The FinishRich Newsletter March 2005



Hi, everyone. I'm writing this on a plane to Los Angeles. I've just left Seattle, where I just completed my ninth speech in eleven days-and where, in between six television shows and radio interviews-I stopped by the original Starbucks to have a latte!

For more details on this trip-and to learn about the all-new Double Latte Factor®-click here to jump ahead. Otherwise, continue on down to read my current thoughts on Social Security and what we need to do about it. Whichever order you decide to take things, I recommend you print out this newsletter and really read it. There's information here you need to know now. Enjoy.


I'm putting this section first because what I have to say here is really important. I hope you'll pass it on to your friends. And I hope you'll discuss it with your family and co-workers.

When I was in San Francisco recently, I was a guest on The Ronn Owens Show. I absolutely love Ronn. When it comes to radio, Ronn Owens is arguably one of the best interviewers and hosts in America. He's been on KGO-AM 810 in San Francisco for years, millions of people listen to him weekly, and the National Association of Broadcasters recently named him Major Market Personality of the Year. Ronn has had me on his show several times and it's always a blast, but my favorite interview of all time was last month when we talked about my thoughts on reforming Social Security. I'd like to share those thoughts with you now.


Social Security is not broken. It is arguably the most successful entitlement program the United States government has ever created. Right now, it serves more than 41 million Americans. But while the system is not broken, it is fundamentally flawed.

Forget about private accounts for a second. I don't want to get political here. Let's not debate whether or not you should have the option of putting your money into a stock-based personal account. Instead, let's look at the system and ask ourselves this fundamental question: given what we've learned over the years, would we create this system today?


When you collect a paycheck, the first person you should pay with the money you've earned is you! Paying yourself first is the secret to being rich. It's what I taught millions of readers last year in my book The Automatic Millionaire. It's what I preached on "Oprah." Paying yourself first is the key.

My strategy on how to pay yourself first is simple. I recommend that you save ONE HOUR A DAY OF YOUR INCOME FOR LIFE-AUTOMATICALLY. The way to do this is to set up a retirement account and arrange to fund it automatically-that is, without using a budget or depending on will power to write yourself checks. Instead, you have your bank or your employer automatically transfer a set amount of money to your retirement account every payday.

I've always said that if you do this, you can create financial security for yourself-and if you start young, you can become a multimillionaire. Think about it-if you start saving $10 a day when you're 21 (working at your first job), and you earn an annual return of just 5% (which would be pitiful), by the time you are 65, you would have a nest egg worth more than $612,000. That's a solid amount of money. Earn 10% a year and you'll have more than $2.6 million dollars. That's more than solid. That's fantastic.

Unfortunately, in the real world most people don't do this.

Now here's the amazing thing about Social Security.

Social Security does do this. When you earn a paycheck, the first person who gets paid is NOT YOU-it's Social Security. The Social Security Administration takes 6.2% of your paycheck AUTOMATICALLY. And your employer HAS TO PAY another 6.2%. Add these two percentages up and you'll see that you're AUTOMATICALLY SAVING 12.4% of your paycheck. That's one hour a day of your income!

Isn't this cool? You're actually saving exactly what I recommend that you PAY YOURSELF FIRST!

Only you're not.


You can't avoid Social Security. When you fund a 401k plan or an IRA, you can avoid Federal and State Tax (because your retirement contributions are tax deductible), but you can't avoid Social Security tax. Now here's where the government takes a great concept and ruins it. If the government took our Social Security payments and put them in accounts with our names on them, we'd all be in great shape financially when we reached retirement age. Most of us would have hundreds of thousands of dollars in our retirement accounts. Some of us would literally have millions.

But that's not how Social Security works. The money you pay into Social Security goes to the government, which is free to do with it as it pleases. Some of your money goes to pay Social Security benefits to other people, and SOME OF THE MONEY-YOUR MONEY-goes to other stuff like roads and education. To cover this spending, the government deposits IOU's in the Social Security account.

