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Longevity issues Protecting your 401K from yourself Protecting your 401K from Wall Street Protecting your 401K from government: Number racket and Fiat currency Trojan horse Diminishing Risks to Retirement Financial Security by Taking SS at 70    
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“The bankers and Wall Street traders. Just because you showed ridiculous incompetence in lending doesn’t mean that you, and the hideously exposed like me, don’t deserve a second chance. God bless America! And its hard-working backbone! And there’s still their pensions for next time!”

Joke attributed to George W Bush

This is ad-hoc bibliography collected mainly from mainstream (you can call it "yellow", if you wish ;-) financial press. All recommendations expressed on this page should treated very critically. Please read section about retirement scams first !!! This is real danger for those close to retirement and all people already in retirement. Sometimes scamsters represent "reputable" Wall Street companies; sometimes they are seniors themselves and can even live in the same community and/or attend the same church.  See this short clip which provides a 6 minutes course on what is really 401K is about:

Representatives of "reputable" Wall Street firms often are peddling some disastrous new financial instrument, the instruments that brings high fees to the institution. If the investment it too good to be true is usually is. Stories of retirees who lost one million of more due to financial scams promoted by slick financial advisers recently became popular topic in major newspapers so the size of the phenomenon is probably substantial.

Published cases suggest that abuse of elderly by financial crooks is more like a rule then exception. After all financial companies badly want fees and want to sell high fee product oblivious to the personal circumstances and consequences of their actions on your financial wellbeing.

In any case please understand that we cannot be all robbers, there should be some victims too. But the natural balance between robbers and victims was distorted after Reagan due to reregulation and later rolling back the Great Deal. Robber barons returned and they returned in quantity that will amaze future historians. For all practical purposes 401K is taxable account, the only difference is that it is taxed by Wall Street, not by the government. At some point the share of financial firms profits in S&P500 above 40%: we talk about crisis of overpopulation among robbers ;-)

Robert Shiller in the past made several pretty accurate forecasts of major economic events and it might make sense to read his columns.


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. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

-- Henry Ford

[Dec 17, 2017] Retiring abroad

Notable quotes:
"... Canada is as neoliberal as almost anywhere else in the Anglo developed world. You can think of us as being just like the USA or UK, but about a decade behind in the adoption of dumb and cruel ideas. In the Anglo neoliberal family, Canada is the slightly retarded little sibling. ..."
"... Ireland allows you to claim citizenship if you have an Irish grandparent (with some caveats). Many US and Canadians use this to work/settle in the EU. A Chicago friend who was working in London and HK got her Irish passport without ever bothering to visit Ireland. ..."
"... Yves, Sweden might take you, if you can take the winters the requirements for self-employed residence permits aren't too harsh. So far they've managed to not overdo it on neoliberalism, although there are forces that sure try to make it happen. ..."
"... I also live near San Miguel de Allende in a small, agricultural Mexican community perched on the side of an extinct volcano. I pretty much avoid the expat scene, shop in the mercados, hang with Mexican friends and am thoroughly enjoying soaking in this wonderful way of life. I made this move at age 70. ..."
"... When I'm in Mexico the feeling is of constantly hitting my head against a glass ceiling and biting my tongue. ..."
"... But for the love of God, stay on the beaten tourist path (SMA-Oaxaca City-Cholula etc.). Don't go into Guerrero except maybe Taxco. I was just in Chilpancingo for a professional event, taking every precaution, and the stories you hear first hand are horrifying. The security situation in Mexico is deteriorating badly. ..."
"... Even states like Puebla that used to be safe are seeing kidnappings and other extreme crime. If you speak Spanish, the issue of security it is utterly unavoidable, it creeps into many conversations and dominates the local news. ..."
"... 'According to Pew Charitable Trusts, only 13 percent of Baby Boomers still have [defined benefit pensions].' ..."
"... This 13 percent remnant overwhelmingly consists of government employees, whose defined benefit pensions are uniformly underfunded (and even understated as to HOW underfunded they are). ..."
"... I had a work colleague from Sweden. She had been a school teacher there and came to the U.S. to sell financial products, make a lot of money and avoid Swedish taxes. I asked her if she were going to become a U.S. citizen. She looked at me like I was crazy, laughed and said, "Hell no, I would never wish to be old in America." ..."
"... From my perch, if any Americans want to make the move, I would say over the next decade before that door closes. The regulations are already tightening up such as making sure that you owe no taxes or the like before you leave. More Americans are now renouncing their citizenship as America still want to tax them even when they have moved away. After this decade, I regret to say, that America will be no country for old people. ..."
"... And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street. ..."
"... By the way don't get me started on the cost of healthcare. It's cheap until you run into a major complication. I had surgery in Peru for something minor and the total bill was over $5000 USD. Imagine if it were heart surgery. My expat insurance paid it but you can't get that if you're over a certain age. ..."
Dec 01, 2014 | nakedcapitalism.com

Roland , December 14, 2017 at 6:39 pm

Canada is as neoliberal as almost anywhere else in the Anglo developed world. You can think of us as being just like the USA or UK, but about a decade behind in the adoption of dumb and cruel ideas. In the Anglo neoliberal family, Canada is the slightly retarded little sibling.

The cost of living is high in Canadian cities. In Vancouver and Toronto, the cost of living has soared out of any sort of proportion to employment incomes. Affordable rental housing is often infested with bedbugs or other vermin (Vancouver alleyways are strewn with stained mattresses and other abandoned furniture). Beggars are seen everywhere, while the Teslas and Lexuses roll past. Not a day goes by that I don't see elderly persons climbing in and out of dumpsters. Permanent shantytowns have arisen on the outskirts. We got almost the same opiates problem as the USA.

The province of Quebec used to be more social-democratic in orientation than other parts of Canada. But even the Quebecois seem to have caught the mental and spiritual diseases of the globalist bourgeoisie. I recently spent a month in Montreal, and was aghast to see the staircases of downtown Metro stations rendered almost impassable by the large numbers of homeless men and women trying to sleep there.

My younger relatives look at me very sceptically, when I tell them that as late as 1990, a beggar was an unusual sight in Vancouver. Of course, people born since that time would think that what you see today is normal .

