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CNN IN THE MONEY
Bill to Boost American Energy; Blood Money; Saving Too Much Money
Aired July 30, 2005 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR, IN THE MONEY: Welcome to the program. I'm Jack Cafferty.
Coming up on today's edition of IN THE MONEY, blood money. It takes cash to keep a terrorist network up and running. We'll look at how the funding works and how to stop it cold.
Plus, more carrot than stick. A new bill in Congress will give a boost to America's energy businesses. See if that's too much of the same old song for the country's own good.
And sorry, wrong number. We'll speak with a financial planner who says you just might be saving too much money for your retirement. Think about that for a minute.
Joining me today, a couple of IN THE MONEY veterans, CNN correspondent Susan Lisovicz, "Fortune" magazine Editor-at-large Andy Serwer.
So, Senate Majority Leader Bill Frist has decided all of a sudden that he's going to break ranks with the White House on the issue of stem cell research. Why now?
ANDY SERWER, CNN ANCHOR, IN THE MONEY: Well look at this.
SUSAN LISCOVICZ, CNN ANCHOR, IN THE MONEY: Rhetorical question.
SERWER: This is a man who is a senator, who is a heart surgeon, who is a presidential candidate. So, you put all of those things in your shaker and you shake them up.
I think what is going on -- there is a little bit of conscience going on right now and the United States is starting to fall further and further behind. He does see that happening and I really believe that did have something to do with his decision. On the other hand, there is the presidential race coming up.
LISCOVICZ: Oh, yes! Yes. The good doctor is -- you know, there's no question about his qualifications as a surgeon. But his abilities as a politician are tested every day in the little tap dance that he has to do.
He opposes abortion, but he is now supporting extended research for these embryonic stem cells. It's a really difficult little dance. Certainly, all parties are going to be pulling for him -- pulling at him either for or against, as he goes into the political fray. CAFFERTY: Well, the problem, politically, is that he's going to alienate the right wing of the Republican Party. You cannot be elected president of the United States without the support of the right wing of the Republican Party, and they are right squarely aligned with President Bush in their opposition to embryonic stem cell research. So he's appealing to the masses, because public opinion polls are in favor of this, but politically I don't think it's a very bright move at all.
SERWER: I'm not sure it is quite so monolithic there, Jack. I mean you look at Nancy Reagan and she's very much in support of Frist's position. And there are people -- you know, it's interesting when it comes to your own family, people start to change their minds a little bit.
CAFFERTY: Well, that's true.
SERWER: You know, but you certainly do have a point. It'll be interesting to see what happens here.
CAFFERTY: All right. On to other things. A terrorist attack doesn't come out of nowhere and neither does the money to make it happen. Earlier this week, the European Union proposed tough new rules for tracking terrorist funds through the banking systems in Europe. The banks, of course, are warning that means that customers will have to pay for this in the form of higher costs. All that, as British police work hard to chase down suspects from two bombings earlier this month.
For a look at how terrorist money travels around the world, we're joined now by Matthew Levitt, who is the director of the Terrorism Studies Project at the Washington Institute for Near East Policy.
Matt, nice to have you with us. Thanks for being on the program.
MATTHEW LEVITT, WASHINGTON INST. FOR NEAR EAST POLICY: A pleasure, as always.
CAFFERTY: A great deal is made about cutting off the funding for terrorism and yet, the July 7, attacks in the London subway system were nothing, if they weren't kind of low-budget affairs. I mean that didn't cost a lot of money for those four people to go in there and wreak the havoc that they did.
Put a little perspective on this for us, will you?
LEVITT: Well, it didn't cost a lot of money for them to actually carry out the attacks. No particular attack does cost all that much money. But to have the overall infrastructure that enabled this attack to happen, for these people to travel abroad, for communications, for cell phones, for safe houses, it does take a tremendous amount of money.
Nine-eleven was a huge operation and maybe it was huge bang for its buck, but it still cost $500,000. Some suicide bombings in Israel cost as little as a couple of thousand dollars, some cost as much as tens of thousands of dollars. The bottom line is that all of this costs money and money is something that you can stop in terms of getting it where they need it.
LISCOVICZ: Right, Matthew. But there are other forms of currency, if you will. Wasn't the Madrid bombing equally horrendous, financed by drug money? By drugs?
LEVITT: But it's all money. You're absolutely right, there's drug money. There is money that comes from charities. There is money that comes from individuals. There are a variety of ways to raise those funds, which just makes the point all that much more real.
