Every flimflam man knows that the con must be carefully layered around a kernel of truth for credibility. Missed Fortune 101 by Doug Andrew succeeds in this by wrapping a number of preposterous ideas and prevarications around three basic and true axioms. They are: (1) income is taxed in what are essentially "chunks," (2) the only relevant tax rate for decision making is the marginal rate, and (3) tremendous wealth can be created by borrowing at one rate and investing at a higher rate. Everything else in this book is not only utter nonsense, but potentially lethal to one's financial health.
The author arrives at two basic conclusions. We should borrow out of our homes and invest the proceeds at a higher rate. Universal life insurance serves as Andrew's means to this end. We should also suffer the consequences of withdrawing from our IRAs and other retirement plans now rather than later, since the tax from such withdrawals will only get worse. Naturally, the leftover funds (heavily diluted by taxes) should be invested in the same insurance policies, which supposedly offer a higher--and safer--yield than whatever the retirement plans were invested in. By page 5, I realize I'm reading a book-length sales pitch and con that has the potential to wreak havoc in my clients' lives (disclosure: I've been an Enrolled Agent tax professional and Certified Financial Planner licensee for almost three decades).
Anything this full of nonsense is difficult to critique. Short of writing a book-length retort, I've settled on the idea of listing the multitude of problems by category and providing examples from each.
A far more comprehensive review is available at my personal sites; just Google my name to find me. This is an abstract from that review. Serious readers will want to check out my books to see what links may exist between financial abuse and the field of addiction. You may wish to start with Drunks, Drugs & Debits: How to Recognize Addicts and Avoid Financial Abuse or Alcoholism Myths and Realities: Removing the Stigma of Society's most Destructive Disease.
Highly misleading examples
(2) "A $6,000 interest expense deduction on an itemized tax return has the same impact as a $6,000 qualified plan contribution. They are simply reflected in different sections of the return." Aside from numerous other issues, the tax savings from the interest deduction may be zero if you don't already itemize deductions.
(3) He implies that ordinary investors can double their money for 20 periods by comparing one dollar pre-tax and one dollar taxed-as-earned, doubling each "period" for 20 such "periods." The number of humans who have done this or something equivalent numbers perhaps a few thousand, which wasn't accomplished by investing in insurance contracts.
Faulty and twisted logic
(4) "...Your home may likely sell much more quickly and for a higher price with a high mortgage balance rather than a low mortgage balance." What the heck does the balance on my mortgage have to do with what a buyer is willing to pay me for my house?
Broad, sweeping and misleading generalizations
(2) Andrew advises that we all sell our homes and repurchase with 100% financing with the goal of freeing up equity to invest in his recommended universal life policies. He ignores the higher interest and property mortgage insurance costs on such loans, overlooks possible increased property taxes and disregards fixed transaction and moving costs.
(4) "Unfortunately, non-spouse heirs far too often end up with only about 28 percent of the money that was left in their parents' IRAs and 401(k)s." This is exceedingly rare and, therefore, scare-mongering.
Questionable predictions and grand assumptions
(3) "Conservatively, [our cozy retirement] cabin will double in value every ten years..." and our $100,000 cabin will be worth "$800,000 in thirty years." Very few areas in the country even during the late real estate boom of the last three decades have done that well. What would qualify as "aggressively"?
Assertions and generalizations that may be lethal to your retirement
(1) "Home equity has no rate of return when it is trapped in the house..." This is outright nonsense. The return is what you save in interest or rents.
(5) He concludes that if not done before, "roll-outs" from IRAs commence at age 59 ½ over a five year period and that some younger people under age 50 should commence withdrawals despite the imposition of early withdrawal penalties. The value of tax-deferred growth is ignored, as is the fact that "repositioning" of funds shrink the amount available for investment by the tax paid, which greatly distorts his calculations.
Inane or incorrect assertions
(2) He states that the interest on an equity line used to purchase universal life insurance from which you contemplate borrowing is deductible. Under IRC section 264(a)3, it isn't.
Sloppy editing of facts
(2) "One requirement [for withdrawing tax-free income from a Roth IRA] is that a distribution may not be made until at least five years after the first contribution is made." This is incorrect. Principle contributions, which are withdrawn before earnings, can be taken at any time at no cost in tax or penalty.
Poor writing and berating of those who disagree with him
(2) "There are two ways to handle information: ignore it as false or increase your level of understanding to accommodate new ideas." Obviously, we are supposed to accommodate his ideas or we're complete idiots.
(3) There are probably hundreds of examples poor writing. "...Premium payments can be varied, fluctuated, and adjusted according to circumstances..." should be, simply, "Premiums can be adjusted."
Throughout, Andrew uses variations of the typical bunko-artist salesman ploy: scare you into agreeing to do whatever he says because life will be filled with disasters if you don't. On the contrary: your financial life will likely turn into a catastrophe if you do.
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Missed Fortune 101: A Starter Kit to Becoming a Millionaire (Hardcover)
It's often hard to tell, when reading a book like this one, whether the authors have really hit on an important insight grounded in solid evidence and research, or instead invented a marketable idea and cherry-picked instances and examples that "prove" their point. Although perhaps the passage of time is the only way to tell for sure, I argue "Mavericks at Work" really has seized on something important. That makes this a valuable read, not only for current and wannabe-future business leaders, but for anyone who ... well ... works for a living.