Wukchumni , December 14, 2017 at 8:10 am

We were at a commercial hot springs somewhere in France about 15 years ago, and it cost around $5 to go in, and before entering, there was a doctor and nurse that checked your blood pressure, etc., for no extra charge. It was so over the top in terms of anything compared to here, in a delightful way.

artiste-de-decrottage , December 14, 2017 at 3:23 pm

In France, doctors make a lot less than in the US, particularly general practitioners. The GP doctors make on the order of what a senior manager or engineer makes.

There are good reasons for that (among them free education for doctors and a totally different societal attitude towards healthcare, based on SOLIDARITY – whose outcome is a more reasonable cost and coverage. Yes, they also do use that word a lot in general public discourse, in many European countries. Have you heard the word SOLIDARITY in the US in public discourse, ever?).

A good summary of that and meaningful comparisons with other nations' healthcare systems is provided in the book 'The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care' by T. R. Reid.

Larry , December 14, 2017 at 7:44 am

Don't worry, Marcon and Merkel are accelerating the crapification of France and the wider EU. The next generation will get to experience the joys of economic and health insecurity in abundance.

vidimi , December 14, 2017 at 8:05 am

the main project now is to gut the public pensions. the PIIGS countries have already had to slash theirs, so the plan now is to bring the rest of Europe to Canadian levels (retirement age at 67 or higher with a minimal state component).

JEHR , December 14, 2017 at 2:46 pm

Retirement levels were put back to 65 with our Trudeau Liberal government.

kukuzel , December 14, 2017 at 3:31 pm

By the way, it is not widely known for example that the retirement age in Russia is 60. And, judging by the tens of thousands of healthy and active Russian retirees (these are teachers and professional workers, "middle class" people, not oligarchs – those go to Monaco and Switzerland of course) living on the Black Sea coast of Bulgaria (mild winters, culturally and geographically close, inexpensive by developed world standards, gateway to the EU), their pensions cannot be that bad.

And no, they don't look like they are about to die at 65.

So, take that, dear future US retirees (myself in that number).

Robert McGregor , December 14, 2017 at 8:58 pm

Wikipedia says the retirement age in Russia is 60 for men, and 55 for women !!! My personal family practice physician is a Russian immigrant and pre-GFC she claimed, "Most Russian men die before 60. (Wikipedia now says 70.91) Next time I see her I may ask her about Russian retirement, and life expectancy etc. Another topic is the prevailing attitude of Russian immigrants when they came to America. They really expected to clean up! I'd be interested in what other NC readers think about this.

Certainly I can imagine the distress of Russian immigrants who through a lot to move to the US only to find by age 60–55 for women–they might have been better off being back in Russia.

OIFVet , December 14, 2017 at 10:19 pm

Indeed, the Black Sea coast is overran by Russkies, younger ones as well. The countryside is where the Brits move to to feel like country squires on the cheap. And Americans are concentrated in Sofia, doing the heavy lifting of pretending to be civilising the natives while securing staging areas for the future war against Russia. It's all one big happy international family :) Can't wait to move back there permanently in 30 months.

Jeff Mintz , December 14, 2017 at 3:30 pm

I believe that Medicare benefits cannot be used outside the US at all.

kazy , December 14, 2017 at 3:58 pm

You can't use Medicare anywhere other than the US

David Carl Grimes , December 14, 2017 at 5:19 pm

They should allow Medicare to be used outside the US, especially for low cost countries in the Third World. They are cheaper and just as good as the US for many medical services – maybe not for transplants but for heart bypasses, dialysis, etc., they are ok.

annie , December 14, 2017 at 7:01 pm

correct: medicare cannot be used outside the u.s.
we are retirees living abroad much of the year. our secondary insurance (which we are lucky enough to have from former teaching job) becomes our primary insurance. we submit bills to them and they pay (reimburse) fairly well.
we use local doctors and clinics at much lower rates than in the u.s.
emergency medical care in europe is nearly always free or all but free.

gardener1 , December 14, 2017 at 4:13 pm

We've been to Ecuador twice in the last 4 years exploring retirement there – and decided against it. For a combination of reasons.

1. In spite of what gets touted in the retirement media, for the most part Ecuador is a third world country with everything that entails.

2. The much ballyhood Cuenca is in an Andes plateau at 8,000 ft. elevation. Not a fan, and it's isolated, if you want to get out of Cuenca there's a lot of nowhere to go. Cuenca has been haggling with airlines to get some service providers since TAME cancelled its routes, that's been a constant and ongoing problem.

3. I liked Quito, It's at 9,000 ft. I really couldn't take it.

4. The coast is a very narrow strip of land at the bottom of the mountains, and outside of a couple of areas it's a backwater. Little infrastructure, few services, dirt poor. The north coast of Ecuador (we call it the mosquito zone) shook down in a 7.8 earthquake in 2016 that wrecked everything from Manta to the Colombian border.

5. Ecuador completely overhauled its visa laws in February of this year making it much more difficult to get any kind of permanent residency permit, and requiring all visa applicants to provide proof of personal health insurance to qualify for a visa.

6. Ecuador isn't cheap. They levy enormous taxes on almost everything that's imported, which is just about everything but food. Impossible to get packages and mail in or out.

'Studies' have shown that the majority of pensioners who retire there, leave and go back home or somewhere else within 5 years.

LifelongLib , December 14, 2017 at 2:14 pm

American individualism is a recent myth. I remember how my grandmother who grew up in rural Montana a century ago could rattle off the names of various second cousins, to say nothing of all the family stories. Life then was rugged but it was not individualistic.

MyLessThanPrimeBeef , December 14, 2017 at 2:48 pm

That's a key consideration for me.

Friends and relatives.

Perhaps one can acquire new pals at the age of 70, as as not to be a lonely old man/woman.

Or are you just a Yankee with money?

And hopefully the new country is so subdued by the super power that there is no need to liberate it. For example, Libya, a few years ago, would not have been a good choice, in this respect.

jackiebass , December 14, 2017 at 7:31 am

If you choose traditional medicare instead of a medicare advantage plan , I don't understand how it would narrow your network. Traditional medicare is universal in the US and accepted by most providers. I've been on traditional medicare for16 years and haven't had a provider that doesn't accept traditional medicare.

doug , December 14, 2017 at 9:42 am

I wonder if that is regional. Where I live(south), I never see a problem with that.

