Hope is NOT a Retirement Strategy

Release date: December 29, 2021
Duration: 60min
Guest(s): Ted Siedle and John MacGregor
Ted Siedle and John MacGregor

John MacGregor is a certified financial planner and author of The Top 10 Reasons Why The Rich Go Broke. Ted Siedle is a former attorney with the United States Securities and Exchange Committee, and co-author with Robert Kiyosaki on the book, Who Stole My Pension?

Ted, as Robert says, is America’s leading expert on pension looting. With over a trillion dollars completed in forensic investigations of pension plans, primarily state and local pensions, and over 30 years experience, Ted is also the largest whistleblower in history from the SCC and CFTC for a total of 78 million.

What about Gina Raimondo from Rhode Island?

Ted shares, “She has only one constituency and that's Wall Street. The state workers in Rhode Island, hate her, taxpayers hate her. She was at one point backing Hillary, and then she was Michael Bloomberg's campaign finance director. All over the place, but incredibly well educated, Rhode scholar, completely incompetent in any role she's ever had. Especially when she was running the pension in Rhode Island where she lost billions of dollars, mismanaging the pension, loading up on hedge funds.”

Robert says, “And the reason I bring this up is because well, Ted makes money suing these guys. Well he has to, because Wall Street has our agents in government everywhere. And so Ted was especially hot about old Gina. And she was still at Rhode Island in the government working for Wall Street, sucking pension money into Wall Street. I mean, that's the game.”

She was then appointed by the Biden administration as Secretary Commerce.

“So, Ted and I start talking about her and suddenly we got this message. You better, you boys had better not talk about her any longer,” Robert says,

“I was told not to talk about her anymore,” Ted adds. “What I'm writing about on Forbes a lot now Robert is that these pensions, these state local pensions are refusing to give the participants in the fund and the taxpayers prospectuses on what they're investing. So, every regulator in the world says, read the prospectus before you invest. Well, these pensions refuse to give the prospectuses to state workers and to taxpayers that are contributing. So nobody knows where the money is. There's this era of secrecy that's about 15 years old now. And the money is all secret. If I invest in a fund, I get a prospectus. If my pension invest in the exact same fund, the pensioner says I can't see the prospectus. Makes no sense.”

So, what’s happened to the United Airline pilot’s pensions, Ted?

“United was the largest bankruptcy of, they turned over, I think six of their pensions to the government. The pensions were taken over by the government. They were slashed and the biggest losers were of course the pilots because they had the most to lose. So, the flight attendants lost a little something, but the pilots a ton of money.”

Robert says, “I know I shouldn't been laughing, but it's really personal. My father loses in the teacher's pension and my guys I flew with in Vietnam, they have to start work all over again because they flew for the airlines. They flew for United and that's how bad it is. So, everybody let me plug this book one more time. Who Stole My Pension? If you're an old guy like me and you're counting on a pension, read the book and if a young person and your old man's going to, oh, your mother's going to move in with you, read this book because there's no pension. The idea of go to a job and find security in it, and then you get a pension for life is now a fairytale. And with that, we bring up John McGregor, who is a dear friend. We're neighbors in Hawaii, we played rugby for the Hawaii Harlequins.And he is a financial planner. He is a true financial planner because he is a student of the subject. Most financial planners they take a financial planning course and in five days, voila they're plotting your future and how much money they can take from your pension like everybody else does. But John really does care. That's why he wrote the book. He's authored the book, The Top 10 Reasons Why The Rich Go Broke and it's because it's generally in their pensions.”

So, with that welcome into the program, John.

“Thanks, Robert. Great to be here. Great to be here with Ted. Yes, we got to be careful what we say these days, but that's why I love this show is that we get to say it. You know what I mean? We don't hold back. So, I think that's why it's so popular. But as you said, and speaking of the United Airlines, I knew a very close friend who was a high end executive there. Had a ton of stock options in United Air. He had a pension from United Air pension. He had a 401k loaded with United Air stock and we all know what happened. Why? Because he trusted his employer. He thought he was set for life. And that was just an absolute train wreck. I mean, this is an issue, I'm seeing it at the ground level, right? I've been in the industry for over 20, it's going 27 years now working with, I estimate over 5,000 people of all walks of life, all demographics, rich, poor, women, men, et cetera.

