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What If Boomers Can't Retire?: How to Build Real Security, Not Phantom Wealth Hardcover – January 30, 2001
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From Publishers Weekly
Thornton Parker qualifies as an expert on the big economic picture as well as the current state of the stock market and his prognosis for the millions of soon-to-retire baby boomers is grim. In What If Boomers Can't Retire?: How to Build Real Security, Not Phantom Wealth, Parker carefully and clearly lays out his argument for moving capital from speculative investments with inflated worth to productive, long-term investments. He also argues against the privatization of Social Security. Although timely and informative, the book may overwhelm novices with its detai. $50,000 marketing budget.
From Library Journal
Parker, who has worked for the Department of Commerce and the Executive Office of the President, focuses on retirement plans and investing in stocks to solve the ongoing Social Security problem. He defines phantom wealth as "the returns from corporate stocks that are based on market prices" as opposed to real wealth that is based on "work, earnings, and solid accomplishments, instead of just hopes." The author cautions against setting up retirement plans based on a structure of phantom wealth that depends on stock prices; inflated stock prices may help some individuals, but it can, according to the author, distort the economy and hurt society as a whole. He recommends creating real wealth as well as reconsidering and reestablishing "values, goals, and ways of thinking about living, aging, investing, and running companies." The author recommends specific strategies designed for individuals, including baby boomers, their parents, and the younger generation. Rather than just offering a how-to list, Parker discusses extensively how organizations, individuals, and the country as a whole should "think more deeply about values and goals than they usually do." The bibliographical references and glossary are also helpful. This thought-provoking work is recommended primarily for public libraries. Lucy Heckman, St. John's Univ. Lib., Jamaica, NY
Copyright 2001 Reed Business Information, Inc.
Top customer reviews
The author shows how most financial planners, stock brokers, union and state pension investment boards, and mutual fund companies tout stocks as the key part of retirement funds, when in fact, with the possibility of stocks declining in value, such a retirement plan could be considered a large, countrywide Ponzi scheme.
A sad, secondary topic is the push by investors demanding higher returns (for the retirement account) that cause management to make decisions that are not, in the long run, necessarily good for the company and often affects the local community and job positions negatively.
The book was written in 2000 prior to the internet "bubble" in 2001 and the more recent financial crisis starting in 2007, and continuing today. We have learned that from 2000 to 2010, the stock market ended up less than the start of the decade, and that many people who wanted to retire during this time have had to rethink this decision due to lack of funds in their retirement accounts.
This book is well written as the author satisfactorily documents and explains his reasoning. It is a prescient warning.
The author constantly focuses on the wrong thing. It is not so much Social Security that has an actuarial problem. It is Medicare because it compounds the force of technology driven healthcare costs with the demographics of an aging society. Social Security has to deal with only the lesser of those two forces. 80% of the problem associated with our unfunded social entitlement costs come from Medicare not Social Security (see Kotlikoff).
He thinks retirement plans are excessively concentrated in stocks. They are not. Social Security is invested in Treasuries. Pension funds have a mix of stocks and bonds of 60%/40%; meanwhile 401Ks are closer to 50%/50% mix. The retirement of Baby Boomers is more dependent on bonds than stocks.
He is obsessed by all evils of stocks. But, the retiring of the Baby Boom generation will affect bonds, real estate, and other asset classes just as much. He does not recognize that any investment's market value represents the present value of its discounted future cash flows. As Baby Boomers will sell their portfolio investments, it will increase the discount rate for all investments. This is the case because every investment class competes with each other. There is nothing inherently worst about stocks vs other investments.
His Phantom Wealth concept is nonsense. He does not understand that a stock market value is supported by earnings. If a company stock has a P/E ratio of 10, and its earnings increased from $10 to $100 with a resulting increase in market value from $100 to $1,000; the author calls the $900 increase "Phantom Wealth." But, the $900 increase is fully supported by an additional $90 in earnings that the market capitalized. He further defends his Phantom Wealth with the stock market bubble of the late 90s. This is spurious argument. Bubbles do occur. The market is not perfectly efficient all the time. But, that is a far cry from entailing that a company is worth only what the initial investors injected directly into it decades ago.
Parker has other peculiar beliefs. He views the marked-to-market mechanism as flawed. Thus, when you and I both own an IBM share; your share should have a different market price than mine! Another Parker's special is the "parasitic investor" that entails all investors who trade stocks including pension funds, mutual funds, and retail investors. Since parasitic investors were not among the initial investors who injected capital directly into the company they are parasitic. When parasitic investors such as CALPERS put pressure on management to take measures to boost stock price that is bad. Per Parker, any measure to boost stock price is bad. This is because it inflates Phantom Wealth.
Parker is obsessed about corporate downsizing. But, he ignores that the U.S. has created far more jobs per capita than any other Western economy. Our unemployment rate remains very low. And, our standard of living as measured by GDP per capita has grown faster over the long term than any Western economy too. The author is missing the boat on the underpinning of economic growth.
When Parker goes into recommendations, cognitive dissonance remains high. He suggests dismantling the existing equities markets as they just create Phantom Wealth. He would have them replaced by private investment pools and labor oriented funds. He believes the entire securities industry will have to make such changes or go out of business during the first quarter of this century. But, what Parker promotes are risky, concentrated, and illiquid investment vehicles. Such investments would be inappropriate to replace existing equity markets that are efficient, well diversified, and liquid. Parker also promotes the Japanese Keiretsu model where banks and corporations co-own each other. This is a flawed model due to conflict of interests that lead to bad credit decisions and cause bank crisis. He also proposes creating investment vehicles that compensate investors based on a company's payroll size. This is a quick way to render our private sector obsolete in a globalized World economy.
The fiscal challenge of our aging society has been far better studied by these two authors: Laurence Kotlikoff in his seminal book "The Coming Generational Storm" and Robert Stowe England who wrote "The Fiscal Challenge of an Aging Industrial World" and "Global Aging and Financial Markets." If you are concerned about the vagaries of stocks, I recommend the far superior analysis of Robert Shiller as covered in his books "Irrational Exuberance" and "Market Volatility." Finally, for a good book on financial planning, I strongly recommend: Burton Malkiel's "The Random Walk Guide to Investing."
Parker wrote a public policy book. It identifies a serious problem: Safe, liquid income investments are scarce, and potential retirees are forced into growth stocks that must be sold to realize a gain. What will happen to prices when all the boomers attempt to sell over the same period of a few decades? How can retirees decide when to sell and how rapidly to spend their savings– Parker calls this “the impossible decision?” The problem is even worse now than it was when the book was published 15 years ago because now Treasury bonds are paying zip. Bond portfolios are sure to drop in value as rates increase, even if dividends continue.
One alternative is rental real estate, either as actual properties or shares in carefully selected, high-yielding publicly traded equity real estate investment trusts. The investors’ guide promoted on the jacket could reasonably be expected to mention these options, but this is a public policy book.
Parker’s major recommendation for specific action by readers was a letter-writing campaign asking elected officials if they could see the problem and what they would do about it. He wanted to get discussion started. If the publisher prints new jackets minus the investment guide copy and re-markets the book to the public policy audience, the book might still have some influence, and a better sale. The problem it describes is serious and isn’t going away any time soon.