David Bly

Nobody Owes You Anything: From Gardener to Entrepreneur

The average Nicaraguan is born in a shack with a dirt floor. He earns less than $15 a week.

“E,” my gardener in Nicaragua, does much better than that. But he is still, by U.S. standards, poor. Since I am in daily contact with E when I’m there, I often think about how I can help him earn more money. He wants more material goods — and who can blame him, when he sees how “well” we gringos live (in person and on television)?

Several years ago, I was tempted to give him the few thousand dollars it would have taken to make his house one of the nicest in the hamlet where he lives. But I knew from experience that it would do him no good. It would go as quickly as it came. Given money always does.

Worse, it would reinforce the very bad idea that money comes from me to him, instead of from his own labor and ingenuity.

Because I wanted E to have a nicer house and because I wanted him to understand that money represents something of value (hard work, enterprise, etc.), I gave him the opportunity to do some extra work for me.

Since he was already being paid for gardening, I told him I’d pay him considerably more on a per-hour basis than what he was making on a salary — but to earn it, he had to work in his spare time and develop more valuable skills.

He began by learning to paint and do a little carpentry. Then he learned how to do a bit of plumbing and electrical work.

About two years ago, we switched from hourly pay to job-related pay. This gave him the chance to learn how to estimate his time and write up bills and keep receipts and even to negotiate (with me!).

Today, he has the house I would have liked to give him years ago, but he got it with his own efforts. It wasn’t a gift, and he knows it.

He’s also used some of his extra earnings to build and stock a little store that sits in front of his house. His wife works there. It provides his family with a second income.

In his transformation from gardener to entrepreneur, E faced an obstacle that was greater than his lack of skills.

E went to grammar school (the only school they had) during the Sandinista years. The Sandinistas, to remind you, were Communists — so E was taught two very dumb ideas about wealth:

• Everyone is entitled to an equal share of it. (“To each according to his needs.”)
• Those who have more than others should give it up. (“From each according to his means.”)

These ideas move very quickly into thoughts like:

• “It is the responsibility of my government to take care of me.”
• “It is the responsibility of my boss and the business I work for to make me secure and financially successful.”

When E met me, the path to wealth was through Michael Masterson because Michael Masterson, his boss, had the money that E wanted. He didn’t want to have money like me. He wanted to have my money.

He saw money as a static thing. He believed that there was just so much of it in the world, and the only way to get some for himself was to get it from someone else. Since I was the only wealthy guy he knew, it made perfect sense for him to base his strategy for growing rich on “101 ways to talk Michael Masterson into giving me money.”

It is a very good feeling to know that E doesn’t feel like that anymore. I am still his biggest client, but he has done fix-it jobs for other homeowners in our community — and he has the extra income from his store.

Wrongheaded ideas about wealth are not unique to Communist countries. They exist in every country of the world, including the United States.

• Some people think they are entitled to be taken care of by the government. The result: They spend their time applying for government handouts.
• Others think that all the profits of a company should be distributed to its workers. The result: They’re never happy with what they earn.
• Still others think that no one is entitled to have more money than they have. The result: They keep trying to get people they know to give them some of theirs.

None of that will make you wealthy. In fact, it will make it harder for you to acquire wealth. Every minute you spend thinking about or asking for money you didn’t earn is a minute wasted and a bad habit reinforced.

Becoming wealthy in America s not difficult if you are willing to work for it. Anyone who is willing to do what E did can enjoy a much higher income and, eventually, financial independence.

It starts with recognizing that you are responsible for your own future. You must reject every idea that is about acquiring wealth for free. That includes blaming others for your situation — however bad it may be.

The next step, as E learned, is to acquire financially valuable skills. For him, that meant painting and carpentry at first — and later, the basics of owning a business. You probably already have a financially valuable skill — something you know how to do better than just about anyone else you know. You can build on that by acquiring marketing skills. And then management, negotiating, and the other skills that made E the successful entrepreneur he is today.

