Table Of ContentAmerica, Welcome to
the Poorhouse
This page intentionally left blank
America, Welcome to
the Poorhouse
W Y M D P Y
HAT OU UST O TO ROTECT OUR
F F R W N
INANCIAL UTURE AND THE EFORM E EED
J W
ANE HITE
Vice President, Publisher: Tim Moore
Associate Publisher and Director of Marketing: Amy Neidlinger
Executive Editor: Jim Boyd
Editorial Assistant: Pamela Boland
Development Editor: Russ Hall
Operations Manager: Gina Kanouse
Digital Marketing Manager: Julie Phifer
Publicity Manager: Laura Czaja
Assistant Marketing Manager: Megan Colvin
Cover Designer: Alan Clements
Managing Editor: Kristy Hart
Project Editor: Lori Lyons
Copy Editor: Cheri Clark
Proofreader: Kay Hoskin
Indexer: Angela Martin
Compositor: Jake McFarland
Manufacturing Buyer: Dan Uhrig
©2010 by Jane White
Publishing as FT Press
Upper Saddle River, New Jersey 07458
This book is sold with the understanding that neither the author nor the publisher is
engaged in rendering legal, accounting, or other professional services or advice by
publishing this book. Each individual situation is unique. Thus, if legal or financial
advice or other expert assistance is required in a specific situation, the services of a
competent professional should be sought to ensure that the situation has been evaluat-
ed carefully and appropriately. The author and the publisher disclaim any liability, loss,
or risk resulting directly or indirectly, from the use or application of any of the con-
tents of this book.
FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or
special sales. For more information, please contact U.S. Corporate and Government Sales, 1-800-
382-3419, [email protected]. For sales outside the U.S., please contact
International Sales at [email protected].
Company and product names mentioned herein are the trademarks or registered trademarks of
their respective owners.
All rights reserved. No part of this book may be reproduced, in any form or by any means, with-
out permission in writing from the publisher.
Printed in the United States of America
First Printing September 2009
ISBN-10: 0-13-702017-1
ISBN-13: 978-0-13-702017-1
Pearson Education LTD.
Pearson Education Australia PTY, Limited.
Pearson Education Singapore, Pte. Ltd.
Pearson Education North Asia, Ltd.
Pearson Education Canada, Ltd.
Pearson Educatión de Mexico, S.A. de C.V.
Pearson Education—Japan
Pearson Education Malaysia, Pte. Ltd.
Library of Congress Cataloging-in-Publication Data
White, Jane, 1948-
America, welcome to the poorhouse : what you must do to protect your financial future and the
reform we need / Jane White.
p. cm.
ISBN 978-0-13-702017-1 (hbk. : alk. paper) 1. Retirement income—United States—Planning.
2. Finance, Personal—United States. 3. Finance—Government policy—United States. I. Title.
HG179.W5229 2009
332.02400973—dc22
2009023705
Contents
Introduction . . . . . . . . . . . . . . . . . . . .1
Part I 80% of Americans Can’t Afford to Retire
Chapter 1 Why You Can’t Retire from a 401(k) Plan:
You Won’t Have Ten Times Your Salary in
Your Account at Age 65 . . . . . . . . . . . . .9
Chapter 2 How to Save Wisely Until We Get 401(k)
Reform and How to Make Reform Happen . .35
Part II How the American Dream Turned into a
Nightmare
Chapter 3 The Mortgage Mess: It Ain’t Just Subprime—
It’s Half of Americans in Overpriced Homes . .55
Chapter 4 How Laws Protect Banks, Not Borrowers,
and the Reform We Need . . . . . . . . . . . .67
Chapter 5 The Fix: Refinance to a Fixed-Rate Mortgage;
Move to an Affordable Region . . . . . . . . .81
Part III College Is Unaffordable When the Majority of
Americans Need Degrees
Chapter 6 Why We Need More College Graduates to
Compete with China and India . . . . . . . .105
Chapter 7 How Sallie Mae Lobbied Congress and
“Enticed” Colleges to Offer Its Loans . . . .115
AMERICA, WELCOME TO THE POORHOUSE
Chapter 8 The Fix: Grants, Government Loans, and
Colleges That Are Free . . . . . . . . . . . .129
Part IV 35 Million Americans Are Drowning in
