits. Asserting that "every dollar that's left in your bank account after you die is a dollar wasted," Pollan outlines a plan that enables you to die broke while guaranteeing that you don't out-live your assets. His plan includes what kind of annuities to invest in for a maximum flow of income, the best ways to share your money with loved ones while you're still alive, how to get paid for living in your house and the ins-and-outs of Medicaid, Medigap, long-term care insurance and other vehicles for covering expenses at the end of life1s journey.
Recognizing that accepting a theory is one thing and putting it into practice another, Pollan provides an invaluable examination of 63 different career and financial topics from the Die Broke perspective. Throughout the book, Pollan specifies the optimum times to pursue various financial options, but stresses that it is possible to go back and accomplish most objectives before moving on to the next phase or to hold off on a step until you meet the criteria he discusses. The good news is it's never too early and never too late to live well and DIE BROKE.
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