Up until recently this hasn't really been a huge problem. This is because so many people have been paying into Social Security that there's been a ton of money to pay the people who are eligible to collect benefits and then fund other government programs as well.

This is still the case, and it will continue to be so for a while. Until 2018.


In 1950, there were 15 workers paying into Social Security for every person collecting a benefit check. Today there are just 3.3 workers for every retiree. And when the Baby Boomers start to pack it in, that ratio will quickly drop to 2 to 1.

Depending on whom you believe, Social Security will start paying out more in benefits than it receives in contributions in 2018. At that point, to keep the system afloat, the government will have to start dipping into the Social Security trust fund. By 2040, the trust fund will run so low that benefits will have to be cut. By 2075, the system could be totally bust.

The reason for this bleak outlook is amazingly simple. People are living longer and are retiring earlier.

Consider this. In 1935, when Social Security was founded, a typical worker who reached the age of 65 could expect to live another 11.9 years. Today, the average worker retires at age 62 (compared to 68 in 1950)-and he enjoys a life expectancy of another 19.7 years. So we've got people retiring six years earlier and living nearly ten years longer. That's what you call DOUBLING RETIREMENT. And it's only going to get better (or more challenging, depending on how you look at it). The bottom line is that we're turning into a country of older people.


Check this out for size. According the Census Bureau, over the next few decades the number of Americans aged 65 to 74 is going to grow by roughly 85 percent! And the number of super seniors is going to nearly triple. In 1900, there were 374,000 people over age 85; in 2004, there were an estimated 5 million. By 2040 there are expected to be some 14 million people in the US over 85 years old (virtually all of them still receiving Social Security and probably living in Florida).

See how this gets to be a problem? It's not the fault of the Democrats or the Republicans that people are living longer. It's the "juiceman's" fault. Seriously, we're just not kicking the bucket like we used to. In the 1900s, the average man's life span was around 40 years! We've had a greater gain in longevity over the last hundred years than in the previous ten thousand years!


For 30 years, pundits have been describing Social Security as the "third rail" of politics. What they mean by this is that if you are a politician, you don't touch it. Why? Because if you do, it'll kill your chances of ever being elected to office again. But President Bush doesn't have that worry. You can't serve more than two terms as president, and after being Chief Executive there's no other elected post worth running for. So he's done. Having won a second term, he's basically got 24 months to work whatever agenda he chooses. If he wanted to, he could just hang out and play golf. Instead he's chosen to address the critical issue of Social Security. This is an issue that Alan Greenspan has been imploring our political leaders to address for a decade.

To be fair, President Clinton was starting to address the Social Security problem back in the 1990s-right before we all got sidetracked with that White House intern scandal.

Anyway, here we are a decade later, and Bush is coming out strong in his second term, saying: "We need a new plan." He's proposing (and really that's all it is) the idea that each of us should have the OPTION of putting some of our Social Security contributions (up to 4% of earnings, to a maximum of $1,000 a year) into private or personal accounts with our own names on them-accounts that the government CAN'T TOUCH. Bush also proposes that we be allowed to CHOOSE how we want to invest that money. Just like a 401k plan, we would have the option of deciding whether to put it into a bond fund, a stock fund, a blended balance fund, or an asset allocation fund.

The point is, you would choose. And whatever happened to that money-whether your investment choice skyrocketed or tanked-it would be yours. When you retired, you would have to buy an annuity. Or you could let it ride and let your family inherit your money.

By the way, this system of allowing choices is the EXACT system the government currently offers government employees, including our elected representatives in the House and Senate. They call it a Thrift Savings Plan.


The main problem with Bush's proposal is that every dollar you and I decide to put into our new personal retirement account is one dollar less that would go into the government's coffers. It's being argued (loudly) that over the next decade or two this diversion of funds could cost the government upwards of $4 trillion.

Some of you may say, "Well, that's $4 trillion less for the government to waste." Not so simple. Here's why. If you choose (as you would because it's smart) to elect to have 4% of your social security put in an account in your name, the government would no longer have your money. So let's use $1,000 as an example. If you fully funded your plan with a $1,000 election, the government is now out that $1,000. Unfortunately though, the government has already spent that money. It promised it to everyone who expects to start collecting Social Security benefits over the next decade or two-not to mention a bunch of other programs. So to keep things afloat, the government will have to borrow MORE money to make up for the shortfall created by personal accounts.

