Savings scare tactics not the way to go

Re: “Never too early to prepare for retirement,” by Aaron Hill April 7.

While I agree that it is necessary for students to begin thinking and planning for their retirement as early as possible, I do not believe scaring them about the realities of their finances will assist in furthering this process. In the article, “Never too early to prepare for retirement,” Aaron Hill mentions many proven financial channels that students can use to successfully prepare for their retirement. However, he quickly refutes each method as flawed, broken or simply inadequate and does little to explain how each resource can be used to the benefit of students.

The presentation of 401(k)s given to students educates them very little in the usefulness of 401(k)s and does little more than frighten them away from even participating in such a lucrative and tax-free method of wealth building. Mentioning such an infamous case as the Enron accounting fraud scandal demonstrates the risk of putting all assets in one class while failing to mention that a well-diversified and well-planned portfolio can minimize this risk a great deal.

Since its inception, the American stock market has consistently performed at 14 to 15 percent annualized return. One dollar invested in the markets in 1929 would be worth more than $12,000 today. Researching a simple, no-loads, low-management fee mutual fund to allocate one’s 401(k) dollars would be the easiest, low-risk method to ensure a healthy nest egg for retirement.

Hill’s analysis of personal savings is also flawed when he mentions the “negative savings” rate in America. The “wealth effect” created by the recent rise in home prices, falling long-term rates caused by a swell of foreign capital washing up to our shores and the Federal Reserve’s recent policy of practically giving away cash through low interest rates have all contributed to new home purchases, more auto loans and higher available lines of credit. As the Fed continues to push interest rates up, foreign nations such as China and Japan use more of their investment capital to fund domestic needs as opposed to servicing American debt. Long- and short-term rates will rise, and consumers will have to adjust their spending habits accordingly.

Furthermore, the very measure of the “savings rate” is flawed. If a consumer has a home worth $250,000, more than $500,000 in equity capital (stocks), $2,000 in savings and $4,000 in credit card debt, he or she will indeed have incurred a negative $2,000 savings rate, but have $750,000 in assets. Clearly this consumer is de facto ready for retirement, but not necessarily by the de jure standards of the Fed.

Oracle opinion writers should educate students on the different avenues and methods to save, plan and secure a healthy retirement, not scare them into thinking that all hope is lost. The failure to not even mention the other ways one can save for retirement – such as ROTH IRAs, individual stock accounts, bonds, high interest savings accounts and many other ways – clearly doesn’t educate USF students on how to plan for their nest eggs. Scaring students with broken pension plans, Enron and an uncertain Social Security program does little to educate them of the importance of saving for retirement and actually has an adverse effect on the very goal it is trying to accomplish. Students need useful information to help them make better decisions and maybe get a little closer to enjoy their retirement.

Cordell Chavis is a freshman majoring in political science.