Pulling the plug on retirement

Retirement is an old concept. In 17th century Massachusetts, colonists wounded in battles with Indians would receive a pension to support himself and his family. They were funded with tax collections, often collected by the wounded themselves.

Today retirement is vastly different, but we find the roots of the modern system in 1875 when the American Express railroad company established the first private pension plan in America during the industrial revolution. Other companies quickly followed suit to drawl skilled workers off the farms and from other companies into their own labor pools.

During the Great Depression, President Franklin D. Roosevelt signed the Social Security Act of 1935, which paid retired workers age 65 and older, and disabled people, a fixed amount each month for life. It was funded by a 1% tax on employees and employers on the first $3,000 of the employees earnings.

In 1960 President Eisenhower opened up Social Security to disability payments to people of any age and their dependents.

Today almost 34 million Americans collect Social Security and the tax rate has increased to 7.65% for both employers and employees. Abuse is rampant with falsified documents, crooked doctors, and the infamous crack babies (where a person has more children only for the increase in government money).

ERISA in 1974 added some protections for employees in pension systems and enabled access to tax deducible IRA’s for those outside the pension systems.

In 1981 401(k)s emerged which shifted the choices for investment from the pension boards to Wall Street mutual funds. The argument was that private banking was better able to handle our retirements than some board. Roth IRAs were created in 1997.

Few ever spoke about what might happen should the markets crash. Or how trusting our retirements to bankers that have their own personal interests might not be the smartest thing to do. That could never happen!

We have regulation to prevent just that!

We did have regulation, and we still do on traditional markets. But a giant shadow banking industry has emerged in the last 20 years. These banks deal in unregulated markets, and are gambling away the pensions, 401(k)s, and other assets they were trusted with. Since October alone, pension plans in America have lost $280 billion or roughly 7% of their worth. All the while their expenses are expected to increase some 20-30% making them unsustainable. Major corporations are freezing their pensions and offering only 401(k) programs.

Figure in the fact that by 2018 the Social Security Board of Trustees projects revenue will fall below costs, and that the markets are marching ever lower, our older citizens are in for one heck of a fall. We have raised the retirement age, fiddled with the numbers, but there are too many people that will be out of the workforce and not enough left in it to provide for them. Someone will have to suffer.

It is not fair to those who worked all their lives and have paid for their retirement to have it swept out from under them in the last years before can actually retire. It is also unfair to have current workers unable to make a livable wage, working 2-3 jobs and 60+ hours a week only to have nearly 10% of their money siphoned off and be told they will never see a penny of it.

A line needs to be drawn. We have to free our younger workers of the social security burden, but we also need to keep our promises to our older citizens. There must be a way, but it probably will mean sacrifices from both groups.

Likewise, we need to stop trusting Wall Street with our retirements. Contrary to Wall Street’s assertions, markets do fall and even crash. Nearly 76 million baby boomers are preparing to retire but are about to lose everything they saved in the coming stock crisis.

Generation X and Y won’t even have the chance to save up a nest egg. We will work like slaves until we fall into the grave because we have no savings, and our personal debt is higher than ever before in history. That is in any countries history, not just the USA.

We must admit a crash this year is not inevitable, but with each day the numbers get worse, and we have not seen any bottom to the housing or credit problems. And we still do not have a sufficient number of jobs, nor do the jobs we have pay enough. There is no such thing as a jobless recovery. In fact there is no real recovery without jobs!

We are teetering on the edge and it would take but a small event to push America off a cliff and into turmoil. Won’t the fighting over flag pins seem silly once we are starving in the streets. Without immediate change, that is our future. How many grandmothers will need to be starved to death to enact change?

UPDATE (Sept. 22): The NY Times finally has caught up with this story. Only took them 3 months since I first reported it. 🙂