And I've never seen it this bad. I mean public pensions, they've seen their liabilities grow over the last 20 years but particularly since COVID. I mean these plans are now facing increasing pressure to generate performance and now they're reaching and they're using risky investments to do so. I mean, think about this. Nearly every state in America is facing a pension shortfall. States have a combined 4.2 trillion in pension liabilities, but less than $3 trillion set aside for the pensions. And the typical state has about 70% of their fund is funded. And with this funding shortfall, we've got 10,000 people hitting 65, which is retirement, every single day. These states are headed for a pension crisis, especially when we see where the markets are right now. And this market can't keep going up. And I'm predicting a burst of this bubble. And then with interest rates going up, that's going to send the bond markets down. It's the perfect storm for so many people.”

Robert says what prompted this show is this article; “It says retirement fund giant CalPERS votes to use leverage more alternative assets. It means they're desperate. They're going to use higher risk so-called assets. And then another big asset that many people are counting on is their house. And so rich dad book written 25 years ago and people say, oh, I did what you said. I'm investing in real estate. I said that was 25 years ago, idiot. I mean, just because I made fortunes investing in real estate 25 years ago, doesn't mean the markets are the same. So, I'll be on a record for saying that, because I cringe every time somebody comes up to me, oh I'm following your advice. I'm investing in real estate. I said at the top of the fricking market? You got to be crazy. I mean, you've got to be really smart to make money when that real estate market comes crashing down.The same as gold will crash. Silver will crash and Bitcoin will crash. Not because they're bad assets, it's because the shortage of money. There is such shortage of cash right now and it's going to get worse. That's what why John and I are studying this thing with George Gavin and Jeff Snyder. The big problem is not the real estate market. It's really in the shadow banking system, outside the control of the Fed. So that's why this program on Rich Dad Radio is about the retirement of giant CalPERS, but more is about who is stealing your pension as we speak. So, you old guys pay attention. You young guys, you have mommy and daddy are going to move into that spare bedroom of yours? Pay attention. And with that gentlemen, we'll start with Ted. What does CalPERS mean to you? The California pension thing?”

It’s the largest pension fund in the United States, Ted says, or maybe even the world. “And for many people, since it's the largest, they consider it the gold standard. You know what CalPERS does, all other pensions should follow as best practice. But in fact, they're terribly mismanaged. Their former chairman of the board committed suicide, because he was going to prison. Another member, Fred Buenrostro he went to prison as well. And just a pension that's been riddled with scandal for decades now. And this newest news that you just read from the wall street journal of. So, they're significantly underfunded and they've decided the solution is to let's gamble big. We're going to increase our leverage and increase our use of alternative investments. But of course, what they're not saying is every alternative investment that I've ever looked at is permitted to do unlimited leverage. So, alternative investments are already highly leveraged, highly risky high cost investments. So, you're going to add a little gasoline on that fire by leveraging the alternative investments? I mean, it's a prescription for disaster. It's exactly what they tell you not to do when you're in Vegas. If you're down 30, 40, 50%, don't double down on your bet. Get the hell out, go home.”

John, tell us your background in financial planning.

“Well, just sticking into the theme of CalPERS, it's the largest fund as Ted mentioned, it's $185 billion short in what they owe to their employees. Yet they have the third highest payout to their employees. It's a train wreck. I mean, you look at what they're doing to their fund. I love how they started off with a 7% target rate that they're going to hit and they didn't hit that so they just lowered it. All right. We'll, let's shoot for 6.8 now. And in order to do that, they need to stretch for yield, meaning they're going to have to take riskier bets to hit that portfolio. Now they're moving as you said, into alternatives and infrastructure and private equity and all these kind of exotic kind of instruments. No one knows what's going on behind the scenes because as Ted said, they won't even share the prospectus because they claim it's trade secrets.