This is why the "privatization of social security" doesn't fix the Social Security problem.


First we need to have an INTELLIGENT DEBATE about Social Security. It's time to set aside partisan rhetoric and deal with it.

I think the issue is fundamentally simple and yet it's brutally complicated. The fundamental issue is that people need to save money. The government forcing you and me to pay ourselves first would be brilliant IF THE MONEY WERE PUT IN INDIVIDUAL ACCOUNTS WITH OUR NAMES ON THEM. Social Security was not, however, designed to be a forced savings plan. It was designed to provide a cushion for people who are not financially secure. The problem is that it's become both a retirement plan for everyone and a cushion for the financially weak-and as a result, it no longer serves all of us equally.


I think it's time to start debating what Social Security is and what it should be. I also believe it's time we all had the option of putting a portion of our Social Security contributions into individual accounts with our names on them. If the government wants to insist that we can't touch this money until we reach a given age (say, 65) or we become disabled-that's fine, BUT LEAVE MY MONEY ALONE. Don't spend it on running the government and don't give it to someone else.

Along with private accounts, I believe we should have investment options, just like the government currently provides to millions of its employees. And we should allow Americans to use a portion of their Social Security savings to buy a home. Home ownership is the real secret to wealth creation and financial security in America. And this single step would make it possible for more than ten million Americans to buy a home.

I don't accept that Americans are too stupid to make decisions about investing their money. This belief flies in the face of what makes America and Americans great. Of course, if we had mandatory financial education taught in the schools-which is something I've long advocated-this wouldn't even be an issue. If people are smart enough to be allowed to select who runs the government, they should be smart enough to be able to select one of five investment choices.


As I noted earlier, allowing private Social Security accounts would create a huge cash shortfall for the government. So what do we do about that? Well, to put it simply, we have to get real.

First off, we have to raise the age at which people can start collecting Social Security benefits. The fact is, we should have adjusted retirement age to account for longer life expectancies years ago. If we took into account how much longer we live these days than we did in 1950, the minimum age for collecting benefits would now be now 70, not 62.

And we need to cut benefits. We've over-promised the American people what we can deliver to them, and it's time now to face up to it. We've got to stop kidding ourselves here. President Bush says his proposal won't change anything for people over age 55. So now it's the 50- to 55-year-olds who are getting upset. Well, life is tough. Someone in this deal is not going to be happy. You can't please all the people in this country all the time.


By the way, if you think Social Security is an entitlement that's been over-promised, wait until people start focusing on the Medicare Promise. Medicare's fiscal woes are six times worse than Social Security's. Yes-six times worse. For those of you who weren't paying attention, Congress and the president just completely blew up Medicare by enacting a bill to increase prescription drug coverage.

In total, here's what our over-promising stands to do to us. In 2003, Medicare and Social Security ran a combined deficit of $25 billion. By 2020, their joint loss will balloon to $783 billion. And by 2040, it will reach a total of $4.3 TRILLION A YEAR!


The International Monetary Fund is quite concerned about America's solvency. In January 2004, the IMF stated that we might be headed for a financial meltdown. It calculated that in order to avoid going bust, the U.S. government would need to hike federal income taxes by 60 percent and cut Social Security and Medicare benefits by 50 percent.

Hmmm-that strikes me as a pretty darn dire opinion.


I really want you to read this closely. Alan Greenspan, the Chairman of the Federal Reserve, is a very smart man. For twenty years now, he's been pushing Congress and the White House to deal with this issue of Social Security. For most of that time, he's done it politely and quietly. He's not being quiet anymore.

Here is what he just said this week. On March 2, he URGED Congress to move quickly to fix the financing problems of Social Security and Medicare, arguing that delaying would only make the country's budgetary problems more severe. He went on to repeat the warning he gave a year ago-THE GOVERNMENT HAS PROMISED MORE THAN IT CAN DELIVER to baby boomers approaching retirement.

