Joe Biden = practically homeless

[Deleted]

An Inside Look at the Personal Finances of the Obamas and the Bidens

Too busy to run your own personal finances? They may be too busy running the country. Here’s what you can learn from their disclosures.


They may be the most powerful couples in the free world and rub shoulders with the likes of George Clooney and the Queen of England, but the Obama and Biden families face many of the same financial challenges as the rest of us.

"The vice-president in particular seems to be typical of what we see all the time," says Mark Wilson, a financial planner with the Tarbox Group, in Newport Beach, Cal. "People get busy with work and kids, and their finances never get cleaned up."


By contrast, the portfolio of presumptive Republican presidential candidate Mitt Romney is just what you'd expect from a multimillionaire with a blue-chip business pedigree and the ability to buy top-drawer advice: sophisticated, complex and well-diversified among many types of investments.

But it's a different story for President Obama and Vice-President Biden. A review of the financial disclosures they filed in May uncovered what many of us see in our own financial lives -- neglect, inertia, poor diversification and spotty investment choices. In short, the First Families could use a money makeover. Kiplinger is here to help.

We called several seasoned financial planners and had them review the disclosures filed by Obama and Biden, evaluating both their debts and their investments. The planners saw plenty of areas that could use improvement -- starting with the president's and the veep's debts.

First step: refinance

In today's era of record-low interest rates, both the Bidens and the Obamas are supporting high-cost loans that could, and should, be paid off or refinanced, the planners say.

Obama, for instance, has a mortgage on his former residence in Chicago with Northern Trust. The loan, which was last refinanced in 2005, bears an interest rate of 5.625%. The financial disclosure forms don't say precisely how much is owed, listing both debts and assets in wide ranges -- from $500,000 to $1 million, in this case. But assuming that the loan is halfway between those two figures, the Obamas would owe $750,000 and could save some $600 a month (before taxes) by refinancing the loan at today's interest rates.

To be sure, loans this large don't get the record-low 3.5% rates that go to those with conforming mortgages, which have a maximum amount of $417,000. But even rates on jumbo loans are far more affordable. Listings at BankRate.com, for instance, indicate that the Obamas could qualify for a 4.3% rate (assuming that both Barack and Michelle Obama have pristine credit scores), saving $606 per month, or $7,277 per year, before taxes.

Biden owes considerably more, and although his mortgage rate is closer to market rates, he's got several personal loans that ideally ought to be repaid or rolled into a lower-cost home-equity line. Of course, that assumes he has enough equity to qualify, says Mark Brown, a certified financial planner with Brown & Tedstrom, in Denver.

Again assuming that both his debts and assets fall in the middle of the reported range, he'd have a $750,000 mortgage at 4.625%, plus a $32,500 home-equity line of credit at 5.25%. In addition, he owes $32,500 to the Senate Federal Credit Union, which is charging him 9.9% on the loan; and he has a $32,500 loan with Wilmington Savings at 7.5%. He also has a larger home-equity loan -- between $100,000 and $250,000 -- at the prime rate. Prime is only 3.25% today, so he'd be much better off if he could use that line of credit to repay the two higher-cost loans.

An even better idea would be to pay off some of this debt, with money that Joe and Jill Biden have sitting around in a half-dozen checking and savings accounts, says Wilson. The couple have nine checking and savings accounts at no less than six financial institutions. The bulk of the accounts have between $1,000 and $15,000 on deposit, and each earns less than $200 in annual interest, says Wilson. In addition, the couple own two certificates of deposit, worth between $100,000 and $200,000, on which they're earning between 2% and 5%, according to the disclosure statements.

To pay 9.9% and 7.5% on personal loans while earning less than 5% on savings makes no sense, says Wilson. Personal loans like these aren't even tax-deductible. "They need to consolidate these accounts and think about what loans they ought to pay off and which ones they need to leave alone," he says.

Weak investment strategies

On the investment side, the styles of the Obamas and the Bidens are polar opposites. The Obamas are far too conservative and too poorly diversified, while the Bidens' investments are too spread out.