The other fascinating thing I've found, and I've seen this in boards that I've been a pension consultant for several years in my career. As you look at the board members at CalPERS, I mean, I'm sure these are nice people, but they have zero qualifications in terms of investing. You've got a director of parks and recreation. You got a guy who teaches glazing ceramics. You've got benefit directors, but zero investment experience. It's amazing. It's like giving a child a loaded handgun and these people are responsible for the largest pension as Ted said, potentially in the world. It's scary.”

Ted, what does your crystal ball say about the future of CalPERS?

“Well, I predict the future will be just what happened to you in Vegas. This is going to go very bad. Now the question is, if you don't allow people to see the investments and you let the money managers set the values themselves, how long after they lose big will that become public? It won't become public right away because there's a lot of secrecy there that will conceal what's going on. But I predict it will work out very badly. They will not beat the global financial markets. And if this worked, why didn't they do it 30 years ago? Because it wouldn't have worked, then it's not going to work now. And this is, final note is, to me this is the riskiest market I've ever seen in my life. And not because evaluations or whatever, simply because of the amount of secrecy in the market right now.”

We're seeing a ton of in these different municipalities around the country that are implementing vaccine mandates for a lot of their city workers, fire police, exactly. So we're seeing that a lot of them are taking early retirement or leaving their post. So my question is, does that have any immediate impact to these pensions? Does that accelerate the problems that we are seeing?

John MacGregor says, “these plans are now going to face even increasing pressure to generate performance as I said earlier, because as more people leave the plan, that's less money going into the fund. And as those people leave, they're also pulling their money out for their pension. So, it's a double edged sword on these plan. Now we've got, as I said, 10,000 people hitting 65 every single day. That's a lot of people retiring. On top of that add COVID and all those people that refuse to get vaccinated for whatever reason, they're being forced out of their employment as well. So, it's a huge drain and strain on these funds.”

Ted, what do you think this COVID thing or mandate and shut downs, how is that going to affect pensions?

“I'm not sure how it's going to affect pensions. I mean, as some people leave, younger workers may come in. I wouldn't really have a firm answer for you on what the impact of COVID will be on pensions. John may have another view on that.”

“These funds target that 7% return,” John says. “this in order to make their obligations to their employees that are retiring. They need to hit that certain target market based on the actuarial assumptions that they've created. It's an arbitrary number. It's really a number that hoping to reach for and it's nearly impossible in this environment. When we have a stock market at an all time high and interest rates at an all time low, hitting 7% on a consistent basis is very difficult, which is why CalPERS just lowered their target return from six, 7% to 6.8% because they know they can't hit. And that's why they're stretching with more riskier assets. That's the challenge.”

“ I can't tell you how many individuals I've worked with that have pensions and I'll show them how underfunded their specific pension fund is and they'll say it's guaranteed. It's in writing. They promised me that benefit. And I'll tell you, it's a very hard conversation to get people to realize that law changed in 2014 where now pensions can under the law, cut benefits when they can prove they're under financial distress. Most people don't realize that. And we're already seeing, and Ted could add to this a lot more than I could. We're already seeing pensions, pension benefits already in place being slashed. If there's no money, there's no money. I don't care how well written that guarantee is.”

Ted, explain what the PBGC stands for?

“Yeah. The PBGC is the Pension Benefit Guarantee Corporation that is supposed to be the backstop for all corporate pensions, not public pensions, but corporate pensions. But the PBGC is substantially underfunded. Last I heard is about 54 billion underfunded. So the federal agency established to bail out pensions needs a Bailer. They're 54 billion underfunded. And when the PBGC does quote unquote bail out a pension fund, still the benefits get slashed. It's not that like the benefits are guaranteed dollar for dollar. Only a certain amount of the benefits are guaranteed. And that's why you see the pilots, their pension may go from 140,000 a year to 40,000 a year. Or I think the maximum benefit that PBGC pays is like 50,000. So it's a very precariously, I mean, truth be known is bankrupt. The PBGC that's supposed to be backstopping all corporate pensions is itself bankrupt, but that's just being kicked down the can. No one's doing anything about it, but it's running at a huge deficit.”