Here is the most crucial thing he said: "If existing promises need to be changed, those changes should be made sooner rather than later." He added, "Making promises of retirement benefits that cannot be delivered is UTTERLY INAPPROPRIATE AND UNFAIR."

By the way, Greenspan supports Presidents Bush's proposal to allow people to divert up to 4% of their earnings to private Social Security accounts. In his view, this would bolster the country's dangerously low savings rate.


My goal in sharing all this with you is to get you thinking and get you talking. When people around you discuss this issue, you'll have something new to contribute. Many intelligent people are currently arguing the merits of allowing Americans to invest their Social Security contributions in the stock market. Some worry about the costs associated with the mutual funds the government may choose. (I find this particular worry silly; the government is going to choose the cheapest index-based funds around). Others wonder if we're overestimating the rate of return that a blended portfolio could really produce. These are all classic examples of debating the wrong issue. The question of whether we should have private Social Security accounts has got absolutely NOTHING to do with the stock market. It has everything to do with who should control the money that the government takes from your paycheck for Social Security. I think the money should go in our names, and be controlled by us. But that's my opinion! What's yours? Go get one. Read up on this-and care about it because it's important. Be heard. Talk to your friends.

And let's not turn this important issue that will affect our futures into a partisan Democrat-Republican issue.

Feel free to pass this newsletter on to your friends, and get them thinking about it. Click here to tell your friends about this newsletter list.


If you and I end up needing Social Security and Medicare to get by in old age, we'll both be in trouble. You really don't want to need either of these government programs. You want your own savings plan that you control. You want to be able to afford your own health care. You don't want to be dependent on our government. You really don't.

At the end of the day, the rich won't have to deal with these issues. The rich will have money to pay for retirement and health care. What about you?

I want you never to have to worry about these issues. That's why I wrote Start Late, Finish Rich. If you haven't read this book, you should seriously consider getting it. If you'd rather not spend the money, go to the library and borrow it for free. What's important is that you read it-and act.

If you want to buy Start Late, Finish Rich now at 34% off the retail price, click here.


You know how we got in this mess? It's the result of what I call "THE INTERVIEW FACTOR."

Remember the last time you interviewed for a job? You put on your best face, right? You dressed and acted the part so that you could get the job. This is exactly what politicians do to get elected. It's human nature.

The problem is that a politician can and will say anything to get elected. Why not? It's a short-term job. You can get yourself elected by telling people, "I'll make sure you're taken care of when you get old" and it won't matter if it's not true because you personally won't be around to deal with the ramifications.

This is a bi-partisan fact. And what is so sad is that right now the easiest thing for our legislators to do is nothing. The partisan politics swirling around Social Security truly show our country's leaders at their worst.

Here's my prediction: If this issue of Social Security gets tied up in partisan politics over the next thirty days-and if the people (which is to say, you and me) don't speak out, the possibility of fixing Social Security will be DEAD. And the reality is that very few in office care.

This truly is a "nightmare issue" for both parties. Whether you're a Republican or a Democrat, you cannot win on this issue because at the end of the day, we're all going to lose. The government made promises that it can't pay for-plain and simple. Try selling this to the American public: You get to have less now so the mistakes we made in the 1950s can be fixed in the 2050s. To say that President Bush faces an uphill battle, the likes of which very few Presidents have ever tried to tackle, is to put it mildly.

So please listen to the debates during the next few months. Read more about this issue. Come back to our website for updates. I'll keep you posted on what is happening and what I think-and I'll share what we hear back from you and others who email us.

If you've got a thought-let us know. You can contact us via our online form by clicking here.


As I said at the beginning of this newsletter, I was recently in Seattle. Now, you can't go to Seattle to share the message of "How To Start Late And Finish Rich" and not share the story of The Latte Factor®. So, of course, during one of my television appearances, I spoke about the power of finding your Latte Factor and I explained my new principle called the Double Latte Factor®.