The Obama family has roughly $4.7 million in cash investments divided among checking and savings accounts and Treasury bills and notes. The couple hold just $325,000 in stocks. The stock accounts are fully invested in a Vanguard index fund that tracks Standard & Poor's 500-stock index, a widely followed measure of the broad U.S. stock market.

SEE ALSO: President Obama: Midlife Millionaire

Vanguard is a good low-cost fund provider, and this particular fund is a good start for any portfolio, says Wilson, but it's certainly not diversified enough. It represents just 500 big U.S. companies. The couple should own some small-company stocks and, ideally, have some international exposure, too.

But the biggest problem with their portfolio is that it's 92% cash, says Brown. Cash investments are super safe, but they yield so little today that they're guaranteed to lose buying power to inflation over time. A couple this young -- the president and his wife are 50 and 48, respectively -- should have at least 40% of their assets in stocks, and, ideally, considerably more.

Sheryl Garrett, president of the Garrett Financial Planning Network, says she often sees this sort of overly cautious approach among people who have suddenly come into a windfall. While the couple wasn't poor before Obama became president, they've received millions of dollars in book royalties since Obama burst on the political scene.


Cash-flush, strategy-poor?

Investing millions of dollars in a relatively short period of time is nerve-wracking and often dangerous. So some couples who inherit money, sell a business or win the lottery freeze up, piling up cash while they try to find the time to assess their investment options. But the demands of work and home life can immobilize you for years, so the smartest approach, says Garrett, is to set up a long-term plan to dollar-cost average into stocks and build a more-diversified portfolio.

Dollar-cost averaging involves investing a fixed amount of money on a regular basis. In this case, the Obamas could take 1% or 2% of their $4.7 million cash stash each month and gradually invest it in preselected mutual funds or exchange-traded funds. They could stop the regular investments when they hit their targeted asset allocation, which would depend on their near-term needs for cash and their longer-term goals.

The right fund or funds for these automatic investments would depend on the couple's goals and whether they are willing to allocate their assets themselves or they will have a professional do it for them. Because no one appears to be managing the couple's investments, the Obamas might want to consider using a target-date fund, such as Vanguard Target Retirement 2030 (symbol VTHRX), which allocates assets among a mix of investments based on the time you have until you reach your goal. This particular fund is designed for people who expect to retire around 2030, when the president and his wife will be 68 and 66, respectively.

Or they could invest in a balanced fund, which invests in stocks and bonds, or in a mixture of pure stock funds and pure bond funds. Any of these choices promise far better long-term results than the Obamas' current cash-heavy portfolio, the planners agree.

The one caveat: If the Obamas plan to make a large expenditure over the near term -- for example, buying a new house or starting a business -- they'd want to keep some cash on hand (this is something they won't have to worry about until 2017 if Obama wins re-election in November). Still, $4.7 million in cash seems excessive.


Socking it away for "the girls"

The one portion of the Obamas' portfolio that is exemplary is the college savings accounts they've established for their girls, Malia and Sasha. Each girl's account is funded with between $100,000 and $200,000 and is equally divided between two investment options --


one stock-based, the other oriented toward bonds -- offered by Illinois' Bright Directions 529 plan. "That's the most logical part of the portfolio," says Brown.

The Bidens, on the other hand, have too many investments. In addition to the pileup of bank accounts, they own six small cash-value life insurance policies, which build up equity over time. They have borrowed against the equity in the policies at interest rates ranging from 5% to 8%. They'd be better off cashing out those policies and paying off their other debts with whatever equity they have left in them, says Wilson.

Biden and his wife also have what appears to be a small tax-sheltered annuity that's invested in 11 sub-accounts, representing small-company stocks, large-company stocks, midsize-company stocks, international stocks, bonds -- you name it. The irony of this type of over-diversification is that it almost becomes the equivalent of owning an index fund. But because you've got to track so many investments, it's hard to measure whether you're doing as well as you would have if you had a simpler portfolio invested, for instance, in Vanguard Total Stock Market Index (symbol VTSMX).

