According to a Washington Post article that I read today, roughly one-half of all post WWII “baby boomers” do not have any employer sponsored pension plan and are going to have to depend entirely on social security benefits. These people are now getting near to retirement age, so they no longer have time to save any significant amount of money for their old age.
In the “bad old days” of my parents, most people who had “decent jobs” received as part of their compensation package full employer paid health care benefits and a defined benefit pension plan designed to greatly supplement social security retirement benefits. I am not talking about unionized jobs like the auto workers or the teamsters. I’m referring to normal middle class working people - teachers, policemen, etc. Most of these old geezers from my parent’s generation have now passed on.
The “baby boomers” worked during an entirely different era. It was a time of cost cutting and outsourcing. There was no longer any social contract between the employer and his workers, so the goal of many companies became continual reduction of the expenses due to employees. Instead of having a 100% employer paid health care plan they may have been part of an HMO which really was designed to lower the cost to the employer, and by doing so also greatly reduced the health care benefits provided to the employee and his/her family.
And instead of a defined benefit pension plan which was federal government guaranteed (much like FDIC) through the Pension Benefit Guarantee Corporation (PBGC), the baby boomer generation had a 401K plan. Some employers contributed to these 401Ks, but in many cases the employee picked up the full cost of saving for his old age retirement.
There were several hidden killers to these 401K retirement plans.
In certain circumstances the employee could “borrow” out most of his/her retirement savings. Lots of people got in the trap of not being able to pay this money back. So when they got near to retirement they found that their houses were worth less than the mortgage on them, and their 401K retirement plan was just a hollow shell. A cruel joke.
The other big problem with 401Ks is the way most had their assets invested. In the bad old days people or pension plans bought shares of corporate common stock as an investment. Owning this stock meant that the shareholders received a portion of the company’s profits in the form of dividends. And over long periods of time the value of each share of the common stock in many cases actually increased significantly more than the rate of inflation of the U.S. dollar.
What happened during the productive working years of the boomer generation was that so called “investment advisers” figured out they could earn substantial commissions from these investments in the stock market from pension plans. The government didn’t do much at all to require that these loads, commissions, and fees be disclosed in a manner which the normal investor could understand. These investment advising companies siphoned off large amounts of money, which largely negated the conventional wisdom concept of compound interest.
At the same time buying shares in publicly traded companies changed from a form of genuine investment to something resembling frenzied gambling addicts in Las Vegas casinos. As every reasonable person knows, on average the gamblers in casinos lose. The only person who wins is the house.
So over the years instead of the value of the assets in these 401Ks growing to where they would provide a substantial supplement to social security old age retirement benefits, much of the money just disappeared. Through borrowing by boomers, who were all trying to keep up with the Joneses, dishonest or maybe even criminal behavior on the part of the investment advisors and rating agencies, and then the third part of the trinity hit.
It turns out that Enron wasn’t the only well respected, large corporation that was really very little more than an elaborate con game. A great many of the companies and even banks in America were engaging in all sorts of exotic and fraudulent short term behavior which would increase this quarter’s profits, which meant that senior management would get nice bonuses.
Almost everyone got caught up in this wave of easy credit boom-bust speculation. The U.S. federal government, the IRS, and the Federal Reserve all subtly encouraged it in order to keep the elected officials happy and re-elected. It was like everyone was stoned, and they were all part of the same hallucination.
What are the results of this generational mass hallucination?
Most of America’s good jobs and manufacturing have been moved overseas to countries which have inadequate (or no) enforced laws regarding child labor, workplace safety, and which have grossly dysfunctional environmental laws. Just look at China or even at the maquiladoras in Mexico.
Many people who are now in their 60s find themselves in absolutely terrible shape financially. Their credit cards are maxed out, and their houses have second mortgages or now unaffordable adjustable rate mortgages, and they owe a good bit more on their mortgage(s) than the house could possibly be sold for. They are driving a very poor fuel economy vehicle which has a 5 year loan, and was made by an American car company which is near to bankruptcy. Their 401K retirement plans would just be a joke if the results were not so incredibly sad.
The terrible part is that most of these people worked real hard during their careers. Very long hours and forgoing most vacations. Their priorities were work and wealth over family, with entirely predictable results in their kids. Many of them put up with inappropriate harassment and behavior by their bosses for a lot of years, in the hope that one day they would be able to retire in dignity.
And now it is revealed that it was all just one big hallucination. What a pity. Really.
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