What's the Double Latte Factor, you ask? Well, as I'm sure you know, it's not about the Lattes! The Latte Factor has been and always will be a metaphor for how we spend money on small things that add up over time. The idea is that it's really easy to spend $5 a day on a latte and a muffin-and that money can really add up. If you spend $5 a day on a latte and muffin, by the end of the year you've spent nearly $2,000! Add in your best friend, partner or spouse, and by the end of the year the total is closer to $4,000! And what do you have to show for it? Nothing (expect maybe a few extra pounds).

On the other hand, if you took that $4,000 and invested it in a "pay yourself first account" like a retirement plan at work and let it grow at a rate of 10%, in 25 years, you'd have saved more than $430,000!

I'm sure you know the moral of the story by now. IT'S NOT ABOUT THE LATTE. It could be the bottled water you buy, or the cigarettes, or the taxi rides, or eating out at lunch everyday. How we spend small amounts of money can be the difference between being rich or poor. We've all got more money than we think. We simply need to find it-and then save some of it!


When I wrote Start Late, Finish Rich, I realized I needed an equally powerful way to convince late savers that they could find $10 to $20 a day to pay themselves first. If you're a late saver, you need to save more than $5 a day. A great goal is $20 a day. But where will you find this money? That's where the Double Latte Factor metaphor comes in. The Double Latte Factor is about finding a "fixed monthly expense" that you really don't need and then cutting it back.

Here's an example. Say you have cable television. Today, it's really easy to spend upwards of $80 a month on cable. You literally can pay to have up to 200 channels of nothing on your television set. Face it-most of us who have that 200-channel premium deluxe cable package don't watch all 200 channels. In truth, if we watched ten channels, it would be a lot. So here's what you do. You don't have to GIVE UP the cable television, you simply cut it back. You call your cable guy and say, "Give me a basic package." Basic cable runs about $30 a month. Right there you've saved yourself $50 a month! My friend, that is a savings of $600 a year! Now take that money and invest it for 25 years at 10% and you've got nearly $65,000.

Don't stop there-look for other Double Latte Factors. Consider your cell phone bill. According to a recent J. D. Power and Associates' poll quoted in The Wall Street Journal, on average, we don't use 40% of our minutes each month. Let's say you buy 1,000 minutes a month for your phone. You don't have to give up your phone-I know you won't want to do that. But you could cut your plan back to 500 minutes. Now your cell phone bill drops from $60 a month to $30 and you've pocketed a savings of $360 a year!

Look for what your Double Latte Factor is and change it. The fastest way to save is to let a premium service that you pay for monthly get "de-premiumed"!

Go find your Double Latte Factor today. It might be the fastest money you've ever found.

*Read Delaware Online's article on the Double Latte Factor by clicking here.


My personal assistant Nicola, who's been traveling with me on tour and looking over my shoulder as I write, came to the realization that her Double Latte Factor is the phone at home that she doesn't use (because she only uses her cell phone). Her phone at home costs $75 a month (and that's just for the basics). On top of that, there's her cable service, which she never watches now because she's always working, and which costs her $110 a month. With all that in mind, she looked at me and said, "David, I'm canceling both of these services. That's $185 a month! More than $2,000 a year!"

In five minutes, she cut her cable charge back to $29.95 and cancelled her home phone. Her net savings for the year: an instant $1,800! Not bad for five minutes of effort. That's called giving yourself a raise.


Last week on CNBC, The Latte Factor was a big topic of conversation on Donny Deutsch's show "The Big Idea." I love this show and I think the host Donny Deutsch is truly amazing. If you haven't seen it yet, you owe it to yourself to watch. It's on every day now and it's possible that this guy is the next great interviewer of our time. He's a young Charlie Rose, and an unbelievable marketing genius and entrepreneur.