The issue is when we talk about terror financing, it's really three things -- it's the raising, the laundering and the transferring of funds. And sometimes, it's very local, as was the case in Madrid. We've yet to find out what the nature of the financing was in London or in the case of 9/11, very international. But the bottom line is, it's a very effective way to make it harder for terrorists to do what they want to do.
SERWER: Matthew, how much of this, though, is simply impenetrable?
And I'm thinking about the Saudi royal family and the monies they've sent to al Qaeda and Bin Laden. And I've tried to do some work in that area, getting into the finances in Saudi Arabia. It's very difficult. Obviously, the government has a tremendous amount of resources to do that. But impossible, perhaps?
LEVITT: Well, what may be impossible is shutting down the amount of funds that are available to be given or to be drawn to support terrorism, whether it's the Saudi royal family and others in the Saudi leadership, others outside the kingdom of Saudi Arabia, or drugs, or what have you.
The area where we're most successful is not in drawing up the amount of funds that are available, but in making it more difficult for them to launder and transfer those funds; to make it more difficult for them to get the money where they need it and to constrict that type of operating environment. And they were very successful.
The other point to raise is that you know, our last major security priority was the Cold War. And there, the main way we went about dealing with that is through deterrents.
When it comes to the type of terrorism and suicide bombers we're dealing with today, there is no such thing as deterrents. You cannot deter a suicide bomber. Even when the Israelis, for example, have tried to say, well, you may not care about your own life, but you care about your family's and we'll demolish your house. So Hamas will just rebuild that house.
There is only one area where deterrence still works, and that's with the financers. You can deter financers who are not willing to commit suicide themselves neither personally nor financially, and when their financial empires are targeted, they start to back off. And we have seen that in several cases.
CAFFERTY: What about the European Commission's, the Union Commission's decree this week that they're going to demand better record keeping on the part of banks in terms of account numbers, names, addresses, etc. for customers that do wire transfers? One, will it work? And two, if it will, where have they been? They're a little late to the party on this stuff, aren't they?
LEVITT: Well, we're all a little late to the party. This is something we've been doing here in the United States for some time, and I'm glad they are catching up. It will be very beneficial both in terms of engaging in preventive intelligence operations and post-blast investigations.
In 9/11 and many other cases, the first major leads came through financial intelligence, and so this is a very effective way to keep track of this.
If you don't have the names, if you don't have the phone numbers there's, you know, nothing to follow up on. When you do have that kind of data, one of the great things about money is that it doesn't lie. The money trail speaks the truth, whereas you can interrogate people and you can find information on people's hard drives, but you then have to spend a lot of time vetting that information. So, a lot less time spent having to vet financial data.
LISCOVICZ: OK, so that's what the European Union is doing. Now compare it to what the U.S. is doing -- also a target.
LEVITT: Absolutely. The United States, of course, is a target. We have set up in our Treasury Department an entire branch on terrorism on financial intelligence. There's a huge effort on the part of the U.S. government through many agencies and departments, a variety of task forces to try and coordinate the investigations into terror financing. We require a tremendous amount of reporting. If anything the banking industry is complaining that we require too much.
SERWER: Matthew, how much stock do you take in that recent report that said that Osma Bin Laden was in touch with Colombian cocaine drug lords and was going to finance his campaign through the sales of poison cocaine? Was that true?
LEVITT: I don't put any stock in that. I've not seen anything to verify it. But you know, anything is possible. We have seen an increase in terrorists reaching out to organized crime. But the reports that we've seen in the past about al Qaeda's -- certainly inner core al Qaeda -- reaching out to South American drug trade has never in the past proved to be true.
CAFFERTY: All right we are going to have to leave there. Matthew Levitt's the director of terrorism studies program at the Washington Institute for Near East Policy. Thank you for appearing on IN THE MONEY. Appreciate your perspective.
LEVITT: Thank you.
CAFFERTY: All right. Stay with us. Remember to stay tuned to CNN day and night for the most reliable news about your security.
When we come back on this program, good to the last drop. A new bill in Washington will give America's traditional energy companies a boost. This, as the oil companies make record profits in the tens of billions of dollars every quarter. Find out if Congress is thinking like it's 2005 or 1975.
Plus, it's Amazon, out with its summer numbers. We'll see if they're going to be on Wall Street's bestseller list.
And cutting CEO paychecks down to size. A congressman in Minnesota has an idea for cutting the corner office remuneration. We are going to ask him how he plans to do it. Stay with us.