Robert adds, So given that because generally what the PBGC backstops is called a DB, Defined Benefit pension plan. So, when you used to work for Ford Motor company that guaranteed your retirement. Then what happened in 1974 was a thing called ERISA, Employee Retirement Income Security Act, which led to the 401k, which led to guys like John MacGregor's profession jumping up because now the corporations, the defined benefits were shifting to a defined contribution pension plan, which a 401k, IRAs are. And that's where John comes in. So John that's when you pick up a client because they now have a 401k or whatever they have, an IRA if they're an independent business person. What do you see happening to their retirement plans for their defined, what they defined contribution for defined benefit? And they're now in IRAs and Roth IRAs and all these mumble jumble of alphabets. What do you see from a financial planner's point of view?”

“Yeah,” John says, “we see the pension plans disappear or severely being cut to new employees, a lot of companies don't want to offer a defined benefit or pension plan. That's the same term because they don't want to be on the hook for paying these people for the rest of their lives especially as life expectancies grow. That's why we've seen this huge shift from pension plans or defined benefit plans to defined contribution plans like 401ks, 457s or 403Bs. So now the individuals are self reliant on themselves to plan their own retirement rather than rely on a government or state or private pension. And so with people putting money into this 401k, they're really at the mercy of how the market's perform. Now, we've had a great bull run for the most part over the past 30 years, but that party's not going to on forever, sadly.

So people really need to really think about what they're doing and they cannot just leave it up to hope. I've heard too many people say, well, I just hope it works out. I'll tell you hope is not a retirement strategy.”

Ted, is there anything you’ve seen lately that people should know about?

“Well, the fundamental thing every investor should take or every public pension investor should take away from this conversation is the need for transparency. Over the last 15 years, public pensions were 15 ago that are intended to be the most transparent of all pensions in the world. Every state has a freedom of information act, which requires that how public money is invested, be subject to public scrutiny, that there be accountability. Over the last 15 years that transparency has disappeared. And there's a reason for that because when somebody's not willing to show you the documents, it's because there's something in the documents they don't want to show you.

So the key thing, if you're a participant in these funds, or if you're a taxpayer contributing to these funds, both of these groups, we refer to collectively as pension stakeholders, if you're a stakeholder in a public pension fund, which chances are you are, you should demand transparency and you should go to your state securities regulator and say, there's a state regulator in every state. Go to your state regulator and say, I'm not getting the prospectuses and the other documents I need to evaluate whether this pension is being well managed. And that is your best insurance that the pension is being properly managed. But right now there's this whole aura of secrecy across the country. Every city, state, every county they're blocking giving the prospectuses to the stakeholders.”

“And as John mentioned, claiming their trade secrets, there's no trade secret. If a prospectus is broadly disseminated to a thousand wealthy investors, it's not a trade secret. So anyhow, my advice to anyone listening is demand transparency at your local pension fund. And you are going to be amazed. If you get transparency, you're going to be shocked and amazed at what you see in those documents.”

What do you recommend people do? Because I suspect, people are talking about inflation. I think we're in depression right now.

John MacGregor says, “if I look at the bigger picture right now, 78% of people are living paycheck to paycheck, 78%. Then we talk about the three legged stool, as I often refer to. The three legged stool in financial planning is the pension. It's the government pension in our case, social security and its personal savings. We've already talked about the demise of the pension and how underfunded and how poorly managed they are. Now we have social security, which is the second leg of the stool and Medicare that’s due to be bankrupt, depleted in assets. You call it an asset as you mentioned by 2034. Then you have personal savings. It's the amount of money people have accumulated on their own. The average person was 65% of people could not come up with $500 for an emergency expense, 65%. So, as I say, this is the perfect storm, but sadly, too many people are unaware that this is even happening or even possible. They think everything's going to work out in the long run. And I'll tell you in the long run, we'll all be dead and broke. People have to pull their head out of the sand and they've got to get proactive and they can't rely on these plans for their financial future or for their family, otherwise they'll never be able to retire or retire the way they always envision for themselves.”

