Introvert Boomer Male

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Introvert Boomer Male | Retirement | Wealth

The Retirement Con Job

November 20, 2017

The retirement our fathers enjoyed is now a myth dumped in the dustbin of history.

A pension is what’s referred to as a defined benefit plan. The payout promised to a worker upon retirement is guaranteed according to a formula, usually dependent on salary and number of years of employment.

At first, these pensions were created by the government to benefit soldiers who fought in and survived the Revolutionary War.  Later, pensions were offered to soldiers from the Civil War, and every war since then.  (Not always a happy result – think of the Bonus Marchers and MacArthur.)

Similar pension promises funded from public coffers expanded to cover retirees from other branches of government.

States and cities followed suit extending pensions to all sorts of municipal workers ranging from policemen to politicians, teachers to trash collectors.  One selling point was workers trading lower salaries at government jobs for better benefits, including pensions.

To attract and keep good employees, private companies began offering pensions of their own.  The first corporate pension was offered by the American Express Company in 1875. By the late 60s, half of all private sector employees were covered by pension plans.

Over time, when all companies offered pensions, it became less effective as an incentive to keep employees and more like an entitlement.  Instead of a benefit to corporations, pensions became a burden.

As America’s corporations grew and their employees started hitting retirement age, the funding required to meet current and future pension funding obligations became absolutely huge.

The more poorly-capitalized firms began defaulting on their pensions, stiffing those who had been loyal to the company.

I am reminded of flight attendants who were paid shit wages with a promise of a good pension.  Numerous airlines declared bankruptcy and killed their pension obligations in reorganization.

The 70s and 80s saw the introduction of personal retirement savings plans. The Individual Retirement Arrangement (IRA) was formed by the Employee Retirement Income Security Act (ERISA) in 1974, and the first 401k was created in 1980.

These savings vehicles are known as defined contribution plans. The future payout of the plan is variable and depends on how much income the worker directs into the fund over their working lifespan, as well as the return on the fund’s investments.

I remember it being sold to employees who began switching from company to company.  You could use an IRA to create a personal pension, and not have to be vested to receive a payout.

401k plans let you manage the funds instead of relying on your employer to make investment decisions.

Because it shifted the burden of retirement funding away from the company onto its employees, corporations loved it. It removed a massive and ever-growing liability off the balance sheet, and improved the forecast for future earnings and cash flow.

Unless the company matches contributions, they are totally off the hook.

U.S. workers were promised that they would be better off when reaching retirement age.  How is that working out for you?

The data seems to show that the new retirement plans did not take human nature into account.  Just because people have the option to save money for later use doesn’t mean they actually will.

Not every American worker is offered a 401k or similar retirement plan through work. Twenty years ago, many companies matched contributions, making them a great deal.  Even still, 21% of workers who have a 401k option choose not to participate.  Today, most 401k plans have no company contributions.

As a result, 1 in 4 of those aged 45-64 and 22% of those 65+ have $0 in retirement savings with 49% percent of all American adults saving nothing for retirement.

After all, where’s the first place you cut back when times are tight, a job is lost, or an illness occurs?

We forget that not all Medicare expenses are paid by the government.  Over half of all Americans do not have enough savings to cover even the Medicare out-of-pocket expenses.

One-third of retirees live on Social Security alone – about $1,200 a month on average.

Is it any wonder that most baby boomers plan to keep working?  That’s why I suggest taking your retirement back by turning your interests or hobbies into a side hustle.

Even if you are lucky enough to be expecting a public pension, your pension is uncertain.  Cities have been going bankrupt.

Due to underfunded contributions, portfolio under-performance due to the Federal Reserve’s 0% interest rate, and poor fund management, many of the federal and state pensions are woefully inadequate to fulfill their obligations.

In Jacksonville, Florida, the people have approved using future sales tax revenue to fund police pensions.  I expect other options, and new policemen will not have the same generous pensions.

Bottom line: when it comes to retirement you’re on your own.

The promises you’ve been given are proving woefully insufficient to fund the “retirement” dream.  Deal with it.  Create your own anytime, anywhere income and earn from your knowledge and experience.

For far too many Americans, “retirement” will remain a myth. Don’t be one of the dreamers.

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