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David Cordell
I wrote a financial planning column for a local newspaper in Clear Lake in the 1990s. Today, while I was searching for something on my computer, I stumbled across the following article. Keep in mind that it was from 1995 when I was not quite 44. Of course the numbers have changed, but the idea is still the same
April 1995
Have you ever stumbled across your old scrap book or high school or college annual? Have you ever read something you wrote long ago in a completely different stage of your life?
Well, I have. Sometimes I read my own words, written long ago, and think to myself, "How could I have been so stupid?" Or I look at a photograph from the early-seventies--one in which I am wearing bellbottoms that could hide a manhole cover--and I say to myself, "What was I thinking?"
Maybe you have heard the old phrase, "We grow too soon old, and too late smart." I'm in the stage of life when I am experiencing the first part of that phrase, but still waiting for the second part.
Wouldn't it be groovy, eh, I mean cool, if you could write a letter to yourself, send it to the past, and then your younger self would actually learn from it? No, I don't mean to help yourself win the football pool or the lottery. Just to give good, solid advice that your old self would seriously consider since it comes from someone he really trusts.
If I could write a letter to my 1975 self on the subject of retirement planning, it would go something like this:
Dear David,
Now that you're half way through your MBA program, you've learned a lot about finance and investments. I hope you won't mind my saying this (although I know you will), but you have more knowledge than wisdom. If you listen to my advice, I can guarantee that you will become more financially secure than I am. (Wait a minute. If you are me, how can you become...?) What I mean is, I'll be more financially secure than I am. Well, I'm not sure what I mean, but the point is that you ought to do what I'm about to tell you.
First, start saving for retirement as soon as you start making money. I know that retirement seems a million years in the future, but you'll be surprised how soon you'll be looking back at the years, wondering where they went.
As soon as you start your new career, begin saving at least ten percent of your income. Better yet, save ten percent for retirement and another five percent for other purposes. Sure, I know that you have other plans for that money. You've been a poverty-stricken student for several years, and you can't wait to buy a hot new car. But be patient.
Don't try to impress your new friends and colleagues by driving a fancy car that you can't afford. Believe me, you'll lose interest in the new car, and it's a depreciating asset. By contrast, you won't lose interest in the money you'll save by buying a less expensive car. (Pun intended.)
Sure, when you go to your high school's tenth reunion, no one will care how much you have in your retirement account. Everyone will be checking out cars and jewelry to see how well their classmates are doing. But by the twentieth reunion, no one will care.
For every dollar you do not spend on a car, guess how much you'll have if you invest it in the stock market for twenty years? $5.60. In other words, if you buy a car that costs $1,000 less than the one you want, you'll have $5,600 more in twenty years than you'll have otherwise. By the time you hit social security retirement age, it will grow to over $37,000. Hey! Do you understand?! I'll have...I mean, you'll have an extra $37,000 when you retire.
What I'm trying to say is live within your means. Well within your means. Most people your age spend not only every penny they earn, they also borrow money to support a lifestyle they can't really afford. They end up paying high rates of interest on growing piles of debt. In fact, the interest rate on their debt may be three times as high as the rate they receive on a savings account. Eventually, their lifestyles suffer because debt service becomes a major part of their budgets. In other words, if you live beyond your means now, you'll have to live below your means later.
Back to saving and investing, here's the best way to do it. When you pay your bills every month, pay yourself first. Ten percent or more, right off the top. Write a check to your mutual fund account. Better yet, try to arrange for payroll deduction. When the money is taken out before you get your paycheck, you don't really miss it.
In a few years, they'll invent something called an IRA. It will allow you to contribute up to $2,000 per year for retirement while reducing your currently taxable income. Also in a few years, your employer may offer something called a 401(k) plan. It will allow you to make even larger contributions, and your employer may even match your contribution.
Your employer will probably have a pension plan, so here are a few things to remember about them. First, if you stay with your employer long enough, you will be vested. That means that you will have a right to the money even if you leave the company. If you ever think about switching employers, find out what the vesting schedule is for your current pension plan. Sometimes even one month can mean the difference of thousands of dollars.
Second, if you do leave, you may have the option of cashing out, paying taxes and penalties, and then using the money however you please. Don't do it. Make sure the money stays in a retirement account. Understand? The money is for retirement. Not for a vacation, car, or down payment for a house.
The third thing you should know about pensions is that they favor people who stay with one employer for a long time. Twenty years with one employer will generate a better pension than ten years with each of two different employers. The reason is that most pension plans consider your length of service and your highest three years of salary.
Because of inflation, merit raises, and promotions, your highest three years will likely be at the end of your employment. Your first employer's pension will use an average salary that is much lower than the average used by your second employer. Instead of one pension based on twenty years at your highest average, you'll have two pensions--one based on ten years at your highest average in your second job and one based on ten years at the much lower average from your first job.
Is any of this getting through to you? Probably not. How about this then. Let me think. You are in 1975. 1975. OK. There's a regional retailer called Walmart. Scrape together everything you can, and invest in it. Don't sell until I write you another letter. In a few years, keep your eyes open for a little company called Microsoft, started by a dorky-looking college dropout. It will produce software for personal computers. That's right--personal computers. In twenty years everyone will have their own computer and each one will be more powerful than the mainframe that your college owns. Anyway, borrow if you have to, but buy as many shares as you can get your hands on. Trust me.
Yours truly--TRULY!
David
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Yes, fuck snow... 