Anyway-Donny was interviewing a fellow financial author, who said, "Everyone's talking about the Latte Factor!" She went on to complain that young people won't stop going to Starbucks and drinking coffee, etc. Clearly, this author doesn't understand, like you do, that the Latte Factor is not about the coffee. It's a metaphor! Young people, middle-aged people and older people alike get it. And you know what? Some of them are, in fact, giving up their coffees along with other small things. Below you can read some new Latte Factor success stories. We've now got more than a thousand of these on our website and they really are motivating to read. Real people like you are having real success with this simple concept.

Here are some examples:

I was amazed to find that I spent $13 yesterday on Latte Factor items-little edible things I could really do without. Over the course of the month, I'm wasting hundreds and hundreds of dollars, which over a decade turns into a little less than an entire year's salary for me.
-Tamara Schillin - New York, NY

I went to the book store looking for information on personal finance and what I found was inspiration. After picking up your book I read through it and took it all in and made use of the wealth of the information provided. I figured out the my "Latte Factor" was $15/wk or $780/yr! Wow, I never even thought of it until I saw the numbers. My friends have also taken notice and also have purchased your book. Thanks David for the inspiration that a 21yr old needed to make a change for the best.
-William Wesley - Toronto, Ontario

I got your book and literally read it cover to cover in one day. I was amazed by what I had learned in such a simple amount of time. After doing the Latte Factor for a week, I realized my biggest Factor was late fees on rented movies, as well as renting the movies themselves. I've already found $80 a month just in that Factor and have more to go. The best thing is, after reading The Automatic Millionaire I realized the knot in my stomach was gone - I still have my debt and things to change but I realized right then that it's all DOABLE - and just knowing that makes the other steps even easier. Thanks!!!
-Joel Hayes - Oak Park, IL

I am writing to thank you for saving me over $70k today! Immediately after reading Start Late, Finish Rich, I signed up with the mortgage accelerator program and, as a result, my mortgage will be paid off six years early and I will save over $70k. In addition, I completed my Double Latte factor and realized another $1500 savings. Of course, I plan to invest this new savings so that my money starts to work for me instead of against me. Not a bad day! Thank you very much!
-Jim Dunn - Sturbridge, MA

Browse through hundreds of other Success Stories like these!

By the way, the author who was on Donny Deutsch's show and I don't know each other personally, but I appreciate her efforts to teach others, even if we disagree. No one has a monopoly on good ideas, and that includes me. I hope you're not just buying my books but that you're looking at other books on money, too. Each year you should read at least one new book on money. It only takes one great idea to change your life!


This newsletter list has grown by more than 20,000 people this month! Welcome to our new members. It's an honor to talk to you, coach you, and cheer you on. Thanks for helping make Start Late, Finish Rich an instant #1 bestseller. Thanks to you, this book is already in its 6th printing, approaching a half million copies in six weeks and it's already appeared at #1 on The New York Times, Wall Street Journal, USA Today, Toronto Sun, Indigo, and many other best-seller lists.

Your enthusiasm and support has made FinishRich Media the #1 financial education team of the last decade. In 2004, we had four books on a variety of top 10 best-seller lists. According to BusinessWeek's 2004 list of top business best-sellers, The Automatic Millionaire was the #1 hardcover of the year. As if that wasn't enough, Smart Couples Finish Rich was the #1 paperback of the year. And amazingly, Smart Women Finish Rich was #2, while The Finish Rich Workbook was #13. Thank you for your trust in me-and for being a reader.


Okay, now I have to gloat. Check out my son Jack. He's now 19 months old. He continues to amaze my wife Michelle and me on a daily basis. We're truly blessed.

My best wishes to you and your loved ones! Have a great month!

Live rich,

David Bach
Founder, FinishRich Media

P.S. Many of the statistics in this newsletter came from The New York Times, BusinessWeek, and Running on Empty by Peter Peterson. This is a great book, and I recommend it highly (click here to buy it).

PPS: I've still got five more cities left on my "Start Late, Finish Rich" tour, including:

Seattle, WA
Portland, OR
Milwaukee, WI
Rosemont, IL
Chicago, IL

To get free tickets for my appearances, click on a city above or click here or call 1-877-LIVE-RICH. At the end of each seminar, all attendees will receive a free copy of my book, The Automatic Millionaire.

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