The I’m F*&#ed! Number
By Lee Eisenberg
It was the start of the new year, a bright and glorious day, marred only by the near-total collapse of the global economy. The S&P 500 was forty percent lower than it was twelve months earlier. A million U.S. jobs had disappeared in the prior two months. You opened your mailbox. You found a letter. It was from the firm that keeps tabs on your erstwhile holdings: your 401(k) or, as wags had begun to call it, your 201(k); and the 529-plan you conscientiously opened so your kids’ college funds could grow and grow — tax-free! The letter was earnest, and as empathetic as a form letter can be. It went something like this:
Dear Valued Client:
Our mission has always been to light your path to the secure financial future you’ve always envisioned for you and your family. Our philosophy has long been that day-to-day market volatility is simply “noise along the journey”. Yet recent market developments, and a highly uncertain economic climate, have no doubt impacted the value of your holdings. A few days from now, when you receive your year-end statement, you will likely see how the value of your portfolio has been severely impacted. While we remain optimistic that global markets will eventually rebound, we wanted to alert you — prior to the arrival of your statement — that more than ever it’s important to stay focused on a “game plan” for the long term. Meanwhile, please don’t hesitate to contact us with any questions.
You were relieved, actually. The letter could have rubbed it in. The letter didn’t mention that your spouse had been among those million job casualties. Or how obsessed you are with finding health insurance. Or that your home had been on the market for three years, , the current asking price a shadow of its former self. The letter, in fact, could have been far more concise:
Dear Valued Client:
You’re screwed. You’re poor. Please don’t hesitate to contact us with any questions.
A step back to happier days:
In 2004, I began research on a book about how much money we think we’ll need to feel emotionally and financially secure over the long haul. How much does it take to go off and write the great American novel, buy an indefinite pause to refresh? How much does it take to quit the rat race, devote time to a worthy cause? How much does it take to underwrite a satisfying, long-term retirement? Part of my research consisted of asking people to explain what money signified to them. Nearly everyone answered the same way. Money is “freedom”. Money is “security”. Money provides “peace of mind”. Now and then, someone reached for the moon to offer an original take. “For me,” one woman said, “money is fuel – it allows me to put my best ideas into action.”
The book, published three years ago, was called The Number.
“The Number? Oh, you mean ‘Fuck You Money’,” a veteran Wall Streeter said.
Anyway, that was then, this is now.
Then was about day dreams and wishful thinking as to what lay ahead, a lifestyle captured bucolically on the covers of money magazines: Adirondack chairs on a beach. Happy, toothy couples who owned small vineyards or charming country inns. The headline: HOW TO RETIRE RICH!
Now is about the gloom and doom embodied in that letter. Now is the auto industry, gone to hell. Now is Bernie Madoff. Now is two international money managers dead of self-inflicted gun shots, likewise a commercial real-estate developer outside of Chicago.
Wanting to take a further look at now, I dusted off some of the old questions, returned to the field. I spoke with friends, or friends of friends, many who worked in the newspaper, magazine, and book publishing business. I spoke with people I knew on Wall Street. What would it take to feel safe and snug? I asked them. People rolled their eyes. You must be kidding. It was clear right away that the old Number had given way to a new Number.
Fuck You Money? How quaint.
I’m Fucked Money? Now we’re talking.
The New Number Hits Wall Street
Nowhere is I’m Fucked Money more top of mind than in lower Manhattan. I put in a call to someone who used to be a long-time brokerage honcho. Eight years ago, he was smart enough to jump ship when the jumping was good. He traded the security of a solid job at a big financial services firm for a then-risky junior partnership at a mid-sized hedge fund. Today– all things considered — he’s in solid enough shape, certainly compared to those who soldiered on at the mainstream financial behemoths, chasing their Fuck You Money at wirehouses and banks, no few which went poof in the months right before the letter arrived. I asked my informant to give me a reading on the state of mind of those he’d left behind. He agreed, but only if I’d withhold his name. He said he didn’t want to betray confidences, or further humiliate former associates. I’ll call him Mr. Lucky.
“The first thing to understand,” Mr. Lucky told me, “is that “no one — I mean no one — is thinking about Fuck You Money now, even though that’s all they once thought about, talked about, lied through their teeth about. You know, ‘I got a million, I need five.’ ‘I got twenty, I need forty.’ Now all they care about is hanging onto a job, assuming they still have a job.”
