Investing Lessons From House Of Cards’ President Underwood
He may be a murderous bastard with no conscience, but if Frank Underwood were a real-life candidate for the presidency, I would vote for him.
Frank Underwood is not a real person, of course. He’s the crooked politician portrayed by Kevin Spacey in the Netflix (NFLX) series House of Cards who claws his way into the White House by manipulating the press and ruthlessly crushing anyone that might get in his way. But sadly, with one line, he delivered more honesty than I have seen from any president, senator or House representative, from either party, in my lifetime:
We’ve been crippled by Social Security. By Medicare. Medicaid. Welfare. And entitlements. And that is the root of the problem. Entitlements. Let me be clear: You are entitled to nothing.
Underwood then goes on to propose a ludicrous $500 billion make-work program for the unemployed, but we’ll ignore that for now. Instead, I want to focus on that last line: “You are entitled to nothing.”
If you’re in or close to retirement, those words are going to rub you the wrong way. But that doesn’t mean that they’re not true. Social Security and Medicare are not “rights” in any sort of legal sense. Congress decides on the payout, and Congress can change it—or eliminate it— at any time. You really are not “entitled” to anything and certainly not guaranteed.
But that’s not the message we get from our leaders. Instead, they make promises that they know can never be kept, but they do so knowing that they will not be up for reelection—or possible even still alive—when they have to be broken.
You are entitled to nothing. It’s not fun to hear, but it’s important to keep it in mind when doing your retirement planning. You should go forward with the assumption that your benefits in retirement will be lower than currently promised… and possibly much lower.
Here are some specific recommendations on how to approach your planning:
- Focus on income rather that the “magic number.” Most financial planning centers around amassing a nest egg of a certain size, but this is completely backwards because it doesn’t take market yields into account. A million-dollar bond portfolio would have paid about $40,000 ten years ago. Today, it would pay about $22,000. So again, focus on the income being thrown off rather than a certain net worth number.
- Consider investments you might have never considered before. With the stock market priced to deliver lousy returns over the next decade—and yielding a pitiful 1.8% in dividends—investments like preferred stock and closed-end bond funds can good income producers if bought at a good price.
- While I’ve never been a fan of variable annuities due to their high fees and maddening complexity, an immediate annuity can be a way to turn part of nest egg into a safe stream of income resembling a pension.
Just take President Underwood’s words to heart—you are entitled to nothing—and set about planning accordingly.
Disclaimer: This post is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any ...
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I believe that I am entitled to a return on the money the government extracted from my pay along with reasonable interest.
Excellent post and comment thread.
I may not be the real Frank Underwood, but we have a lot in common and I believe he was 100% right when he gave the entitlement speech. Charles Sizemore did a great job of taking a fictional speech and explaining why its important to real people. Nicely done.
Nice article. I also thought Underwood's plan was either crazy or pure genius. I actually think the plan could work in real life but I did see some problems. It's great to give a job to everyone who wants one. But:
1. Some people are simply unemployable - the unreliable, incompetent, etc. What would be the result? We just keep giving them jobs after they get fired over and over again? There is a cost to that as well.
2. Some people would likely get stuck with jobs that they aren't interested in or are below their level of expertise. For instance, Underwood's buddy went from being a successful entrepreneur who owned his own business, to being a dish washer in someone else's. That's far from ideal.
Regardless, being that Underwood is unlikely to swoop in and save the day, take Sizemore's advice and invest in your own future.
Here's another problem I spotted: there would be rampant fraud.
Part of the plan is that the government would pay part of the salary to encourage companies to expand. If I heard correctly, Underwood said that the gov't would pay up to $45,000 of the salary of any one who is hired through the "America Works" program. This would effectively enable companies to expand, which normally wouldn't be able to do so due to lack of funds.
I expect that people would "hire" others for a fee. The workers would pocket the money and never do any actual work. Effectively taking a welfare handout. The oversight of this to avoid fraud would be cost prohibitive and we'd be right back where we started - welfare fraud is also rampant and too difficult/expensive to prevent.
I am a huge fan of the show and actually thought Underwood's solution to unemployment was pretty intriguing. I agree there are too many entitlements, and rather than paying people welfare to sit home and do nothing, we should use that money towards employing them and empowering them to better themselves.
But the one area I was trouble was Social Security. People who have been working for years and paid into social security with every paycheck ARE not only entitled to that money upon retirement, but could be dependent on that money as their only source of income. Reappropriating that money was outright theft and is just a case of stealing from Peter to pay Paul.