My PCP when I asked him as I approached 65, replied, that of course he accepted medicare, that there was little difference between it and other insurance, and that folks who did not accept medicare were immoral in his view.

Left in Wisconsin , December 14, 2017 at 1:18 pm

I think out here in flyover it is less common for doctors to not take Medicare patients. My elderly father moved out here 1.5 years ago and has made considerable use of the excellent resources of the UW health system. His secondary private insurance covers very little since he is out-of-network but Medicare has covered virtually everything and no expert has refused to see him (urology, throat/swallowing, dementia, macular degeneration, etc.) due to being Medicare insured. I am pretty sure the entire Mayo Clinic operation takes Medicare patients also.

It may be that independent docs are refusing Medicare patients but there are fewer and fewer of those out here.

Yves Smith Post author , December 14, 2017 at 7:53 am

A lot of doctors do not accept Medicare. My current MD does not. I think that is even more true of specialists.

And I am not in a network. I have an old-fashioned indemnity plan. I can see any doctor, anywhere in the world. I submitted claims for 2 years from Australia, and have also submitted claims from the UK and Thailand.

pretzelattack , December 14, 2017 at 11:09 am

it happens around this southern city . scary stuff, my first world problems may turn into third world problems. trying to imagine being 70, living in a van, queing up for a chance at a valuable temp gig in an amazon warehouse.

Rhondda , December 14, 2017 at 10:41 am

I would have thought so, too. Certainly the media I have read has lead me to believe that many doctors don't accept Medicare. I wondered what the percentages were so I did a search. Surprising to me. More nuance than one might think in the results -- seems you can "accept" at finer-grained levels than one might assume in a Federal program. Here's what seems to be a reasonably objective and recent appraisal: http://www.factcheck.org/2017/03/medicaids-doctor-participation-rates/

GF , December 14, 2017 at 1:40 pm

Anecdotal reply from the few doctors I have seen: They state they accept Medicare because it pays them quickly and there is less paperwork than with most insurance companies, which results in less office overhead. Even with the lower payments from Medicare for many procedures, the doctors do OK when the big picture is examined.

Jack G , December 14, 2017 at 2:57 pm

One of my docs accepts no insurance. But he will file the Medicare claim. I pay him and Medicare sends me a check. It's a little unwieldy but he's a good doc (in my completely unprofessional opinion) so I put up with it. Others don't and go to other docs.

Jer Bear , December 14, 2017 at 4:56 pm

Physicians in private practice often do not accept Medicare or Medicaid do to billing issues. These are usually older doctors with established practices. Younger physicians often end up working as employees of large chain hospitals to stay solvent, and they will accept any form of payment.

Tinky , December 14, 2017 at 7:32 am

I now live in Portugal. The quality of life is high, and cost of living quite low (though Lisbon has become pricey in terms of property).

A few months ago I sustained a cut that wasn't healing well, and decided to visit a private walk-in clinic. It was clean, modern, and there was virtually no wait. The nurse took care of me, as no doctor was required. She spent about twenty minutes cleaning and dressing the wound, and gave me some extra waterproof bandages to take home.

The cost? Six Euros. You read that correctly: Six Euros.

RabidGandhi , December 14, 2017 at 7:45 am

To the issue of cost of living, I was in Portugal last week and had a myocardial infarction upon seeing petrol prices at 1.55€/litre. Good thing is not only are there excellent public hospitals for such MIs, but the extremely relaxed recreational pharmaceuticals policy makes for good prevention as well.

Tinky , December 14, 2017 at 8:04 am

Petrol is expensive throughout Europe, but who really needs a car? Public transport in Portugal is largely excellent, and cheap.

Carolinian , December 14, 2017 at 10:04 am

Where I live a liter is about .48 euro if I have my conversion right. So retirees here do catch some breaks. Also there's no VAT although we do of course have sales tax. And finally many US retirees fully own their homes whereas in, say, Germany almost everybody rents. Indeed I'd say that so far the US elderly have it easy compared to the millenials who are the ones really getting screwed. Just reading an article the other day about the record number of millenials living with their parents or, undoubtedly, their grandparents.

And finally I've read Nomadland and should be said that many of those older people wandering around the country do so by choice. RVs are not cheap. A new one can cost as much as a house. Amazon prefers to hire these people for their work ethic and because they bring their own housing with them which is handy for a temporary workforce. Amazon even tries to sugarcoat the exploitation by making a kind of club out of it called CamperForce.

Pinhead , December 14, 2017 at 11:51 am

Home ownership in Germany is 52% and it is below 45% in Switzerland. It is 65-75% in almost all other rich countries including the US. It is actually around 85% in Russia and 90% in Cuba although the amenities are not quite the same.

jCandlish , December 14, 2017 at 12:01 pm

As a Swiss I can say that it does not pay to own your house outright. The way our taxes are structured you are cash ahead to carry your mortgage in perpetuity. It is a nice gift for our banks.

Anon , December 14, 2017 at 2:57 pm

Many 'Mericans say they own their home, but actually the bank (mortgage) owns the home. They're simply trying to improve their equity (and freedom to paint it whatever color they please) in the home.

I've owned (completely mortgage free) several homes, and between crazy neighbors, time involved in upkeep, and property tax the best hope is to sell them to a greater fool. (Price appreciation.) Spending over half of one's income on a home mortgage and hoping the next generation will buy it when it's time to move on is more risky than many other "investments".

MyLessThanPrimeBeef , December 14, 2017 at 5:03 pm

I'm in the middle of re-piping the whole house.

It's not cheap.

witters , December 14, 2017 at 5:18 pm

All them pipe-fitters gone to France?

oliverks , December 14, 2017 at 1:28 pm

I was in Italy this year, in a remote part where you really needed a car to get around. The diesel prices were shocking, but the small car efficiency actually balanced out the price. I don't think I spent any more per mile than I did in the US. For reference, I drive a 4 cylinder Toyota which is not exactly a gas guzzler here.

Larry , December 14, 2017 at 7:46 am

How would that visit go in Greece?

Wukchumni , December 14, 2017 at 7:46 am

My mom gave me her checkbook register from mid 1961-62 a few years ago, and for a family of 6, there was a total of $88 paid to Dr. Evers, our family physician. My coming out party was $190.