Credit Card Debt
Chapter 9 How Credit Card Debt, Home Equity
Loans Get You Over Your Head in Debt . . .141
Chapter 10 The Fix: How to Get Out of Credit Card
Debtor’s Prison . . . . . . . . . . . . . . . .151
Part V Real Campaign Reform That Puts Citizens,
Not the Business Lobby, First
Chapter 11 How Big Business Owns Both Political
Parties . . . . . . . . . . . . . . . . . . . . .167
Chapter 12 The Fix: Replacing Corrupt Politicians with
Ones Who Work for Taxpayers . . . . . . . .177
Conclusion The Big Fix: Recruit the Smartest Workers from
Around the World, Send Most Kids to College,
Measure Household Wealth . . . . . . . . . .191
Endnotes . . . . . . . . . . . . . . . . . . . .205
Index . . . . . . . . . . . . . . . . . . . . . .237
vi
Acknowledgments
When you write a book, you’re “dependent on the kindness of
strangers”—or people who know you and don’t mind lending a hand.
I couldn’t have written this book without the input of the follow-
ing people, in alphabetical order: Ginna Green, Keith Gumbinger,
Bill Karbon, Judy Kennedy, Fred Reish, Massie Rich, Luke
Swarthout, and James Turpin. Thanks to Mark Zandi from Moody’s
Economy.com for access to his great research. And last, but
definitely not least, thanks to Jim Boyd for being a great editor.
vii
About the Author
Jane Whiteis Founder and President of Retirement Solutions, LLC,
which promotes 401(k) reform and provides investment education. In
2007, at the U.S. Department of Labor’s invitation, White presented
recommended 401(k) contribution rates to the ERISA Advisory
Council. As a result of White’s testimony, the Working Group on
Financial Literacy recommended that the DOL “encourage plan
communication that uses income replacement formulas and final pay
multiples.” A Congressionally appointed delegate to the 2002
National Summit on Retirement Savings, White first observed the
401(k) savings crisis in 1993 as associate editor of Standard & Poor’s
Your Financial Future, distributed to half a million 401(k) partici-
pants. A former syndicated personal finance columnist for Gannett
News Service, White first observed the housing bubble and the risk of
adjustable rate mortgages in her 1991 book, The Cost Conscious
Homebuyer’s Guide. Her articles have appeared in The New York
Times, Barron’s, and Employee Benefit News.
viii
Introduction
Are You Better Off Than You
Were as a Kid?
The nationally broadcast debate in 1980 between President Jimmy
Carter and would-be President Ronald Reagan was summed up in 10
short words: “Are you better off than you were four years ago?”
For Carter, the situation was dire. Iranian radicals had held 52
American hostages for nearly a year. The economy had nose-dived
while inflation skyrocketed. Nothing Carter said could counter
Reagan’s rhetorical question. It was Reagan’s debate and a week later
it was Reagan’s election.
Today if you ask yourself, “Am I better off than I was growing
up?” the answer may very well be no. This time it’s not a war or hyper-
inflation that’s threatening America (although we’re still paying
through the nose for gasoline prices), but financial stress.
Despite the fact that many Americans may appear to be wealthy,
too many have been “living on leverage”—over their heads in debt—
unless they’ve got “chief” and “officer” in their job titles because most
of what they own is paid for with borrowed money—whether it’s cred-
it card debt or home equity loans—not with rising wages. While in
1980 the average CEO wage was 42 times that of the average worker,
in 2008 it was 208 times, averaging $7.7 million.At the same time, the
average weekly earnings for Americans has actually decreased in the
past 30 years, from more than $325 in the early 1970s to about $280
in 2005(in 1982 dollars).
In March of 2009 a poll by CNN Opinion Research Corp.
showed that only 39% of respondents thought they’d be able to keep
up their quality of life—down from 45% the previous year. Only 50%
1
