Friday, January 06, 2017

Now they tell us

Well, there’s no dearth of things to worry about, that’s for sure. (Icebergs to the left of me. Titanics to the right of me.)

One evergreen worry-warter is, of course, having enough money to retire, a worry that’s taking on more urgency as certain Ayn Rand-y elements in Congress want to drastically redefine Commie plot programs like Social Security and Medicare. Which naturally makes me want to learn about just how juicy their retirement plans are. I don’t know the deets, but I suspect that when presented with what our esteemed solons benefit from vs. what the rest of us get when we pass on to our penultimate reward, I’m pretty sure that most of us would say, “I’ll have what they’re having.”

For most of us, the traditional defined benefit plan, i.e., a pension, just doesn’t exist. Only 13% of those working in the private sector have one. That’s quite a decline from the 38% covered by one in 1979. Today, we’re not pensioners, we’re 401(k)-ers.

Interestingly, as a recent WSJ article reported, some of those who were so high on the 401(k) when they first came into widespread play in the early 1980’s are having some afterthoughts about their enthusiasm. Herbert Whitehouse, a former HR exec at Johnson & Johnson, was one of the gung-hoers.

What Mr. Whitehouse and other proponents didn’t anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses“We weren’t social visionaries,” Mr. Whitehouse says.

Many early backers of the 401(k) now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save. Some say it wasn’t designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days. (Source: WSJ)

What the 401(k) let companies do is segue from having to fund (or co-fund) and manage pensions, to putting most of the onus on employees. When defined benefit was replaced with defined contribution, most of that contribution was coming from the employee. Sure, many companies do some form of matching as a benefit, but that matching tends to be year-to-year discretionary, and generally caps out well below what employees can put in.

And that’s for companies that offer a 401(k). Many don’t, and their employees are on their own. As are those who are self-employed – a cadre that represents an increasing proportion of the working population. 

It sure was a lot easier in the old days, when people retired at 65, took their pension and Social Security, and dropped dead in a few months. Even better to plan in the old-old days, when you just worked until you collapsed on the job. Yep, that sure made planning for retirement a breeze.

Now we live longer, can’t count on a pension, want to maintain a higher standard of living than retirees of yore did, and watch as our 401(k)s regularly do a Mexican jumping bean on us. Yesterday’s comfortable retiree is often today’s chump.

We used to be able to say ‘there’s always Social Security.’ But at least some of the powers that be want to pull that comfy rug out from under us.

At one point, the retirement mantra was plan on a three-legged stool: your pension, your savings, and Social Security. Then the three-legged stool lost the pension leg, becoming a bit more precarious. And for those who don’t have a pension and/or 401(k), well, they’re sitting on a stick (point end up).

Incredibly, almost half of all U.S. households don’t have ANY retirement savings. And those that do have some have a whopping $50K socked away.

I know that it’s difficult to save, but what are people thinking who have no savings?

There will, of course, be more of them as more and more jobs become hire/fire-at-will temp jobs. Not to mention as more and more jobs are replaced by automation. (And, no, everyone replaced can’t become a robot technician.)

401(k)s have their defenders.

“There’s no question it worked” for those who committed to saving, says Robert Reynolds, who was involved in Fidelity Investments’ first sales of 401(k) products several decades ago.

He considers himself among the success stories. At 64, he could retire comfortably today after saving for three decades. “It’s a very simple formula,” he says. “If you save at 10% plus a year and participate in your plan, you will have more than 100% of your annual income for retirement.”

Well, Bob, I’ma gonna call bullshit on that one. When I worked fulltime, I contributed the max to my 401(k), and most of the companies I worked for did some relatively decent level of matching. And when I went freelance, I put the max into my IRA. I was a pretty hedged investor between fixed and equity, between growth and steady-eddy, so, while I never saw sky-high returns, I didn’t take any colossally big hits, either. But, especially with today’s level of return, there’s no way I’d be counting on having 100% of my annual income if it all came down to my own personal 401(k). And I’m sitting plenty pretty compared to most.

I’m not the problem, of course. The problem is the folks with NO retirement savings.

This could really get ugly when the Baby Boomers hit the exits en masse.

For the younger folks, there are a number of proposed fixes, mostly around mandated savings. Some states – Massachusetts is one – are planning to set up programs for small businesses and for those who aren’t covered anywhere.

Opponents have said such plans crowd out competition from the private sector, and Congress blocked the Obama administration’s attempts to create similar plans at the federal level.

Another way to look at this, of course, is that if the private sector were doing such a bang-up job, we wouldn’t be in the straits we’re in.

I think that one of the big problems is that most people don’t have a very high level of financial literacy. I know, I know. It’s crushingly boring and painful. But maybe schools and workplaces need to start providing a bit of education around what is a fundamental and critical matter. Unfortunately, we’ve become so dumbed-down across the boards… Still, seems like it might we worth a try to get to people before they hit 65 or 70 and realize that they aren’t going to be able to kickback. And when those Walmart greeter and Uber jobs dry up, they won’t be able to kick forward, either.

Like I said, icebergs to the left of us; Titanics to the right.

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