The checks were mostly $6 and $7, with one $14 whopper.

I asked my mom if we had health insurance, and she told me that aside from a few that had Kaiser, nobody had health insurance back in those days.

cojo , December 14, 2017 at 9:36 am

Health insurance was not as critical in those days. The low prices you quote for day to day purchases could also be found in the healthcare of the day. Not the inflated prices we have now. Same with education. I recall seeing old tuition receipts from my university that maxed out at a few hundred dollars per semester in the 1950's.

Eclair , December 14, 2017 at 10:47 am

My dad's brother was a physician, an old-fashioned family doctor whose office was in his home and who made house calls. This was in the 1940's and 50's. Many of his patients paid 'in kind;' although he lived in the city, people still had large gardens or lived on outlying small farms, and in August and September especially, my aunt would routinely find boxes of fresh fruits and veggies on their porch. She joked that she was kept busy canning and preserving for at least three months of the year.

Yves Smith Post author , December 14, 2017 at 7:55 am

Yes .but you are in Portugal. For someone old to get permanent residence in a foreign country is generally an insurmountable obstacle.

Tinky , December 14, 2017 at 8:02 am

Actually, there are some avenues available for some, depending on ancestry, but work is required.

My father was born in Europe, and, after three years and the help of an inexpensive lawyer, I was able to gain a second citizenship. That, in turn, allowed me to live in Europe.

I believe that Ireland has fairly liberal rules along these lines, but it is worth checking into it no matter what foreign country one's parents were born.

Yves Smith Post author , December 14, 2017 at 8:10 am

Won't even remotely work for me. I'm from old and undistinguished stock. All my grandparents were born in the US and three of my four grandparents have gene pools that go back to before the Revolution (two English, one bizarrely Hungarian).

vlade , December 14, 2017 at 9:45 am

If you could speak Hungarian (which would be a feat ), you could apply for Hungarian passport by ancestry (assuming you can track your Hungarian roots with sufficient documentation). That would open all of EU, and I think you might like Berlin

Yves Smith Post author , December 14, 2017 at 2:00 pm

No, my Hungarian ancestors have supposedly been here over 200 years, plus my mother was terrified of both her parents, in particular her Hungarian father, who was estranged from the rest of his family, and so she knows nothing about his ancestors. The claim was they came to help fight in the Revolutionary War and stayed. That's likely family urban legend, but my mother is pretty sure his parents were born here too.

PlutoniumKun , December 14, 2017 at 8:18 am

Ireland allows you to claim citizenship if you have an Irish grandparent (with some caveats). Many US and Canadians use this to work/settle in the EU. A Chicago friend who was working in London and HK got her Irish passport without ever bothering to visit Ireland.

PlutoniumKun , December 14, 2017 at 8:12 am

Easy enough within the EU of course – there are huge numbers of northern European retirees living on the Med and in Portugal. But plenty of Britons are finding out to their horror they are very vulnerable to both Brexit and a weakening sterling.

I've not looked into the visa side of things, but some Asian countries target retirees as a source of investment in rural areas. I don't know if it still does, but Taiwan used to market itself to Japanese retirees as a cheap place to move with your yen pensions. There are a lot of retirement developments in Thailand and elsewhere, marketed on cheap property and good quality health systems. They seem to aim mostly at Europeans and Japanese.

FreeMarketApologist , December 14, 2017 at 8:27 am

Mexico. I have friends (gay, married; a retired nurse and retired librarian), who moved there full-time 3 years ago after 30+ years in NYC, and nearly 15 years of periodic vacations all over Mexico, to consider possible locations. They moved to a medium-sized city about 3 hours by bus from Mexico City, somewhat off the beaten path of the usual expat communities. Very affordable, and permanent residency is not a problem. Mexico City is very affordable, very good subway system, and has lots of things to do if you're retired and need to fill up a day. Over their years of visits, they built up a network of friends and connections, and have found good local doctors and dentists. One is fluent in Spanish, the other not so much.

Alex V , December 14, 2017 at 7:48 am

To me, another thing that makes the US horrible and expensive for older people (among other groups) is the virtual requirement for a car. Outside of a few major metro areas you're basically screwed without one. Part of why I encourage my mother to move back to Germany after my father passed away (even though she drives now and has a car) she can get basically anywhere in Europe without needing to get behind the wheel.

Yves, Sweden might take you, if you can take the winters the requirements for self-employed residence permits aren't too harsh. So far they've managed to not overdo it on neoliberalism, although there are forces that sure try to make it happen.

Alex V , December 14, 2017 at 8:58 am

Here you go!

https://www.migrationsverket.se/English/Private-individuals/Working-in-Sweden/Self-employment.html

Wait times for decisions are long, but they're actually quite helpful and nice in general. Almost like they want people to move here

Mark Alexander , December 14, 2017 at 11:04 am

Thanks for the link. These bits from "Requirements for obtaining a residence permit as a self-employed" do seem a bit daunting, though: "show that you have established customer contacts and/or a network in Sweden", and "show that the business' services or goods are sold and/or produced in Sweden". This would be tough for us, since our main business now is fiber arts (weaving, etc.) and farming, all very local things. I do some part-time programming but that's also quite local.

Fifteen years ago, I qualified for NZ immigration, just barely. Now I'm too old (their points system penalizes you on age). Sad, really, since I spent a year in NZ as a child, went to school there, went on camping trips and adored the landscape, etc. I still consider it my first home.

OpenThePodBayDoorsHAL , December 14, 2017 at 3:34 pm

When Bush got appointed the second time in 2005 we made the move to Australia and boy are we glad we did.
The concerns about family and friends cited here are real but we have adjusted and Aussies are very easy and welcoming as new friends.

We recently dropped our "private health coverage" which is essentially an American-style system that sits atop the existing public system. So when my son recently had a non-serious health problem we were really astonished when, at 2 hours' notice, a doctor showed up at our house to treat him. Bill? Zero. All of the health care we've received here has been top-notch.

Not mentioned in the article is that many countries, especially in Asia, are not ageist . Employers actually value and respect the experience and wisdom older workers bring.