CAFFERTY: It took a while -- what, five, six years? Congress finally passed a bill this week designed to revamp America's energy policy. That's right. We have an energy bill. But don't panic.
This does not mean you have to start powering your car with cow manure or table scraps. Not just yet. In fact this bill is all about the opposite. It's aimed at ramping up production of old school energy sources like oil, gas, coal, and nuclear power. It has $14.5 billion in tax breaks and subsidies to try to make it happen. Guess who gets that money? Well it ain't going to be you and me.
For one take on the new bill, we are joined from Washington by Tyson Slocum, who is the research director of the energy program at Public Citizen, a consumer protection group.
Tyson, nice to have you with us. Thanks for being on the program.
TYSON SLOCUM, RESEARCH DIRECTOR, PUBLIC CITIZEN: Glad to be here.
CAFFERTY: Based on your affiliation, I must assume you're probably not enamored with this piece of legislation?
SLOCUM: Well most Americans shouldn't be happy with this legislation. I mean it's the best bill that the energy companies could buy. Their millions of dollars in campaign contributions secured them billions of dollars in tax breaks and subsidies. That's a huge return on their small investment in America's campaigns.
LISCOVICZ: Tyson, I don't know why you'd be upset about that. I mean the oil companies are only making record profits from $60-a- barrel oil. Let me just ask you this. That's not the only part of this massive package. There are some tax breaks for doing good things, like conserving energy, like using alternate forms of energy. There are some good things in this bill, are there not?
SLOCUM: There are some good things, but they are way overshadowed by the bad things. And so that is why on the whole this energy bill is bad for energy policy, it is bad for fiscal policy, and consumers are going to lose out.
LISCOVICZ: Give me some specifics about what actually is good and how that compares, if you will?
SLOCUM: Sure. The good things are, there's some tax incentives for homeowners and small businesses to improve the energy efficiency of their homes and businesses. There's a small tax break for manufacturers of energy efficient appliances. And there is about $3 billion in tax breaks for renewable energy like wind and solar and things like that. But that is a minuscule amount compared to the billions to oil companies, to coal companies, and to the nuclear power industry.
I mean, the oil industry alone gets almost $3 billion. They've got $1 billion in tax breaks for their pipelines and they get another $1.5 billion in direct cash subsidies to encourage them to drill in the Gulf of Mexico.
SERWER: Yes. But by virtue of the fact that some oil companies and oil lobbyists and oil trade groups are actually not thrilled with this bill, Tyson, you know, there are some positives in that sense as well. For instance, the Arctic Wildlife Refuge, that's not part of the bill that is not opened up. They wanted to open up more parts of the west; they wanted to open up more coastal parts for drilling. They were denied that. So you can't say this is a total give away to the oil and gas industry.
SLOCUM: Actually, it's worse, because the oil companies -- the oil companies are getting paid more to do what they were already doing, rather than increasing production.
SERWER: What about ANWR? I mean come on. You got a victory there, didn't you?
SLOCUM: Not really. To be honest, the oil companies didn't want to drill up there. You got to remember, the United States is the third largest oil-producing nation in the world. Only Saudi Arabia and Russia produce more oil every day than we do. Even if we ramped up production, we doubled production to what Saudi Arabia does, we would still be importing half of our oil. So there is no way that providing more incentives to oil companies as this energy bill does, it's not going to do a thing to address the problem of our dependence on foreign sources of oil.
CAFFERTY: Let me get your take on this. Forty percent of the oil we consume in this country goes into the gas tanks of passenger cars and trucks, 40 percent. The EPA held up release of a report this week, coincidental with the passage of the energy bill -- or perhaps not so coincidental. They held up the release of a report this week that shows that fuel efficiency in American automobiles and trucks is worse in 2005 than it was in the 1980s.
The energy bill, which was voted on at midnight under cover of darkness by those worms in the nation's capital that call themselves the Congress, contains nothing that addresses the fuel efficiency of motor vehicles in this country which consume 40 percent of the oil that we use. What is up with that?
SLOCUM: You're absolutely right. There has been a revolution in the American economy with the infusion of technology producing huge gains in efficiency, except in the automotive industry. As you pointed out, as this buried EPA report points out, our fuel economy standards are worse today than they were in the late 1980s. That's a disgrace and it is also the biggest reason why we are forced to import more oil today from dangerous and volatile regions of the planet.
There's no question that improving fuel economy standards is the best way to reduce our reliance on foreign sources of oil. This energy bill doesn't do that.