But to begin, you must overcome inertia. Inertia is the enemy of every worthwhile goal.

Inertia is the reason you can’t find the time to start developing the skills that will bring you financial independence. Or the reason you start, get busy… and then forget about it. Inertia is every excuse I have ever heard from people who return to ETR’s wealth-building bootcamps year after year and tell me why they haven’t yet started turning their dreams into reality.

Inertia is the problem, and there is only one way to overcome it. That way is to take action. Some significant, positive action that will get you going, even if you are not now sure exactly where you want to go.

The Internet abounds with self-help and wealth-building programs that can guide you along the way. (At ETR, we like to think that we offer some of the best.) If you have done nothing else so far, invest in one of these services today and get started on applying the lessons you learn.

And here is where the circle connects: Action is the key, but action won’t happen until you decide that you are responsible for your success.

So repeat after me:

“My parents owe me nothing.”

“My children owe me nothing.”

“My friends owe me nothing.”

“The world owes me nothing.”

“I — and no one else — am responsible for my success.”

By Ron Lieber

Annuities: The official retirement vehicle of the Obama administration.

As slogans go, it’s hardly “Keep Hope Alive,” or even “Change We Can Believe In.”

But there were annuities, in a report from the administration’s Middle Class Task Force that came out this week. They are among the tools the administration is promoting as it tries to give Americans a better shot at a more secure retirement.

At its simplest, which is how the White House seems to want to keep it, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.

If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won’t. In effect, it allows you to buy the pension that your employer has probably stopped offering, and it can help pick up where Social Security leaves off.

President Obama did not discuss annuities in his State of the Union address on Wednesday night, probably figuring that viewers had enough problems staying awake. But the mere mention of them by the task force was enough to send executives at the insurance companies that sell the products into paroxysms of glee.

“I never thought I’d have the president as a wholesaler for us,” said Christopher O. Blunt, executive vice president of retirement income security at the New York Life Insurance Company. “This is awesome. I’m trying to see if I can get him to do a big broker meeting for us.”

He’s unlikely to turn up for such an event just yet. After all, the announcement from the White House did make it clear that the administration was looking to promote “annuities and other forms of guaranteed lifetime income.” That suggests the administration is open to other solutions, though there are not many others that are as simple as the basic fixed immediate annuity (also known as a single premium immediate annuity) that delivers a regular check for life.

Still, all of this attention from the president is a stunning turn of events for a rather unloved product. Many consumers reflexively run in fear when salesmen turn up pitching high-cost and complex variable annuities, which evolved from their simpler siblings decades ago. Today, the Securities and Exchange Commission maintains an extensive warning document on its Web site for investors considering the variable variety.

Meanwhile, almost all employees on the precipice of retirement who have access to annuities as a payout option steer clear when their companies offer them. While various surveys show that roughly 15 to 25 percent of corporations offer annuities to workers who are retiring, including big employers like I.B.M., a 2009 Hewitt Associates study reported that just 1 percent of workers actually bought one.

“I joke sometimes that we’re the best ice hockey players in Ecuador,” said Mr. Blunt of New York Life, which sells more fixed annuities than any other company, according to Limra, a research firm that tracks the industry.

So what are these soon-to-be retirees so afraid of? And what makes the White House so sure it can change their minds?

Let’s start with the fears. Early on, the knock on annuities was that once you died, the money was gone. So let’s say a 65-year-old man in Illinois turned over $100,000 in exchange for $632 a month for life, a recent quote from immediateannuities.com. If he died at 67, his heirs would get nothing while he would have collected only about $15,000. (On the other hand, it would take him until age 78 to get $100,000 back, but that doesn’t take inflation into account.)

The industry solved this by coming up with variations on the policy, allowing people to include a spouse in the annuity or guarantee that payouts to beneficiaries would last at least 10 or 20 years. This costs extra, of course, meaning your monthly payment is lower.