But my view is that the only hope is to hijack the politics of everything in the U.S., the richest country on Earth has more than enough money to solve its woes. So pick a single issue, a simple one that everybody can understand, one that is so destructive and hateful and wasteful that everybody can get behind it, and organize. Can I suggest Permanent War ? Maybe mention the $21 trillion that went missing at the Pentagon in the last decade? Maybe help people understand that the enemy (Osama, ISIS) is dead ? Show them a quick chart and ask them to pick which one they want to buy , an electronic gun that can shoot Middle Eastern goat herders from space, or 25 new hospitals.

Stop the War. It's what worked in the 60's, and it can work again. A New Peace Dividend that can be spent on the things people are crying out for like retirement and health care. Leave out all of the other divisive stuff like gender and race and abortions and green energy and net neutrality. The party platform has one item on it: Stop The War. Peace, Bread, and Land.

Paleobotanist , December 14, 2017 at 3:18 pm

Hi Yves

Think seriously about Montreal. It's one of the world's great cities. Great public transport. We don't own a car. Life is good here.

Yves Smith Post author , December 14, 2017 at 5:26 pm

Yes, the trick is getting to Canada and Quebec at my advanced age. I know the provinces have job categories where they are seeking workers, otherwise my impression is it's by points, and I fail on that. The only way in might be if I got some sort of teaching post at one of the unis for something where my background would add something they couldn't get locally.

mtnwoman , December 14, 2017 at 7:21 pm

What if one doesn't speak French? Would it be hard to live in Montreal?

Paleobotanist , December 14, 2017 at 9:22 pm

I speak French. The spousal unit is learning. The cats picked it up quickly ;^) They are quite happy being "minous", rather than kitties.
Actually in Montreal you can get by fine with English only in the West Island. I have anglophone colleagues who only speak English.

vidimi , December 14, 2017 at 8:10 am

this is so true. 2 or more cars per household, and the ridiculous quantities of meat in their diet, are probably the two main reasons why americans consume more than twice as much as the EU average.

el_tel , December 14, 2017 at 11:06 am

I lived in Sweden for 6 months (as an EU citizen). There is indeed a lot going for it but there are a lot of issues too that don't get media attention. As a Professor in Uppsala I was warned by a friendly local that "even if you were a Stockholm-based immigrant to here you'd find it difficult to integrate". This was not due to any latent racism or anything like that – merely that Swedes have quite an ingrained way of "putting down roots" (compared to, say, Denmark). So I was warned that socialising means many many weeks of doing the coffee and cakes thing, then, if things go well, you may get invited out for a drink in a bar, then again, if weeks of that work you may get an invite for a home visit.

It's tough – and I was someone who (unlike many anglos) was keen to learn the language so as to fit in better – though (of course) Swedes typically have brilliant English you can't expect them all to speak it exclusively in a social context just to accommodate you. So I witnessed Europeans (central, southern and western) tended not to integrate well and instead formed their own groups. Furthermore Swedish healthcare, although overall cheap and good, does not do well on the "integrated care" front – IIRC (don't have reference to hand) some "official" comparisons of industrialised countries bear this out and its ranking dropped several places due to this issue.

It was incredibly difficult (even with employer sponsorship) to get Aussie permanent residency .but the "final hurdle" of citizenship was a cinch (given that most of the "benefit" is accrued through PR, not citizenship) .I don't think any non-North American industrialised country is unequivocally "better" – you decide what you want most and what you'll compromise on and take your choice. I'm probably going to get citizenship of a 3rd country (Ireland – not cheap but I'm entitled to it via Irish mother and Irish paternal grandfather) to hedge my bets if my company stays afloat but I have enough relatives there to know it has its own set of issues.

Alex V , December 14, 2017 at 1:11 pm

Agree on the integration part, but if you know this going in I think it's a bit more manageable (you learn not to take it personally, that's just the way Swedes are, and it's definitely not universal). It also helps to join activity groups – they're into that in a major way.

rusti , December 14, 2017 at 2:26 pm

There are also large ex-pat communities in towns and cities of virtually any size. My circle of friends and acquaintances is a Sesame Street-like cast of people from all over Europe, the Americas, Africa, and Asia who have all moved here to study and work. Many of us speak Swedish with full professional fluency, hold dual-citizenship and regularly consume Swedish media but have found other transplants to be among the most welcoming and have gravitated towards each other for that reason.

Yves Smith Post author , December 14, 2017 at 2:03 pm

Oh, this is an entrepreneurial visa. That's; how I got into Oz but they shut that down. They typically require that you show sufficient net worth to fund a business and you need to generate a certain level of domestic revenues and/or employment to stay.

Alex V , December 14, 2017 at 3:07 pm

The way "in Sweden" is tacked on at the end regarding where you make money makes it a little vague as to which part of the and/or it applies to. I think they also do a reasonable job of looking at the whole case and would understand someone making a living online or remotely. They just want you to pay tax here. If you haven't done the conversion already, 200,000 SEK is around 25,000 USD at today's rate, which I think is pretty modest from my vague knowledge of this type of visa in other parts of the world.

But like I said, in my experience Migrationverket is quite polite, professional and even welcoming when you deal with them, so it de worth contacting them if you're interested.

And yes, I'm a bit of a shill for my adopted home

Alex V , December 14, 2017 at 3:19 pm

Alternatively, because I love NC quite deeply, we can commit visa fraud and get married ;)

Yves Smith Post author , December 14, 2017 at 5:28 pm

Aaw, that's really kind! And I am 1/4 Swedish if that at all helps, although my grandmother was born here (her father came over and then had kids here after he got established).

Matt , December 14, 2017 at 8:05 pm

I emailed one of our corporate attorneys today, he's been with the company since the early 1990s, and Outlook told me he resigned on 12/8. I asked someone about it, and they said, yeah, he's moving to Sweden. I'm dying to find out why, and what he's going to do.

Sam Adams , December 14, 2017 at 7:58 am

It's the tax and treasury account compliance that stops many and causes more to renounce US citizenship combined with many European banks refusing to do business with Americans that make expatriating very difficult. It's a feature and not a bug as Lambert would say

visitor , December 14, 2017 at 8:19 am

FATCA has been a source of unending critical trouble for expatriates from the USA but also bureaucratic hassle for non-US citizens who have strictly nothing to do with the USA.