LISCOVICZ: What about keeping the price of oil down, though? Because we are the biggest consumer, country in the world by far.
SLOCUM: Yeah, absolutely. I mean, that's an important point is that consumption trends in the United States are a driving influence on global oil prices. Everyone talks about the increased consumption by China and India having an effect on global oil prices. Everyone forgets that U.S. oil consumption continues to grow at a steady pace. And because we are the single largest consumer of oil on the planet -- we use 25 percent of the world's oil every day -- our consumption patterns have the biggest impact on global oil prices. And until we address consumption of oil, global oil prices are going to continue to skyrocket and this energy bill does nothing to shield consumers from those high prices.
SERWER: Tyson, you're so concerned about oil. I'm sure you're pleased then the bill provides incentives to nuclear power, aren't you?
SLOCUM: Well nuclear power and oil are two totally different things.
SERWER: Well sure, but aren't you pleased with that?
SLOCUM: Not really, because first of all, nuclear power is economically and environmentally unsustainable. We still have no solution for the higher level radioactive waste. I think it's arguable to say that the waste produced by nuclear power plants is worse in some cases than the waste in emissions from coal or natural gas power plants.
And also the fact is we've got cradle-to-grave subsidies for the nuclear power industry in this energy bill. They get tax production credits. So every kilowatt of electricity produced at a nuclear power plant, taxpayers are going to subsidizing it. Companies that financially invest in nuclear power plants are going to be backed by taxpayers. Taxpayers should not be subsidizing a mature industry like nuclear power, especially with its safety and security concerns. We should only be investing in truly renewable and safe energy like wind and solar and hydrogen.
SERWER: All right. We're going to have to leave it at that, Tyson. Tyson Slocum, Public Citizen, research director of the energy program there. Thank you for your opinions.
SLOCUM: Thank you. Coming up after the break, the virtual department store! Amazon's one star from the dot com's boom that didn't go bust. See how its latest numbers are playing on Wall Street.
Plus, out of this world. A worker paycheck isn't in the same universe as the CEO's compensation. Find out about a plan to bring the boss' salary back down to Earth.
And thinking now about later. You can shovel money at your retirement, or you can set a realistic goal. We'll speak with a financial advisor who says some people may be saving too much.
LISCOVICZ: Now let's take a look at the week's top stories in our "Money Minute."
Delta Airlines may be closer than ever to declaring bankruptcy. A memo from Delta's CEO Gerald Grinstein sent company shares falling on Wednesday in which he told employees the airlines restructuring plan wasn't saving enough money.
Meanwhile already bankrupt United Airlines posted a massive $1.4 billion loss in its most recent quarter. That was more than five times the loss the company posted at this time last year. All of the airlines are being hit hard of course by high fuel costs.
Personal bankruptcy filings are on the rise nationwide because lots of Americans are looking to get debt protection before the tougher bankruptcy rules kick in, in October. Bankruptcy filings had actually been declining before Congress passed the new laws.
And candy giant Mars says it's talking with a big drug company about making a line of cocoa-based prescription drugs that could help treat diabetes, dementia and other ailments. But there is no word yet on whether the pills will taste as good as M&M's.
SERWER: It's been two years since we made Amazon.com our "Stock of the Week" because it's been about that long since the stock looked so good. Amazon's shares soared this week after the company reported better than expected profits. Amazon was one of the hottest stocks of 2003, but it had been in a slump since last summer. Now, it's near a 52-week high.
Amazon.com is our "Stock of the Week". You know, there's always a lot going on with this company. Jeff Bezos is now 41 years old. The company just celebrated its 10-year anniversary. The company now sells more and more stuff from other stores, sort of a conduit for a Macy's or a Home Depot or Toys 'R Us. But some people complain that they are not getting enough information out of the company. I think it's really maturing and becoming a company that is sort of part of the American economy now.
LISCOVICZ: It's doing a little bit of everything. You know, the stock hitting a 52-week high, but it had actually been declining before that. There was some concerns on Wall Street the company was spending too much in improvement, what kind of payoff would there be. I think the last quarter, obviously, beating the Street's estimates sort of proves that, in fact, some of these measures, like adding warehouses, hiring more software engineers did pay off. It's also, I think, lowered or improved its discount to customers, 34 percent from 30 percent. That sort of drove traffic as well.
CAFFERTY: And if they are going to keep their earnings as high as they've been, they need to be able to actually deliver the products that you order from Amazon.com.
