Retirement Planning and the Tanabata

The use of this popular Japanese festival in the book is not of an accidental nature. The long-term belief throughout all my years writing about personal finance, investing and retirement planning as the ultimate goal, I have always looked at the world of finance with a less than trustful eye. It is sort of a “where there’s smoke, there must be fire” kind of thinking.

When the opportunity to create a profit is coupled with someone else’s inexperience, the money involved needs to be closely watched. In other words, if there is a financial product in close proximity to an individual who is just the slight bit confused, deception has more than ample chance to rear its ugly head.

Tanabata is a festival built on deception. With a little love story as an aside and the right amount of penance to be served, the story resonates with not only adults, but especially with children.

Tanabata is referred to as the Star Festival. It is traditionally held on July 7th and involves the placing of wish-filled notes on colorful strips of paper and hanging them on the trees. Then the children and a good deal of adults as well, pray for their wishes to come true.

Does that sound like your retirement plan?

(In the book, I actually tell you about one of the numerous celebrations held worldwide. 77 BoaDrum is celebrated in New York City each year in honor of the festival.)



There is a sadder story associated with the celebration that originated in China and made its way to Japan. It tells of a how a young farmer, smitten by a beautiful goddess, lies to gain proximity to her. They search for a robe she assumes I missing. His plan worked. They fell in love and spent many years together.



But one day, as fate would have it, she found a small piece of the robe tucked among some roofing material. Mikeran, the farmer has his the robe and forgotten it. Time had left only a shred of the clothing, but just enough for the goddess Tanabata to recognize the robe she had lost all those years ago.

She was furious, leaving him until he completed the penance she had punished him to complete. He was to weave a thousand pairs of straw shoes. The festival, in their honor, occurs on the one day the lovers are permitted to meet.

The astrological event surrounding the festival, also steeped in the lore of the holiday, occurs when the stars Altair and Vega intersect in the Milky Way.



This particular facet of the festival revolves around another less than savory story. This one was also centered on love but was focused on the ethic of work and loyalty to family. The young princess Orihime, a weaver, worked long hours at her craft, weaving beautiful cloth for her father by the river. She dreamed of one day meeting someone but feared her longing would never be fulfilled.

Her father, Tenkou, worried about his daughter’s happiness, arranged a marriage of sorts with a herder from across the river. His daughter fell in love and like so many young people filled with newfound passions, the two neglected their work in favor of spending time with each other. Her husband Ushikai’s cows wandered – since the story is celestial, those cows scattered across the heavens, and his wife’s weaving ceased.

Tenkou was furious separating them on opposites sides of a river. Orihime was devastated and begged her father to let the two to meet. He did and that day is July 7th.



I write in the book that it is “vitally important to build this structure piece by piece, with the right amount of thoughtfulness and the right amount of risk.”

Your retirement planning should be more than just tying colorful wishes to a tree. But too often, we only visit our retirement portfolio once a year, if at all, and we tie those plans to be fated to the wind.

Retirement Planning and Social Security

I should tell you that this entry does not appear in the book. Perhaps my editor deemed it too political. I didn't argue his red pen but saw it as something worth discussing here instead.

Nothing without a price

Reform always costs money. But it doesn't necessarily mean that the change in the program is the best way to spend it. Two things should happen first. If the solvency of the program is at stake, Congress should look elsewhere for money. For decades, they have been dipping into the Social Security surplus - and yes, even during this age of fewer workers supporting increased retirees, there is still an estimated $500
billion in surplus received through payroll taxes - and leaving IOUs.



Congress should pay those IOUs back instead of legislating them away.

That would, by default, expose the folks in Washington to fiscal policy that would be embraced by the nation. Changing the way our elected officials do business would have a ripple effect throughout the economy by encouraging savings. Unfortunately, they would have to borrow money to make up for their previous transgressions.



The estimated cost for dismantling the program - and do not kid yourself on this one, once the change is begun, it will continue to be taken apart until the program does not resemble the current system in any way – will be over $2 trillion. And that is just for starters.

This was recently evidenced by two announcements from the White House. The first from Gregory Mankiw, the then chairman of the Council of Economic Advisers who was quoted during a conference on tax policy: "There are no free lunches here", and the second from the President himself: "We will not raise payroll taxes to solve this problem".