A spokeswoman for the vice president says that Biden's finances have been structured to make avoiding conflicts of interest a higher priority than maximizing returns.


The Bidens' odd debt load

What disturbs Garrett is how much debt the Bidens have, given their income and age. The vice-president is 69; his wife is 61. Because of their numerous loans, the couple have just $215,000 in net worth (their assets minus their debts). Garrett says that if another couple had come to her with this balance sheet, she'd want them to explain why they'd taken out each loan. "You do this because you need to know whether the loans are symptomatic of a bigger problem," says Garrett.


Indeed, the only things that save the Bidens from being woefully underprepared for retirement are defined-benefit pensions -- the type that pay monthly stipends for life. Jill Biden is already receiving a $32,000 annual payment from a former employer. Joe Biden, who served in the Senate for more than 35 years, is also due a pension. The maximum amount he could receive based on the pension formula that was in place when he started his government career would work out to about 80% of his working income.

Because Biden is still working, the actual pension cannot be calculated yet. But Brown estimates that it would amount to at least the $60,000 per year that former senators currently receive, on average, and it is likely to be far more. That gives the couple more than $90,000 annually -- and they're likely to collect Social Security income, too. The generous steady payments for the rest of their lives means that they're unlikely to suffer the economic challenges faced by other families who didn't save enough for their golden years.

The Obamas and Bidens, says Brown, are "very different, but very typically American. President Obama has done very well with his own business interest, and his future looks good and secure. The Bidens have a lot of debt for their stage in life. If they didn't have those pensions, they'd be in real trouble."

Of course, politics could stand in the way of a sitting president rejiggering his portfolio -- or even refinancing his mortgage -- in an election year. (The White House failed to return phone calls and emails requesting comment for this story.) Because nearly any move could spark waves of criticism, it might make sense for the president to postpone a portfolio makeover until after Election Day.


Read more at www.kiplinger.com/features/archives/obama-biden-family-personal-finances4.html?kipad_id=x#cJmre6LeQLcA9thv.99

[Deleted]

I sort of understand why Obama's portfolio is in cash. It would be too political to invest in companies he can influence. But what about a nice little index fund. Something innocuous. "American Funds" is one of mine. God bless America!

He and Joe need to refinance though. Those rates are ridic.

[Awkward]

That was kind of fascinating. I agree about wanting to know the political implications of investments, so I can see the Obamas may not be in perfect shape right now. The Bidens are not wealthy for a lifetime in politics.

[lys]

No wonder we do not have a better economy.

[phunluvin82]

Wow, $215,000 net worth for a VP? That is surprising to me.

[Deleted]

Well, according to this article the Obama's are doing just fine....


His estimated net worth is between $2.8 million and $11.8 million in 2010.

finance.yahoo.com/news/how-barack-obama-made-his-fortune.html

Two weeks ago, we looked at how Rep. Paul Ryan, the Republican nominee for Vice president, made all of his money. The answer? Natural resources, land rights, and stocks, all invested in mutual funds and limited partnerships.

We got a lot of requests to do the same thing to Barack Obama, and for him the answer is much easier.

First of all, Obama has released copies of his tax returns, so we're able to produce hard numbers when it comes to what he makes.

Second, his investment strategies are much more coherent than Ryan's. Obama made his fortune from a few sources, and has it invested and stored in a few surprising — but also easy to track — ways.

We got the information from personal finance disclosures and released tax returns hosted by the Center for Responsive Politics.

So, here's a timeline of how Barack Obama went from middle class to a multimillionaire.

While he was an Illinois state senator, both parents in the Obama family were working


(Wikimedia Commons)
In his 2004 financial statements, Barack Obama indicated that he had three sources of income. One was an $80,287 salary from the Illinois Senate, where he was a state senator.

The other was a $32,144 salary from the University of Chicago Law School, where Obama taught as a lecturer while he was in the statehouse.