Christine , December 14, 2017 at 8:04 am

I live 2 miles outside of San Miguel de Allende in the state of Guanajuato, Mexico. It's been voted the best tourist city in the world by several magazines a little Paris. Settling here was tough, and ultimately I had to become functional in Spanish to get the 13 year lease at $500/mo for a 4 bedroom 3 1/2 bath, needs work house, on 2 acres, since my landlord doesn't speak English. But I live far and away better than I could in the US, on 1/3d to 1/2 of the cost. I am living in the only sustainable place of my life pretty friendly, pretty clean, awfully nice a veritable garden of fireflies, butterflies, bird life, decent animal husbandry, up against the mountains, much in nature reserve. There is excellent medical care at reasonable prices. I am 8 hours from the US border if I have serious Medicare needs. Town offers wonderful food, luxuries, entertainment if I want to go in. Down here we say, thank god people in the US are afraid and ignorant of Mexico. It keeps them away.

david , December 14, 2017 at 9:05 am

Does Doc Severinsen still play at the club in town? great town San Miguel – huge art community

Joel , December 14, 2017 at 9:41 am

There is a lot of hand wringing in the Mexican press about how American and Canadian retirees have gentrified and de-Mexicanized San Miguel de Allende. If the shit ever hits the fan, at the very least I would want my immigration papers in order, but really I just would rather not be there.

Plus, quality major healthcare (the kind that a 65+ person may need suddenly at any time) is not cheap in Mexico and the Mexican government has made it much harder for new arrivals to get onto the Institute of Medicine and Social Security.

When you add in the very high levels of xenophobia in Mexico (just look at how the Central Americans and even Mexican Americans are treated) and deteriorating security situation in more and more states it is a risky proposition. I would not want my mom to move there.

Lee , December 14, 2017 at 9:46 am

We take their low wage huddled masses and they get our gentry who benefited from paying low wages. It's win win! Or a stupid circle jerk. Not sure which.

Joel , December 14, 2017 at 10:30 am

Unfortunately given escalating healthcare costs in Mexico, plus the same xenophobia as ever, they're much less keen on taking our huddled masses. Plus they have a big problem now with American retirees who are trying to live on less than $1000 a month in US social security, well under the approx $2500 month required to get a retiree visa, who can no longer return to the US for healthcare or family visits because they can't even afford the bus ticket and might not be let back into Mexico because of their massive immigration violations.

vidimi , December 14, 2017 at 11:27 am

I think that's part of the problem. America is more and more reluctant to take in the huddled Mexican masses which means that these huddled Mexican masses may begrudge more and more the privileged gringos who make the trip down south.

LaGringa , December 14, 2017 at 11:07 am

I also live near San Miguel de Allende in a small, agricultural Mexican community perched on the side of an extinct volcano. I pretty much avoid the expat scene, shop in the mercados, hang with Mexican friends and am thoroughly enjoying soaking in this wonderful way of life. I made this move at age 70.

Certainly, this required a major adjustment. It's not like moving from Boston to Tucson. It's more like moving to a different universe. But if a person is open, hangs loose and finds someone to help work through the ins and outs of the immigration process, it's not all that difficult.

My health insurance is free because of my age and health care here puts the emphasis on *care*. An acquaintance had a knee replacement and the total out-of-pocket cost to her was 3300 pesos – about 170 usd. The entire surgical team came into her room and introduced themselves before the procedure. The surgeon was top notch and she is fully functional with no pain for the first time in years.

I've taken road trips from Chihuahua to Oaxaca alone with my dogs and have never felt unsafe. There are certain roads in Guerrero, certain parts of Mexico City, etc that I avoid because it's just common sense. I did the same in parts of NYC and Albuquerque.

It was clear to me that I would outlast my savings if I'd stayed in the US. Here, I can afford to live here modestly but comfortably. I have a Spanish tutor and I can get by. I am obviously a gringa but when Mexicans speak English to me and I answer in Spanish, they smile and everything changes. People here are kind, polite and, if you don't behave like the proverbial "ugly American" (some expats do, unfortunately), you may find yourself treated like family. And the way of life, the quality of the food, so many things have had a hugely positive effect on my health. My borderline hypertension has given way to BP numbers I haven't seen since I was in my 20s – and I take no pharmaceuticals.

I lived all over the US before moving here. I have no intention of going back. I'm eligible to become a Mexican citizen soon and I will do so. Whether I renounce my US citizenship remains to be seen. I haven't been back to the US since moving here so .

Joel , December 14, 2017 at 2:14 pm

I speak Spanish at a near-native level (started learning as a child and lived years in Latin America).

My sincere advice is don't learn much more, if you're happy now, just keep being happy. If you're able to understand better the world around you, the glow will rub off and you'll likely find that you are not in fact being treated as family but as a guest. I once spent a year in South East Asia and made a conscious decision not to get too involved, and loved it. I pretty much had the same experience you're having in Mexico. When I'm in Mexico the feeling is of constantly hitting my head against a glass ceiling and biting my tongue.

The wonderful thing about not speaking the language is it's an automatic filter. Only people who like foreigners talk with you and you are constantly in the position of wonderful people helping you out, because you need help.

But for the love of God, stay on the beaten tourist path (SMA-Oaxaca City-Cholula etc.). Don't go into Guerrero except maybe Taxco. I was just in Chilpancingo for a professional event, taking every precaution, and the stories you hear first hand are horrifying. The security situation in Mexico is deteriorating badly.

Even states like Puebla that used to be safe are seeing kidnappings and other extreme crime. If you speak Spanish, the issue of security it is utterly unavoidable, it creeps into many conversations and dominates the local news.

jrs , December 14, 2017 at 2:04 pm

because there isn't a lot of evidence most labor gets a very good return for crossing borders (like maybe all the low paid mexican immigrant laborers with no rights for example?). Well yes and maybe it's better for them than staying put, but it isn't any kind of good life. Most labor, even most skilled labor, is a lot closer to that "dime a dozen" bucket than any kind of name your own price bucket. As individuals labor just doesn't have much power, now maybe labor movements need to cross borders have all the workers at whole companies emigrate even.

Alex V , December 14, 2017 at 2:50 pm

Yes, I agree that in many cases labor doesn't necessarily win by moving in the real world. My comment was more on philosophical level – and somewhat a spin on the NC concept of "because markets" – in an ideal world countries would compete on attracting labor by what they offer in concrete material benefits.