Creating personal accounts will not decrease the national debt even as more is created to change the program. National savings, now at an anemic .02%, depending upon which month you look at will not change without some sort of increase in debt. In our current model of economic health, savings, while worthy, is not something that is encouraged.

In other words, the more we save, the more debt will be needed to make up for the shortfall under current economic conditions. A shift to a savings based society will have short-term budgetary issues as money for expansion dries up.

The President has been quick to point out the advantages of Chile's reform of their social system in 1980 as the model for our reformation. But we should be careful before we jump to conclusions. There were several things in place when the program in that country shifted.



In the real world however, it is quite different. References to Chile’s success with their privatization program are mostly superficial.

What many supporters of change in Social Security miss when they tout Chile’s success lie in two distinct differences: When the Chilean government embarked on this change 25 years ago, they built surpluses in the Treasury to ensure against any initial pitfalls and in the system and the workers, who kick in 10% of their pay do so under a mandate, not a choice.

From a purely economical standpoint, the program has failed on several fronts. One, the Chilean government has been forced to heavily subsidize the program as the first generation of retirees begins to tap the system. And the belief that the system would be self-supporting has largely proved to be false.

The Chilean government tied this changed to "one-time" government bonds with costs spread to future generations, a residual payroll tax, governmental privatization of many state run industries and a that deliberate surplus that was created before the reform could be enacted to help pay for the change. None of these conditions are available to us.

It would be much more apt to compare our efforts to those of Argentina, whose national debt ballooned because of their effort to borrow to fix a debt problem in their social system.



The bottom line: for the President’s plan to work, he would be forced to raise taxes.

Retirement Planning and Speculation

Once you understand the way risk and reward operate – or better, how more risk might mean more reward, the tendency is to assume more risk is almost too tempting to avoid. This is often done, in many cases with the full knowledge that increased risk does not always result in increased reward. In other words, once you grasp the seductive power of increased risk, many investors choose to discount the downside of the equation. This can be incredibly dangerous when it comes to your retirement portfolio.

Consider the word speculation. Speculation (spek'yuh-LAY'shuhn) n. has several definitions. The first is the act of speculating or the contemplation of a profound nature, a conclusion, opinion, or theory reached by speculating. We think therefore we speculate.



The second definition is much more dangerous. It involves the engagement in risky business transactions on the chance of quick or considerable profit. Jacob Freifeld’s 1996 paper on the subject of behavioral decision making titled “Speculative Bubbles: Financial Genius Before the Fall" came well in advance of what was to be, at least until the sub-prime mortgage mess began to unfold recently, the greatest market bubble of in recent history.

He wrote about the theory of speculation: “In some cases this financial innovation is replaced by changes in government policy that either favor easy credit or lower taxation, stimulating rapid business growth. Whatever the case may be, a financial atmosphere of tremendous supply combined with demand for some desirable asset, be it stocks, real estate, or even rare tulips, gives birth to the speculative bubble.”

Many financial writers, myself included have alluded to the lessons of the tulip. Tulips became the craze of the wealthy in the early 1600’s, so much so, that if a person of means did not own a collection of these rare flowers, they were considered uncultured. The demand for these exotic bulbs grew into speculative and historic proportions.




Charles Mackay, in his book “Memoirs of Extraordinary Popular Delusions and the Madness of Crowds” published first in 1841 wrote: “The demand for tulips of a rare species increased so much in the year 1636, that regular marts for their sale were established on the Stock Exchange of Amsterdam, in Rotterdam, Harlaem, Leyden, Alkmar, Hoorn, and other towns. Symptoms of gambling now became, for the first time, apparent.”

There is, however no place for speculation in your retirement plan. The fact that they exist at all, is the largest hurdle any investor, especially one interested in building his portfolio for retirement, has to face. As I mentioned previously, the presence of a bubble or the effects of its aftermath tend to leave many investors indecisive.

Even as he wrote his paper, he wondered about the state of the stock market. “Currently the U.S. stock markets are in the late stages of what looks like a speculative bubble.”



While I go into great detail (in the book) about what is important to consider when bubbles exists, and how to invest your way through them, folks like Mr. Freifeld will sound warning bells well in advance of the impending disaster. But it is something you can ignore.

If your retirement planning is based on a conservative approach, a common sense approach if you will that rises above speculation, you will have no need to pay heed to those warnings. Believe it or not, you can win in any market situation.