The third was Michelle's salary from the University of Chicago Hospitals, where she was an administrator.


While the picture is fuzzy before 2001, here's where Obama kept the money he made from Dreams From My Father in 1995 and his law career

The Obamas had investments in three different assets in 2004.

First was the Illinois State Senate Pension Fund, which Obama listed as worth something between $50,000 and $100,000.

The other two were investments in funds with Vanguard, the investment management company.

Obama had investments in the Vanguard Wellington Fund, which he evaluated as worth between $100,000 and $200,000. The Wellington Fund consists of around 60 to 70 percent stocks and 30 percent to 40 percent bonds and is essentially a fundamental mutual fund.

The Obamas also had $50,000 to $100,000 invested in the Vanguard Wellesley Fund. This Fund is more bond-heavy than most balanced funds, with exposure to around two-thirds bonds to one-third stocks.

He then scored a huge book deal after the 2004 Democratic National Convention


(Random House)
After giving the keynote address at the 2004 convention as a candidate for Senate — The speech, "The Audacity of Hope," was a slam-dunk that propelled Obama's popularity upwards in the years before his presidential campaign — Obama inked a number of book deals with Random House.

This is the real money.

He signed a deal for 2 nonfiction books and one children's book. One nonfiction would be The Audacity of Hope, an extended version of his 2004 speech. The children's book — we believe — became Of Thee I Sing, with proceeds going to charity.

Here are the terms of the book deals that made Obama phenomenally rich

After January of 2005, Obama will receive a $1.9 million advance on The Audacity of Hope.

For that book, the deal says that he gets 15 percent of the list price for Hardcover copies, 7 percent of the list price for the trade paperback version, then 8 percent of list price for the first 150,000 issues sold of the mass market paperback, then 10 percent of the list price thereafter.

He also gets 10 percent of Audio book sales. He would go on to win a Grammy for his recording, too.

Random House also republished his 1995 book, Dreams From My Father, generating more sales.

By 2005, he had money in a number of different assets — including on again, off again political foe JP Morgan


(Twitter/barackobama)
Once he got the money, he didn't just let it sit in a bank account. He invested.

He got a JPMorgan Chase Private Client Asset Management account, worth at least a hundred thousand dollars. His checking account with Northern Trust was worth between $250,000 and $500,000, and he also banked with UBS.

He got $378,237 in royalties from Dystel & Goderich, his literary agent for Dreams From My Father, and another advance from Random House, $847,167.

By this point, he was worth between $1.1 million and $2.5 million.

From 2006 to 2007, he used the royalties from his books to buy a ton of Treasury notes

During the two years before his presidential run, he cemented his wealth.

In 2006 he got $147,490 for Dreams From My Father and $425,000 from Random House for The Audacity of Hope. In 2007, as his presidential run made him a household name, book sales skyrocketed. He got $815,971 for Dreams and $3.28 million for Audacity.

With the money from this, he made a number of consequential financial choices. He bought somewhere between $500,000 and $1 million worth of U.S. Treasury Notes. He moved the money from the two Vanguard Wellington Mutual Funds to the Vanguard FTSE Social Index Fund, which invests based on "certain social, human rights, and environmental criteria."

In 2007, He also made one of his largest investments in Sasha and Malia's future

Obama in 2007 bought two Bright Directions Age-Based Growth Plans, one for Sasha and the other for Malia.

The plans will pay for their college educations. It's not clear which portfolio he went for — the Balanced, Aggressive, or Growth option — but each was worth between $50,000 and $100,000. By 2010, the portfolios were worth $100,000 to $200,000 each.

The year he ran for President he bought millions of dollars worth of U.S. Treasury Bills

Likely distracted by the race, Obama didn't make any major changes besides investing even more in U.S. Treasury Bills.

By the time he was sworn in, Obama owned somewhere between $1.1 million and $5.1 million worth of U.S. Treasury Bills, comprising most of his net worth. His other assets were worth between $411,000 and $915,000. He did not collect any income from his books.