SERWER: I know where this is going.
CAFFERTY: I ordered a copy of Hank Snow's autobiography in March of this year from Amazon.com.
LISCOVICZ: Oh, no!
CAFFERTY: Four months later, after all kinds of e-mails went back and forth about where is my stuff? It's in the mail and it will be shipped and it will be there. They sent me a note saying they can't find Hank Snow's autobiography. And your order has been cancelled. I went to Barnes & Noble found the book in about 10 minutes and had it in my house in four days. Customer service may be one of the keys to Amazon's long-term prosperity. And if the way they handled my Hank Snow's autobiography is any indication, I'm not buying their stock or their books.
SERWER: What was the name -- that compare that you got --
CAFFERTY: Barnes&Noble.com. Got the book like that.
SERWER: Now this company, you should have ordered the Harry Potter book, because they just sent a zillion of those things and didn't make much money off of it. Seventy one percent of this company's sales still coming from books, DVDs and music. The stock as Susan mentioned you know perking up a little bit. Interestingly down from a hundred dollars several years ago in the bubble, of course, but up from $1 basically when it went public in 1997. So it always depends on where you buy this thing. Stock still expensive, of course compared to earnings. You might want to think about it. It's a company probably around for a while.
LISCOVICZ: It made it into the double digits. That alone is worth saying something.
SERWER: It sure is.
All right. Coming up on IN THE MONEY, street smarts. Find out how you're supporting a CEO's super-sized paycheck.
Also ahead getting retirement right. We'll speak with a financial adviser who says some Americans are actually, get this, saving too much!
And follow the money. See what Supreme Court nominee John Roberts' portfolio can tell us about his judgment on the bench. (COMMERCIAL BREAK)
FREDRICKA WHITFIELD, CNN ANCHOR: Hello, I'm Fredricka Whitfield at the CNN Center in Atlanta. Here are the headlines "Now in the News."
Uzbekistan is giving the U.S. 180 days to pull out of a key military base used in the war on terror. The air base is used for missions in and out of Afghanistan. A military official says the decision was expected and some operations have already been moved.
President Bush says his doctors say he is in pretty good health. Mr. Bush underwent his annual physical today at the Naval Medical Center in Bethesda, Maryland. He also visited wounded Marines at the hospital there. The president says doctors will release a detailed medical report later on today.
Thursday's lightning strike in Sequoia National Park has claimed another life. A 13-year-old Boy Scout died overnight of his injuries. The strike also killed a Scout leader and injured six others. The boy's grandfather says the teen's organs were kept on a ventilator so his organs could be donated.
And I will have all the day's news at the top of the hour. Now back to more of IN THE MONEY.
LISCOVICZ: Big fat CEO paychecks not only hurt an employee's bottom line but a company's bottom line too, according to a report. A study out this week from Moody's Investor Service suggests Minnesota Congressman Martin Sabo has a plan to curve executive pay for the sake of workers, investors, and tax payers alike. He joins us now from Capitol Hill with details. Welcome, Congressman.
REP. MARTIN SABO, (D) MINNESOTA: Good morning or good afternoon.
LISCOVICZ: Good afternoon to you. You know, I have done my share as a business journalist of covering underperforming CEO's with outrageous pay packages. We know how it can hurt the fellow employees' moral and even shareholders. But make your case how it can hurt taxpayers at large.
SABO: Well, bonus (ph) pay is tax deductible so to the degree that you have an excessive package to reduce tax liability for the company and cost taxpayer dollars. But my bill would simply say that we limit tax deduction to 25 times that lowest-paid employee.
What we're trying to say, it's a statement of values that everyone in a company is of importance and we're also saying that one of the fundamental problems in our country today is polarization of income, with increasingly higher and higher total income going to the top 1 percent and less and less to everyone else. That should be of concern to the top economic leadership in the country, as well as everyone else.
SERWER: Congressman, obviously there are people on the other side of the political aisle who are going to disagree with you. And I want to ask you about; I mean can you really legislate the redistribution of wealth in this country? And I hate to use this phrase almost, but is it un-American?
SABO: No. But what we've had is massive change in the distribution of income. When I was first elected to Congress in 1979, the top 1 percent had the income equivalent to the bottom 27 percent of wage earners. I introduced this bill first in 1991. At that point, it was 35 to 40 percent wage earners equaled the top 1 percent. Today, it's close to 50 percent of income earners having the same income as the top 1 percent.