Jim Haygood , December 14, 2017 at 9:21 am

'According to Pew Charitable Trusts, only 13 percent of Baby Boomers still have [defined benefit pensions].'

This 13 percent remnant overwhelmingly consists of government employees, whose defined benefit pensions are uniformly underfunded (and even understated as to HOW underfunded they are).

On the back side of Bubble III, as pension sponsors' equity-heavy assets shrink like an ice cream cone in the Sacramento sun, a hue and cry will arise for massive tax increases on the hapless public to bail out public employees' rich pensions. (Not that they aren't already happening -- two towns near me just hiked their sales tax by 1 percent to bail out police and firefighter pensions.)

'Pension envy' will be the defining cultural war of the 2020s. Got ammo?

PrairieRose , December 14, 2017 at 10:57 am

"Pension envy" has been around for a long time, Jim. I'm in my late 50s and grew up in one of the reddest states in the country (North Dakota). For forty years I've heard many snarky remarks about public pensioners, not to mention those gawdawful Unions (AFL-CIO, et al.). It never occurred to these people to demand the same treatment from THEIR private employers instead of complaining about collectively bargained for benefits. Much easier to beggar thy neighbor, apparently. Sigh.

jrs , December 14, 2017 at 12:18 pm

yes just unionize and get a pension from your private employer – not all of which are big employers btw which might be the only plausible shot at a private sector pension -however most people work for small to mid-size companies. And then people wonder why people think public sector employees are clueless about reality when it's all "let them eat cake" all the time.

I say let's NOT pay much higher taxes to fund the public pensions but INSTEAD pay much higher taxes to fund expanded and improved SOCIAL SECURITY for all. It's only equitable, it's only just, there shouldn't be favored types of retirees, whoever we work for, we all get old if we live long enough. Btw those same private sector unions have often sold out younger employees and accepted tiered wages etc.. I'm not anti-union, I'm skeptical of non-radical unions being sufficient.

WobblyTelomeres , December 14, 2017 at 12:27 pm

Sounds like we need One Big Union. I wonder where we could find such an organization?

MyLessThanPrimeBeef , December 14, 2017 at 3:14 pm

For me, it's about merging all plans into one universal pension – Social Security, and defend it as hard as, or harder, as pension plans are defended now.

Left in Wisconsin , December 14, 2017 at 1:27 pm

government employees, whose defined benefit pensions are uniformly underfunded

They are not uniformly underfunded. The Wisconsin state and local employee pension system is fully funded. Even Scott Walker hasn't been able to undo that.

Whoa Molly! , December 14, 2017 at 9:30 am

The only way I could figure out how to retire in the US was to find a house in a semi rural community that is a 45 minute drive past gentrification.

Start by buying a lot (bare land) then put a cheap RV on it, later a manufactured home if possible. Or find a lot with an older decrepit -- but still livable single wide trailer. Buy it for a roof and grandfathered utilities.

Medicare, plus low price house, plus low-status address. We also looked for a county with a high percentage of over-65 residents and rudimentary senior services.

Still not optimal but workable. northern California is where we landed because of family. Look for cheap towns with collapsed logging, farming or fishing industries.

Investigate by taking vacations in community.

Downsides include car-dependent culture, dependence on Medicare system, poor public transit, 2 hour drive to land of decent coffee shops.

Canada was a serious thought experiment until I realized they dont want old people unless they bring large bags of money along.

Wukchumni , December 14, 2017 at 9:40 am

That's similar to what we've done, and we're an hour away from 'civilization'. Our difference being that we're still years away-Medicare wise.

Our plan mostly revolves around the idea of not getting sick, a common way to avoid costly medical bills, combined with ACA (for the time being) and costly deductibles that will put the hurt on us financially, but not devastate us, should push>meet<shove.

Whoa Molly! , December 14, 2017 at 10:51 am

Too busy with yoga and writing to set up hostel. We do host traveling yoga teachers who come through periodically to teach at county yoga studios.

The second part of the scheme outlined above is to bring a low cost avocation that gives your life meaning and connects you with others. For me it was photography, writing, travel, and yoga. As years go by travel and photography are diminishing, yoga and writing expanding.

Wukchumni , December 14, 2017 at 10:59 am

I traveled like the dickens when I was younger, and am content now to hang out and do stuff that costs a pittance, most of which doesn't involve a computer in any capacity, aside from this here ball & chain.

Inode_buddha , December 14, 2017 at 6:50 pm

Try doing any of that in NY state you'll be so tied up in red tape and fees that it'll never happen. Yeah I looked into it.

Lee , December 14, 2017 at 9:35 am

Yves, have you checked to see if you qualify for Canadian permanent residency? I did and don't qualify. I'm retired with a good income from pension, social security, and interest from retirement savings. If I sold my house I'd nearly be a millionaire, which around here isn't that big a deal. It's also not enough for the Canadians, which makes sense, given that I've never paid into their health system and my medical expenses are likely to increase as I age. My understanding is that, given I am not going to proved the Canadian economy with a scarce skill, I would have to invest $2 million in a business in Canada that created jobs for Canadians.

I had a work colleague from Sweden. She had been a school teacher there and came to the U.S. to sell financial products, make a lot of money and avoid Swedish taxes. I asked her if she were going to become a U.S. citizen. She looked at me like I was crazy, laughed and said, "Hell no, I would never wish to be old in America."

The Rev Kev , December 14, 2017 at 9:47 am

I'm laying this one down at the door of social Darwinism at work. If you're poor then you deserve nothing and if you are rich then obviously you deserve everything. That is why someone like Peter Thiel can waltz into New Zealand and buy himself citizenship in less that a fortnight there. Not everybody can get themselves into the Best Exotic Marigold Hotel in India. And that mention of Ayn Rand and her influence on American life through people like Paul Ryan?

Well, if so may Congressmen want to investigate Russian influence in American politics then I present you with Ayn Rand as proof positive. In spite of all her malignant opinions, it should be noted that it did not stop her from claiming Medicare and Social Security when she got old. She did not want to be bankrupted by illness in old age so registered under her married name.

From my perch, if any Americans want to make the move, I would say over the next decade before that door closes. The regulations are already tightening up such as making sure that you owe no taxes or the like before you leave. More Americans are now renouncing their citizenship as America still want to tax them even when they have moved away. After this decade, I regret to say, that America will be no country for old people.