Mr. Lucky offered up some case studies. Nobody he knows, he says, is on the verge of starvation, though all are trying to make peace with their new Numbers. He tells me about a senior money manager — Mr. Ashamed, I’ll call him — “a solid and good guy” in Mr. Lucky‘s estimation. Ashamed spent decades at a respected advisory firm founded in the late Thirties, which Lehman Brothers swallowed up in 2003. He continues to live in the same nice but not ostentatious home outside the city. “Here’s someone,” Mr. Lucky says, “who did just about everything right. He didn’t throw his money around. He was scrupulous about setting up trusts that would send his grandchildren to college.” About the only thing he did wrong, Mr. Lucky says, was stay true blue to his firm, before and after its acquisition. The assets he’d set aside to educate his grandchildren? Mostly Lehman stock – worthless. Today, says Mr. Lucky, Ashamed is “embarrassed and humiliated — not for his own sake but over how he failed his family. Sure, he’s an old pro, and knows the markets will eventually come back. But he also knows he won’t be around to see the day, to set things right.”
Then there’s a man who is a couple of decades younger than Ashamed, not as heavy a Wall Street hitter, but also a good guy. I’ll call him B. Prepared. Conservative, For years he knew that one day – a matter of when, but whether — the bubble would burst.” He was so sure of it that five years ago, to protect his old Number, B. Prepared cashed in his stock – worth around five-million dollars — and left his job at a brokerage. The plan was not to retire, maybe explore a start-up.. But the start-up never got started. With kids soon to enter college, B. Prepared again took pre-emptive action. He and Mrs. Prepared sold the family house, accepting far less than they believed it was worth — a cushion at least. Today, the Prepareds live in a rented place not far from their former, larger one. Just temporary. Their new Number will soon be taking them much farther away, to a state where the cost of living is lower and the public universities are, well, good enough.
Finally, there is someone who needs neither introduction nor sympathy from us. He’s the stereotype we love to hate — arrogant, free-spending, and rapacious. I’ll call him Mr. Jackass. Mr. J. started working on the Street in the Nineties, went around bragging how he’d be a million-dollar-a-year man in no time and – faster than you could say Stan O’Neil – he was. Mr. J., by any reasonable view, should be in reasonably good shape, even now. To make a million dollars a year for ten years ought to afford a Number big enough to fund a comfy retirement, more than enough to chuck a job and start a novel. But Mr. Jackasshad other uses for the money. A million dollars a year was about what it took to own a house in Connecticut, another in the Hamptons, plus two or three expensive cars, plus what clothes, wine, food, vacation travel and boat befit the Jackass lifestyle. It’s not as if Mr. J’s old Number went down with the markets. There was no Number to start with, no nest egg. In the words of a celebrated investment analyst (not Jim Cramer): “When you ain’t got nothin’, you got nothin’ to lose.”
The New Number Hits Main Street
This changeover from the old (Fuck You!) Number to the new (I’m Fucked!) Number is, in essence, all about Lifestyle Relapse. Lifestyle Relapse is an affliction that strikes adults both young and old. A story in The New York Times reports that residents of a retirement community in Florida, worried about Lifestyle Relapse, now have the TV in the card room tuned to CNBC. Applications to graduate schools are down, Teach for America applications are up. Those who can’t find work in business, finance, marketing, publishing, or technology, teach – a Lifestyle Relapse prevention measure.
Not everyone I talk to is, or is as yet, teetering on the precipice of Lifestyle Relapse. But nearly everyone is stepping gingerly. I talk to an architect on the West Side of Manhattan — Mike the Architect, I’ll call him, for he too prefers to remain anonymous. He doesn’t want clients, or clients to be — if there are any — to know how he’s feeling right now. Mike tells me he’s somewhat fortunate because his independent practice has low overhead, and he’s now far enough along on a handful of funded projects that are certain to move to completion. Fundamentally, though, he’s “pessimistic”. His old Number? He tries not to think about it: his invested assets are worth roughly half what they were a year ago. On the bright side, he says, there’s still decent equity in the apartment he and his wife bought in the 1980s. But — just in case — they are seriously thinking about splitting the place in two, living in one half, selling the other. They get around town using the subway, not taxis. They don’t eat out any more. The weekend before, Mike says, they had a Saturday night at-home dinner date with friends. “I bought a flank steak. Our friends did the salad,” Mike the Architect says.
I ask Mike if he and his wife have a financial plan to cope with their new Number – far fewer than half of Americans have a financial plan, which is a good thing to have when wrestling with either Fuck You Money or I’m Fucked Money. “Yes, we do have a financial plan,” Mike says. “To be honest, though, it’s more like a sketch than a plan. Let’s just say that if an architectural plan I give a client is anything like our financial plan, the building would fall down.”