Reality is, we've had a massive movement of income to the very top in this country. And for years, following the World War II, income grew proportionally equally across income sectors. That has not been the case in recent years.
CAFFERTY: With all due respect, Congressman, if a young guy named Bill Gates comes up with a idea that turns out to be Microsoft and young Mr. Gates forms a company that eventually changes the world and becomes extravagantly wealthy in the process, why is it any of the government's business how much money he makes?
SABO: Well, you know, clearly, we have a progressive income tax system. But more power to Bill Gates. I have no problem with that. But when you think back, Henry Ford used to have a theory that people who worked for his company should be able to buy his product. And we're sort of moving away from that concept today. And what we're leaving behind are thousands of Americans, literally millions, who have a more difficult time making -- earning enough to take care of the basics. They work hard.
And it has several impacts. I think there a sociological impact of the polarization of income. It also requires significant public expenditures. Increasingly we are called on in the public sector to provide public subsidies to low-income earners because they aren't being paid enough in the employment sector to pay for basics like housing and food.
LISCOVICZ: Actually, Congressman, I'm glad you brought that up. Because you mentioned Henry Ford, and there has been a tremendous shift outside of anybody's control where the United States economy is no longer a manufacturing economy, it's a service economy.
LISCOVICZ: And so those nicely compensated unionized workers are decreasing in number. In fact, Wal-Mart is the nation's largest non- government employer. Retail workers do not make a lot of money. How much of that is factored into the fact that now the average CEO earns 300 times more than the average hourly worker?
SABO: I'm sure that's a significant part of it. And part of the problem is that collectively, society -- we don't value lower skilled service jobs. I think one of the worst descriptions we have is when we talk about people having bad jobs. The problem isn't the job is bad. The problem is the job doesn't pay well. And so we have millions of people who provide important services for you and for me, but we simply don't pay them wages that they can live on and provide for food and clothing and housing and medical care.
SERWER: Congressman, you tried to get this bill passed several or many times, I think I can say, before. How realistic is passage?
SABO: Well, what I'm looking for is something more than fundamentally whether this single bill passes. It's a growing awareness that the income polarization is a major problem. In part, it can be addressed by government, but if we really deal with it, I think the private sector also has to be heavily involved.
I think it is in the self-interest of economic leadership in this country to pay attention to what's happening at the income levels at the bottom end of the income spectrum in this country. Today, it's being ignored. Plus, I think what you mentioned earlier -- one of the interesting things I've found over the years is that the people who whisper in my ears, keep it up, often are mid managers for companies. They see what's happening with the pay scale in their company and the top management getting incredibly high salaries. They aren't poorly paid, but they see the work they do and their contribution to the company and they think things are really out of proportion, and out of whack within their companies.
LISCOVICZ: Well it's certainly an issue that has created a lot of passionate discussion, that's for sure. Congressman Martin Sabo, Democrat for Minnesota, thank you so much for joining us.
SABO: Nice being with you.
LISCOVICZ: There's a lot more to come here on IN THE MONEY. Up next, sometimes you can have too much money in the bank. We'll hear from a financial advisor who says some people are over saving for retirement.
And funny business. Our "Fun Site of the Week" takes a new look at an old movie classic. Stick around to get the lowdown.
SERWER: Worried about not having enough cash stashed for your retirement? You might be in better shape than you think. Our next guest says traditional retirement planning ignores one important fact of aging -- we spend less as we age -- and he has got stats to prove it.
Ty Bernicke is an Oclare, Wisconsin-based financial planner with his own firm Bernicke & Associates. Welcome, Ty.
So I've got to ask you, this is all very counter intuitive stuff. For years we've been hearing that we don't save enough. Now you're telling us we may be saving too much? Do explain.
TY BERNICKE, FINANCIAL PLANNER: Well, I don't know if I would say that we're exactly saving too much. I don't think you can ever look back at your life and think, you know, I wish I would've saved a little less. Having said that, I do think many people can retire earlier or spend more than what traditional income planning estimates suggests.
LISCOVICZ: How so? How do you make your case? And what age are you talking about retiring? Say, if it's 65, people can retire 10 years earlier?
BERNICKE: It depends on the person's goals and financial situation, but if you think about what traditional income planning does is it basically answers the question of how much money do I need in my nest egg to be able to sustain a certain income level throughout my retirement years. And they assume that a person's lifestyle stays consistent throughout their entire retirement. But years ago, we noticed in our firm that people actually didn't have the same lifestyle as their age increased, so we noticed that as our retirees got in their later years of retirement, they were simply spending less.