In 2009, he gave the approximately $1.4 million Nobel Prize money to these charities

When Obama received the Nobel Peace Prize in 2009, he told the prize committee to wire the money directly to the following charities:
$250,000 to Fisher House, which gives free housing to veterans and military families getting medical treatment.
$200,000, plus any remaining unallocated money, to the Clinton-Bush Haiti Fund of the Clinton Foundation, a fund that helped rebuild Haiti in the aftermath of the devastating earthquake.
$125,000 to the American Indian College Fund, which gives scholarships to Native Americans.
$125,000 to the Appalachian Leadership and Education Foundation, which gives scholarships to low-income residents of the Appalachia region.
$125,000 to College Summit, an organization that aims to raise college enrollment rates.
$125,000 to the Posse Foundation, which provides full scholarships to extraordinary high school students.
$125,000 to the Hispanic Scholarship Fund, which gives scholarships to Latino students.
$125,000 to the United Negro College Fund, which gives scholarships to Black students.
$100,000 to Africare, an organization that builds wells and treats disease in Africa.
$100,000 to the Central Asia Institute, which focuses on education and public health, primarily for girls in Central Asia

Besides all of that, Obama is receiving compensation for his day job.

The President's salary is $400,000 per year. By now, he's received $1.6 million for his first term.
As a United States Senator, Obama was making $174,000 per year. Since he spent four years there, He banked around $696,000 over the course of his term.

All told, in his time in federal government, Obama made (pre-tax) $1.1 million.

His estimated net worth is between $2.8 million and $11.8 million in 2010.

[simpsongal]

re: Bidens. I wonder what all the personal loans are from. Maybe they financed their kids' education. Seriously, Susie Orman would be all over them. They shouldn't even have a mortgage by that age (or be nearly done).

If Biden's pension is like other fed FERS pensions, he doesn't even get social security.

[tommygirl03]

Sept 27, 2012 15:39:10 GMT -5 simpsongal said:

re: Bidens. I wonder what all the personal loans are from. Maybe they financed their kids' education. Seriously, Susie Orman would be all over them. They shouldn't even have a mortgage by that age (or be nearly done).

If Biden's pension is like other fed FERS pensions, he doesn't even get social security.[/quote

CSRS doesn't get SS, FERS does. But CSRS is a higher overall percentage of salary. CSRS = FERS+SS+401(k), or at least it's supposed to...

[bronxgirl]

Sept 27, 2012 14:29:25 GMT -5 @vicmo said:

Aren't the president's finances handled through a blind trust? Or is this just the money outside of the trust?

Sounds like Biden needs a scolding from Sisu.

Love this!

[niq]

Biden was for a long time the poorest Senator. He's been in government basically since college. He'll get good health and retirement benefits, and if he wants to work as a lobbyist or professor or something that would be an option and pay very well.

Most of Obama's investments were put in a blind trust when he started running for President. Also many politicians avoid making investments to avoid the appearance of corruption or impropriety. Refinancing would have similar issues-Chris Dodd's political career ended because of a sketchy home loan. So they end up cash heavy.

Sent from my Nexus 7 using proboards

[makingithappen]

Sept 27, 2012 14:47:05 GMT -5 lys said:

No wonder we do not have a better economy.

Exactly. They can't manage their own finances and we want to trust them with our country's.

[simpsongal]

Sept 27, 2012 16:43:35 GMT -5 tommygirl03 said:

Sept 27, 2012 15:39:10 GMT -5 simpsongal said:

re: Bidens. I wonder what all the personal loans are from. Maybe they financed their kids' education. Seriously, Susie Orman would be all over them. They shouldn't even have a mortgage by that age (or be nearly done).

If Biden's pension is like other fed FERS pensions, he doesn't even get social security.[/quote

CSRS doesn't get SS, FERS does. But CSRS is a higher overall percentage of salary. CSRS = FERS+SS+401(k), or at least it's supposed to...

Oops - switched the two. I meant to say that it sounds like he's CSRS.