Ted says, “In every state and county where there's a pension fund today, there are Facebook groups that are sprouting up that are doing the work that traditionally supposedly unions would do. The number one worker priority right now is protect my pension. It's not make my workplace safer. COVID aside. It's really protect my pension. That's what these state workers are looking for their unions to do. But the unions are getting paid by Wall Street too. They're not doing this. So the Facebook groups, in Ohio where I'm doing a forensic investigation, 19,000 school teachers came together to raise $75,000 for me to do a forensic investigation. 19,000 school teachers who belong to Facebook group called STRS Ohio watch dogs. The union didn't do it. The pension fund didn't want it done.”

“The only way it got done was through Facebook group. So my thought, look around, is there a Facebook group that you could be a member? Again, this is for the pension funds. There are Facebook groups for IBM retirements. There are Facebook groups for any major corporation is going to have a Facebook group that some of which will be focused on pensions.”

So, do you recommend people go back to the stock market?

John says no. “So as Ted said, transparency is key. People really need to understand how their pensions are being managed. So that's one thing at a high level, but at the grassroots it's blocking and tackling. It's basic financial planning. They need to be aware of how they're managing their 401k, get help and get assistance. Too many people put money into it and they don't even invest. It just sits in cash. Most people haven't even looked or even asked for advice on how to manage their money within their 401k. There are plenty of resources. Then at the home, most people are overspending what they're generating. Period. That's why most people are living, 70% of people are living paycheck to paycheck. They outspend how much they earn. So people really need to take a close look at at where every dollar is going every single day and every single week and every single month, because that's what's draining people's bank accounts.

That's why most people couldn't come up with $500 for an emergency expense. So, these are just basic things. And then the last thing I'll say is, given the uncertainty in the job market and all the changes that are going on with artificial intelligence and all these other things, people really need to start thinking about alternative sources of income. A side hustle, a new business, whatever that is, people need to find other sources of income outside of their job period.”


Robert says there is one more thing people need to be aware of. “It's called obsolescence. There's a book called The Price of Tomorrow by Jeff Booth. He talks about, not that long ago there was a company called Blockbuster Video where you went in and you rented your video from. Today, you're in Netflix. So what happened is Netflix took off and Blockbuster went down. And that's going to be happening more and more as technology continues to wipe out certain companies. So, that's another thing to be aware of. So, we don't give out financial or investment advice, but it's a good place to start is to realize that there's a lot going to happen in the next few years. People are counting on inflation. Technically we're in a depression and a depression is different than a recession. A depression is subprime growth.

In other words, if growth should be at 3%, we're growing at 2%. And then John and I are going to be studying with George Gaman and Jeff Snyder. We study constantly. It's one thing we do at Rich Dad. And Snyder's talking about why the shadow banking system, where the long earned of the yield curve is going to crash. Because it's going to crash in the Euro dollar system. And people don't know especially the Americans don't know that there's a world out there. They think everything is LA, Los Angeles. And we're about to get fricking hammered. So please, increase your financial education. One of the reasons Kim and I created the cash board game in '96, from Rich Dad, Poor Dad is the answers inside you, but you have to want to study the resources to understand the source of your revenue, but also another thing called counter-party risk.

Like if you own Amazon, the counterpart is Jeff Bezos. You own gold, the counterpart is God. You own silver, the counterpart is God. You own Bitcoin, the counter-party is the network and blockchain. Now, will that prevent you from losing everything? No, but like in a depression, gold, silver Bitcoin will go down, but they will not go down as far as a stock, Blockbuster Video disappeared. So those are all considerations when you're studying. I'm very optimistic about the future. I'm investing more money in not stocks but my own startups, but that's what I do. And then I own stocks via the startup. But I have control over the board and things like that. So, those are some of the differences and I started early. So, today is the earliest day you got.”