And so what I did is I did a little background research and found a survey called the "Consumer Expenditure Survey." It's conducted every year by the Bureau of Labor Statistics. It confirmed what we thought. People do, indeed, spend less as their age increases. And what that means is if we incorporate that into the traditional retirement plan in models, it's going to show a person that they can retire earlier than under the traditional approach, sometimes several years earlier.
CAFFERTY: When you sit down and do the financial planning for someone as they look toward retirement, do you include provisions for unexpected things like nursing home, assisted living, increased medical costs, prescription drug costs, things that do tend to increase as the years go along?
BERNICKE: Yes. We have accounted for that. And what's interesting about the "Consumer Expenditure Survey" is that is you look at all the major categories of spending which include housing, clothing, food and entertainment, travel. Every single major category of spending goes down as a retiree's age increases with the exception of one. Healthcare costs do increase and they have been increasing for the past 20 years at a much more substantial pace than inflation. Yet, we've noticed that a person, if you look at the different spending patterns, the other categories are dropping much faster than healthcare is increasing, and so we continue to see that people's spending does go down, despite the fact healthcare is increasing and has been increasing for 20 years. There's been very little shift in these spending patterns.
SERWER: Ty, of course, this depends on the individual. I have every intention after I'm 80 years old to buy a Corvette, to continue to wear Armani clothes, to take expensive vacations to the south of France.
CAFFERTY: It won't help!
SERWER: So of course, it depends on the individual. What about this whole notion though that we're living longer? Doesn't that make the cost of retirement go up?
BERNICKE: I tell you what. I guess that's a whole separate debate, but I don't really buy into that either, because if you look at how old a 65 year old is living today and compare it to how old a 65 year old was living a hundred years ago, there's about a six-year difference, which is a lot less than what we tend to think when we hear the word life expectancy. Infant mortality rates have decreased rapidly throughout the years and that is the big reason why it appears that life expectancy is going up much more rapidly than it actually is for our older retirees.
LISCOVICZ: So I have to break this news to Willard Scott, then. All of those people hitting a hundred years old on "The Today Show," that they sing happy birthday to, they're fictitious, right?
BERNICKE: Look at the first three presidents for instance. You know I can remember sitting back in sixth grade in elementary school wondering you know when the life expectancy was 42, how was Thomas Jefferson and John Adams living past age 80 and almost age 90 in both circumstances?
CAFFERTY: As a practical matter, forgive me for interrupting but give me some percentage guideline. If I'm going to sit down and plan to put X-dollars away for my retirement, by what percentage can I reduce that based on the models that you've done?
BERNICKE: Well, the percentages would, again, would be quite different, depending on what a person's goals are.
BERNICKE: But when you look at the study that I conducted for the "Journal of Financial Planning," what we basically proved was that assuming an average person spends like an average person throughout their retirement years, in the example we used, they could actually retire seven years earlier. Now, of course, everybody's situation is going to be different. Some might only be able to retire one year earlier or six months earlier, but I would think if we ran the numbers and thought of the average person, we would be right around two or three or maybe even four years.
LISCOVICZ: But this should not be interpreted, Ty, in any way that you should stop saving for retirement. Continue to save for retirement. Just adjust your models as you age, you'll live differently, you'll spend differently, is that correct?
BERNICKE: That's correct. I don't want any hate e-mail from people out there.
LISCOVICZ: Get used to it! You appeared on television, you're in the club! Ty Bernicke with the Bernicke & Associates, a financial planner. Thanks for joining us.
BERNICKE: Thank you.
LISCOVICZ: There is more to come on IN THE MONEY. Just ahead, how to make a portfolio talk. George Bush's nominee for the Supreme Court also happens to be a savvy investor. Find out what John Roberts' money moves can tell you about his judgment.
And from business and politics to the latest heat wave. Tell us what is on your mind but please, no hate mail. The address is INTHEMONEY@CNN.com.
SERWER: All right. The politicos are still going back and forth over Supreme Court nominee John Roberts's legal ideology. But a lot of folks on Wall Street were buzzing this week about Roberts' impressive financial portfolio. Roberts made his holdings public. Here is a look at some of what he's got. His top stock holdings include - well, our parent company Time Warner -- sorry about that, Judge -- Citigroup, Freddie Mac, Intel, and Microsoft.