Back when I was interviewing people about their old Numbers, I was struck by how few wanted to talk specifically about would it would take to feel secure over the long haul. They opened up about sexual fantasies. They rattled on about the drugs in their medicine cabinets. They fessed up to nips and tucks. But as for whether they’d saved enough for the future, to retire, or quit their current job, the Number was the Last Taboo. If they talked about it at all it was with a financial adviser, assuming they had one. Of those who did, more than a few had lousy ones, and not just those latchkey, so-called “money managers” who passed along their clients’ fortunes to Madoff. There are plenty of garden-variety financial advisers out there who mismanage nest eggs the old-fashioned way: by churning assets, selling questionable annuities to their clients, recommending lopsided portfolio allocations stuffed with high-fee mutual funds and exotic financial instruments nobody understands. But there are also reputable and wise financial advisers out there, so I check in with a few I’d gotten to know when I was doing my book research. They told me it’s a reasonably good time to be a financial adviser if you get paid by the hour, or as a percentage of assets under management. but not if you depend on commissions. They tell me their phones have been ringing off the hook. Hands to hold, spreadsheets to re-run. Fuck You Numbers need to be revisited or scrapped: If I cant retire now, then when? If I can’t tell the boss to shove tomorrow, then when? And there are I’m Fucked Numbers to be addressed from the ground up: How long do we have? What’s the worst that can happen?
Jonathan Smith, a registered investment counselor in Greensboro, North Carolina, tells of two recent phone calls, typical of many: “What are you doing with my money so I won’t lose a lifetime of savings?” “Am I broke yet?”
Dan Danford runs the Family Investment Center in Saint Joseph, Missouri. He says that older clients – Boomers and up — are jumpy if not altogether panicked, assuming they are reasonably well-diversified and not over-leveraged. Grey hairs at least have the benefit of previous, less calamitous, run-throughs: inflation in the Seventies; Black Monday; the Internet bubble.
Steve Smith runs an advisory practice outside Denver. He says he tries to get clients to look for a “silver lining” amidst the current calamity. Smith sees a glimmer of a “back to the future economy” taking shape now, wherein those on the edge of Lifestyle Relapse — jobless or soon-to-be jobless bankers, auto workers, newspaper reporters, and millions of others — may find gainful employ and solace through entrepreneurialism. Bad times are not a bad time to start your own business, Smith says. Rents and the price of equipment are low; employees are there for the asking, their demands modest; putative competition is in a weakened state. (Okay, maybe that’s a tin lining.)
My final call is to George Kinder, who played a featured role in the book I wrote. Kinder is a financial adviser, yes, but an unusual character: Harvard-educated classics scholar, a seeker of enlightenment through meditative practice. He runs an enterprise called the Kinder Institute, which is dedicated to teaching other financial advisers — who then try to teach us miscreants — how to close the loop between money and meaning, between money and fulfillment. That may sound New Age-y but those issues are relevant today: how do you buy a ticket to freedom if you’re as poor and screwed as that letter said?
I ask Kinder how worried he is about his own financial situation. Kinder is sixty, the father of young twins, has a lifestyle that would seem especially vulnerable to significant relapse: a house in Hawaii, another on a tranquil pond near Boston. He claims a strong spiritual connection to both places. Kinder says, yes, he’s concerned, but believes that his family is reasonably “weather-proofed” by two layers of protection, one financial, the other, well, I’ll get to it. Financially, he says, he is staying the course, not selling into the down market, hanging in there. He cites one of the few universal truths about how to lessen the odds that you won’t run out of money before you die: that if you’re somewhere around Kinder’s age, and reasonably well-diversified (60% stocks, 40% bonds, give or take), and don’t draw down more than four or five percent a year, then eighty years of historical market returns would indicate there’s almost no chance that you’ll outlive your nest egg.
But what if history doesn’t apply? I ask him. What if it is worse this time?
Here’s where Kinder’s second layer of protection comes in. “If necessary,” he says, “I’ll sell one, even both, of our homes. We’ll do what we must. Keep in mind, the issue is freedom, not freedom to spend. But unless we think hard about what freedom means to each of us, and it varies person to person, we default to the idea that freedom is the life Angelina and Brad can afford, but not us. Why? Because we’ve been taken in by false images of what freedom looks like”.
Meaning, I presume, those RETIRE RICH! money magazine covers, now fading fast.
The bottom line here is that the things that truly matter in life do not come with daunting price tags attached. Sure, we all need food, health care and shelter from the storm. Otherwise, we don’t need an especially big (old) Number to buy that which we “can’t live without”, what’s “bedrock important”, as Kinder says.
Now, to some — Mr. Jackass, for example—Kinder’s self-protection plan sounds squishy and naïve. But for others – Mr. Ashamed, B. Prepared, Mike the Architect, perhaps you and me – it may offer a ray of hope. To sell a house we love is no small Lifestyle Relapse. But if the tradeoff is freedom gained — creative expression, doing good for others, keeping loved ones connected — well, I call that comfort, even if it’s cold comfort, in this our winter of discontent.