Others worried about inflation, so now there are annuities whose payments rise a few percentage points each year or are pegged to the Consumer Price Index. These cost extra, too (often a lot extra).

You see the pattern here. Every time someone had an objection — the need for a bunch of payments at once, a lump sum in an emergency or concern about rising interest rates — the industry created a rider to add to policies to make the concern go away (and make the monthly payment smaller).

Besides, people need to have saved enough to purchase a decent monthly annuity payout in the first place. But plenty of retirees haven’t been saving in a 401(k) or individual retirement account long enough to have a good-size lump sum.

There are also stockbrokers and financial planners standing in the way. Once money goes into an annuity, they can’t earn commissions from trading it anymore and may not be able to charge fees for managing it. Financial advisers have a charming term for this phenomenon — annuicide. You insure, and their revenue dies. So, many of them will try to talk you out of it.

One reasonable point they might make is that insurance companies can die, leaving your annuity worthless. State guaranty agencies exist, but they may cover only $100,000 to $500,000. I’ve linked to a list of the agencies in the Web version of this column so you can see what they insure.

Even if you get over all these mental hurdles, however, the hardest one may be the difficulty of seeing a big number suddenly turn small.

“It’s the wealth illusion, the sense that my 401(k) account balance is the largest wad of dollars I’ll ever see in my lifetime, and I feel pretty good about having that,” said J. Mark Iwry, senior adviser to the secretary and deputy assistant secretary for retirement and health policy for the Treasury Department. “Meanwhile, I feel pretty bad about the seemingly small amount of annuity income that large balance would purchase and about the prospect of handing it over to an entity that will keep it all if I’m hit by the proverbial bus after walking out of their office.” So how might the Obama administration solve this? It could get behind a Senate bill that would require retirement plan administrators to give account holders an annual estimate of what sort of annuity check their savings would buy. That way, people would get used to thinking about their lump sum as a monthly stream.

Tax incentives could help, too. A recent House bill called for waiving 50 percent of the taxes on the first $10,000 in annuity payouts each year. “If this is behavior that the administration is trying to inspire, then it’s not that long of a leap to think that maybe they’ll start to promote some version of these bills,” said Craig Hemke, president of BuyaPension.com, which sells basic annuities (and offers some good educational material for people who are trying to learn about the products).

Mr. Iwry, who is one of the intellectual architects of the administration’s examination of annuities, wouldn’t say much about what might happen next. But one paper he co-wrote two years ago suggests a clue.

As the treatise suggests, the administration could nudge employers into automatically depositing, say, half of new retirees’ lump sums into a basic annuity or other lifetime income product, unless they opt out. Then, they could test the thing out for two years and see how that monthly paycheck felt. If they liked it, they could keep the annuity. If not, they could cancel it without penalty and get the rest of their money back.

Annuities won’t be right for everyone (people in poor health should probably steer clear). And they’re not right for everything because it rarely makes sense to put all of your money in a single product or investment.

You could, for instance, use an annuity to cover the basic expenses that your Social Security check doesn’t cover. You might also use the money to buy long-term care insurance, which would keep nursing home bills from becoming a budget-destroyer.

But the president has one thing right: The basic annuity is almost certainly underused. Sure, you may be able to arrange a better income stream on your own, but not without a lot of help from a financial planner or a lot of time managing it yourself. Then there’s the possibility, however small, that you’ll spend too much in spite of yourself or run into a once-in-a-generation market event that will cause you to run out of money sooner than you expected.

All of that makes basic annuities the ultimate test of risk aversion. If you buy some, you and your heirs may have less money than if you’d kept your retirement savings in investments. Then again, if you guarantee enough of your retirement income, you — and those same heirs — won’t have to worry about how you’re going to meet your basic needs.

Ron Lieber writes the Your Money column, which appears in The Times on Saturdays.
A version of this article appeared in print on January 30, 2010, on page B1 of the New York edition.