He also holds a lot of mutual funds, including Fidelity Magellan Fund, T. Rowe Price's Euro Stock Fund that has probably done well recently, the Charles Schwab Muni Fund, and Merrill Lynch S&P 500 Fund.
He also has a lot of money in the Washington Real Estate Investment Trust. Good.
Bottom line, Roberts is a rich man but not anywhere near as rich as some of the other big power players in the nation's capital.
You take a look at that portfolio. He is worth, some would say, in excess of $10 million. He owns a share in a vacation home in Ireland, a house in Chevy Chase, Maryland -- sort of typical for someone in the upper middle class who has a stock portfolio befitting that level of income, and his age. And you know it is sort of middle of the road. Maybe it matches his ideology, as some people say.
LISCOVICZ: Do you know how far back it goes, how far back it looks at his financial investment?
SERWER: We don't know that. It's a snapshot. It is a one-year annual report, and it is from 2003. He hasn't done his '04 yet, but you best believe that before he is nominated for --
CAFFERTY: The only thing that strikes me just listening to you run down the list of things, he is very well diversified. He has municipal bonds; he has some investment in foreign markets, European stocks. He's got some mutual funds in this country. Real estate investment trust. So somebody maybe on his own or maybe with some advice has diversified his portfolio, which they say you are supposed to do with those funds.
SERWER: You hope it is not deworsified (ph).
LISCOVICZ: Although you did mention one of the stocks --
SERWER: Let's not talk about Time Warner. CAFFERTY: I'd like to know when he bought Time Warner.
LISCOVICZ: At what price you mean.
SERWER: Probably Show and Telly sold it to him.
CAFFERTY: There was a time not so long ago, it was 90 bucks a share.
LISCOVICZ: He has to go into blind trust, is that it, once --
SERWER: I believe it is. Yeah.
CAFFERTY: All right.
The Webmaster Allen Wastler is on vacation this week, but he did leave us this important recorded message.
ALLEN WASTLER, CNN ANCHOR, IN THE MONEY: Hey, gang. I couldn't be here this week but I would never, ever leave you without a "Fun Site" and so I give you the latest bunnies.
(BEGIN VIDEO CLIP)
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UNIDENTIFIED MALE: I think I lost my safe tongue.
UNIDENTIFIED FEMALE: It's just nerves!
UNIDENTIFIED FEMALE: Mamma!
UNIDENTIFIED MALE: It's her brain.
UNIDENTIFIED FEMALE: What is inside?
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(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Try to compel you.
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(END VIDEO CLIP)
SERWER: Down the stairs. Yeah. I remember that.
LISCOVICZ: It brings back fond memories.
CAFFERTY: That's disgusting.
SERWER: That of course is the Exorcist. Linda Blair's greatest film moment, wouldn't you say? Sorry, Linda.
LISCOVICZ: Moment, not even for all.
CAFFERTY: The one and only.
Coming up next on IN THE MONEY, it's time to hear from you as we read some of your e-mails from the past week. You can send us an e- mail right now if you would like to. We're at INTHEMONEY@CNN.com. Back after this.
CAFFERTY: Time now to read your answers to our "Question of the Week" about whether your children are living better than you were when you were their age. You bet.
Dave wrote this, "Thanks to cheap electronics and toys from China, my children are definitely better off than I was. In fact, they almost qualify as being classified as "spoiled rotten." But I worry that the trade imbalance with China will destroy my children's standards of living when they grow up."
Nancy from Mississippi wrote this, "Kids today have more things, but less parental guidance and direct love. Most families have both parents working, often leaving kids with strangers. Life for children is less fun and carefree."
And Liz from California wrote, "I'm definitely living better than my parents were at my age, but that's because I'm still living with them! I'm 29 years old and working three part-time jobs to cover my food costs. The high price of housing is killing younger people now."
Twenty-nine and still at home. Don't get any ideas, Cafferty offspring, if you are watching this week's IN THE MONEY.
Now for next week's e-mail "Question of the Week", do huge salaries motivate CEO's to succeed, or are they a safety net for ineffective management? Send your answers to INTHEMONEY@CNN.com.
And you should also visit our show page at MONEY.com/InTheMoney, which is where you will find the address of our "Fun Site of the Week". Watch those bunnies do the exorcist.
Thanks for joining us for this edition of the program. My thanks to CNN correspondent Susan Liscovicz, "Fortune" magazine Editor-at- large Andy Serwer. We will see you back here next week, Saturday at 1:00, Sunday at 3:00. Enjoy the rest of your weekend.
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