Monday, August 05, 2013

Pensions Over The Pond: Retirement A Disappearing Prospect For Most


Following the earlier post, 'The Attack on Pensions', below is a similar tale - of worsening conditions in the US which reveals that most citizens of 'retirement age' will not be able to afford to retire at all.

Welcome to the new model of retirement. No retirement. In 1983 over 60 percent of American workers had some kind of defined-benefit plan. Today less than 20 percent have access to a plan and the majority of retired Americans largely rely on Social Security as their de facto retirement plan.

As many Americams enter into retirement they are realizing one unfortunate thing.  The new retirement plan is no retirement at all.  Over the last few decades Americans were promised the idea of a comfortable retirement yet none of this has materialized because of financial swindling and a real estate bubble that will go down in the record books.  On the flip side, many Americans went into massive debt and consumed their future nest egg today with big purchases outside of their budgets.  So what are we left with today?  We are left with over 75,000,000 baby boomers entering into retirement with very little saved.  One out of three Americans has absolutely no money saved to their name.  In 1983 over 60 percent of working Americans had some sort of defined-benefit pension plan.  Today that number is below 20 percent.  With the average worker making $25,000 a year the media designed idea of retirement is largely just another fantasy.


Many large pension funds had models built on absurdly optimistic stock and bond market returns.  These accounts did well in an era where the stock market roared ferociously because of the prime position the U.S. had after World War II.

In 1983 62 percent of working Americans had some sort of defined benefit plan.  In 2004 it was down to 20 percent and today it is lower.  Americans have been forced to play the stock market game through their 401ks.  This has actually turned out worse for average Americans as they try to compete with high frequency swindlers and investment banking crooks.  Clearly someone is making profits as investment bankers pull down million dollar bonuses all the while the stock market has gone into reverse over a decade.

Since the end of World War II many Americans were given access to debt on an unparalleled level.  This ability to borrow served as a supplement to a stagnant paycheck.  As time has gone on and with the debt bubble bursting Americans have now seen their access to borrow severely curtailed. It is no coincidence that as borrowing increased the savings rate went so low as to go into negative territory for a year.  However, it has recently gone up not because of choice, but because the debt bubble has popped and now many need to actually save to purchase items.  This has made the recovery extremely sluggish because saving to spend on a $25,000 income is hard to do  The typical household pulling in $50,000 will have a giant portion of their funds going to housing, food, energy, and healthcare before any discretionary spending is done.

Many Americans rely completely on Social Security for their retirement.  The idea of sipping unlimited Margaritas on some Caribbean island is largely a myth. Over 58,000,000 Americans receive some benefit from Social Security and most rely on this payment as their primary source of income in retirement.  Remember that only one out of three Americans have even a penny to their name. The new retirement is looking a lot like no retirement at all.

Taken from here

1 comment:

ajohnstone said...

THE FRAUD

Karen Ferguson, head of the Pension Rights Institute, warned , “Rank-and-file workers have nothing to spare from their paychecks to put into a voluntary plan.”

. Half of Americans have no workplace retirement accounts at all.

According to the National Pension Rights Council, the median amount a family nearing retirement has saved for their post-work lives is $12,000. As for the magical 401(k)? If a household where the earners are between the ages of 55-64 does have a retirement account, they barely hit the six-figure mark at $100,000—a far cry from $1 million we’re told we need.

Bloomberg magazine polled a group of pension consultants and came to the conclusion that 401(k) fees alone totaled $89.1 billion annually. Ghilarducci, who recently took a more all-encompassing look at American retirement assets, and included IRAs and pensions in her total, pegged the number at $500 billion.

The highly popular 401(k) investments are meant to take the work out of investing, and grow gradually more conservative with time. Time will tell if this works for the investor, but it’s already clear it works quite well indeed for the financial services industry. According to industry estimates, they generated $2 billion in revenue in 2008, a number that is expected to increase to $13 billion by 2018.

Assume that you are an employee with 35 years to retirement and a current 401(k) balance of $25,000. If returns on your investment in your account over the next 35 years average seven percent, and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to the account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

The financial services industry is actively fighting attempts by the Department of Labor to change the situation, claiming it would not be able to afford to offer many low- and middle-income investors advice under an enhanced standard of care. The retirement industry is actually admitting it doesn't have a viable business model if it needs to put its customers first.

The truth is this: the concept of a do-it-yourself retirement was a fraud. It was a fraud because to expect people to save up enough money to see themselves through a 20- or 30-year retirement was a dubious proposition in the best of circumstances. It was a fraud because it allowed hustlers in the financial sector to prey on ordinary people with little knowledge of sophisticated financial instruments and schemes. And it was a fraud because the mainstream media, which increasingly relies on the advertising dollars of the personal finance industry, sold expensive lies to an unsuspecting public.

http://www.alternet.org/economy/american-retirement-and-fraud?paging=off