A retiree living at the poverty line explains how he squandered his 401k - and shares how today's generation of young professionals can avoid his fate
- John Morrow, a 69 year-old Floridian retiree, made a succession of financial decisions that resulted in the loss of his 401k.
- He advises others who are approaching retirement to seek professional help in order to make their dollars last well into the future.
- Morrow says he's "the best example of what not to do."
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John Morrow has a past that is nothing short of gutwrenching.
The 69 year-old Floridian survived bouts with cancer, suffers from clinical depression, and recently lost his wife when she unexpectedly went into cardiac arrest three months ago.
Morrow and his spouse hadn't put a solid financial plan in place before her passing and made a series of erroneous financial decisions that led to his current situation. Today, he struggles to make ends meet.
Morrow lives off of a small pension and social security income amounting to about $23,000 before taxes - and he wants his story to serve as a cautionary tale for those who may be inclined to make similar financial decisions.
"I will just be quite candid and tell you that what we did with the money that we had managed through our 401k at work - what we did with it after we retired turned out to be just very foolhardy," he said on Beyond the Dollar, a personal finance podcast. "We didn't vet the information - and what's further, we went back and did it again and actually did it three times."
After retiring six years earlier, Morrow and his wife were looking for ways to increase their income. The couple wound up investing in a multi-level marketing program, which wound up being a pyramid scheme. They were pitched a story that made the investment seem too good to pass up, and eventually paid the price when the company was shut down by a state attorney general.
"Every dollar - which was a few thousand of our savings - that we had put into it was gone," he said. "And the company was gone."
Morrow admits that he should've known better, but predatory practices are a sad, recurring reality that happens to even the most affluent of investors. Just take a look at those who had cash stashed away with Bernie Madoff. Investors get caught in the narrative of a well-devised story touting outsize gains.
Remember, safeguards protecting investors today are still lacking in some areas. According to a requirement called Regulation Best Interest, broker-dealers are required to act in the "best interest" of their customers. It's a step up from the "suitability" standard you may have heard of in the past, but still a far cry from any sort of responsible legislation.
"Best example of what not to do"
After his initial investment had gone belly up, unfortunately, he came across another company of similar means on the radio and decided to give it a try.
"That even took more of our income, and then that company got in trouble," he said. "We had spent all that money and had not one dime to show for it."
Thinking the third time would be the charm, Morrow and his wife put their efforts into yet another company that was cut from the same cloth.
"We just pretty much just gave away all the money we'd saved from our 401k in the course of six years," he said. "We were broke."
Morrow admits that he was blinded by the allure of passive and residual income and the sales pitch he'd received. He acknowledges the fact that he didn't properly vet the companies he was doing business with and takes full responsibility of his actions.
Against that backdrop, he offers advice for those who may be susceptible to a similar fate in the future.
"If you're approaching retirement, find someone to talk to you about the proper way to make your money work for you to the max in a society where it's only going to cost more to live on a day-by-day basis," he said. "Money has value, but the sooner you start saving it - and letting it earn interest - the quicker you'll be able to arrive at a place where you'll have something that is there to build your retirement life on."
"I'm the best example of what not to do," he concluded.