Wukchumni , December 14, 2017 at 9:52 am

In the most excellent book "I Will Bear Witness" diarist Victor Klemperer is often writing about German-Jewish friends that are leaving the 3rd Reich for other shores, subject to a "25% Reich Flight Tax", and in reality it was more like a 50-75% tax. What's our going rate?

Alex V , December 14, 2017 at 10:58 am

23.8% but you need relatively significant wealth: https://www.forbes.com/sites/robertwood/2017/02/27/renounce-u-s-heres-how-irs-computes-exit-tax/#4abe3c07287d

Wukchumni , December 14, 2017 at 11:35 am

Wow, just 1.2% away from the friendly rates of der Fatherland.

Alex V , December 14, 2017 at 4:09 pm

Ironic historical tidbit – the US concept of citizenship based taxation is a consequence of the Civil War.

Lee , December 14, 2017 at 9:52 am

I had another friend, a real gem of a man. From privilege, a Harvard graduate, progressive activist, who worked for low pay in the non-profit sector. He described his future retirement plan as "homeless in Honduras."

Joel , December 14, 2017 at 9:57 am

Sorry, I was triggered by the introduction. I am an American in my late 30s and I've lived a large chunk of my adult life outside the US, Latin America mostly and East Asia. Already now I'm hoping not to live long-term outside the country again.

I just made a short trip to Mexico and thought dear God I'm too old for this.

If you speak the local language and are hooked into local issues, you quickly realize that there is an unbelievable (for urban Americans who are used to a mosaic international society) amount of xenophobia in almost every other country. Being an outsider everywhere I go, with all the constant microagressions (and ocasional more major aggressions) wears on me the way Lambert says that inequality wears on the body.

And if you don't speak the local language and try to isolate yourself among other retirees -- why even be alive at that point? I don't imagine commenters on this site of all people sitting at a bar all day arguing US and UK politics in English with some other retirees far away from the action.

And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street.

By the way don't get me started on the cost of healthcare. It's cheap until you run into a major complication. I had surgery in Peru for something minor and the total bill was over $5000 USD. Imagine if it were heart surgery. My expat insurance paid it but you can't get that if you're over a certain age.

JBird , December 14, 2017 at 5:06 pm

And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street.

The obvious in your face OMFG inequality is often worse, but the absolute inequality in America is among the greatest in the world. Most countries, outside Latin America, and Sub-Saharan Africa specifically, have better income equality. We are one step up from El Salvador . I've been to El Salvador, and no offense to them, we really should be doing much, much better than that small, oppressed, corrupt, dirt poor country. Granted, we are overwhelmingly wealthier, so being poor here is often not as bad as there, but still.

With that rant done, the GINI coefficient, which is a quick dirty way of measuring inequality, and therefore the economic/social/political well being of a country with 1.0 meaning one person owns everything and 0.0 complete income equality. The figures change some depending on whose doing the figuring, but the GINI for income in the American paradise is around .47 compared to Mexico's 0.48 with the Swedish hellhole at 0.24. If you are counting wealth instead of income, the United States is 0.8. Also, our lowest, therefore our most equal GINI was 0.36 in 1968. A study was done showing Rome's GINI (income) was 0.44.

I really should check again, but I recall reading nobody, anywhere who did not have revolution, uprising, something bad once 0.59 was reached.

Eppur si muove , December 14, 2017 at 10:39 am

Come to Bangkok. The medical care here is superb.. very reasonably priced and absolutely state of the art. Yes, we pay out of pocket, but only for what we need. There's competition between health care providers and one can get a quote from multiple sources for any surgical procedure. The US, with its ever increasing costs which now are something like 17% of GDP, is on an unsustainable path. Combined with the pending pension crisis I am concerned about the future for my US colleagues.

After my first annual physical here my Dr. said, bluntly, no pills but lose 25 lbs and exercise daily and come back in 6 months. An honest answer to our metabolic issues.

The lifestyle is fantastic, food is superb, cheap direct flights to anywhere in the world, world class beaches and vineyards,which make a halfway decent red wine, with wonderful restaurants, are just two hours away. The occasional coup keeps everything interesting. I can honestly say my lifestyle has improved in my retirement by leaving the US.

Grumpy Engineer , December 14, 2017 at 10:47 am

" The U.S. Is No Country for Older Men and Women "?

Indeed, it isn't. But increasingly, it's no place for younger people either. The stagnant wages, rising housing costs, and rising medical costs impact younger people just like they do older people. And yes, I know that younger people's medical expenses tend to be lower that they are for older people, but today's youth are being socked with educational expenses that seem to know no bound: https://www.nakedcapitalism.com/2017/12/student-loan-defaults-approach-5-million-using-permissive-definition-default.html

Is the solution really to "strengthen" programs like Social Security, Medicare and Medicaid, or would it be better to tackle the monopolies and rent-seeking behavior that results in the need for ever more dollars to be supplied? Bob Hertz had some excellent ideas regarding medical costs in https://www.nakedcapitalism.com/2017/11/medical-cost-reduction-act-2017.html . I think this would be a better solution than to simply promise more money for the money-hungry beasts out there to consume on the behalf of seniors. Tackling rising costs at the source would benefit everybody .

Lil'D , December 14, 2017 at 12:15 pm

Yes

But strengthening social services can be done and will help many people. Fixing root causes looks politically impossible (today) and will be strongly opposed by powerful interests. I doubt anyone here would object but we are not in charge

jrs , December 14, 2017 at 12:25 pm

Yes, makes some sense. Fixing root causes would include things like fixing ever rising rents etc. (although sometimes seniors can get it cheaper). However, the reality is living on social security is hard at this point even for those who own a home, just because the old age benefits are so much less than almost any other industrialized country on earth. So just increasing those would help a lot.

OpenThePodBayDoorsHAL , December 14, 2017 at 3:49 pm

Stop The War. Now there's a "root cause" for you.

Louis Fyne , December 14, 2017 at 10:51 am

the loss of the family network is an important thing to consider for many. Someone from our family always goes with my aunt to her hours-long chemo sessions and doctor appointments. In the waiting rooms, I see all these other solo cancer patients. They often look sodden. Maybe they're always going to chemo alone? The last thing you want when battling illness is also battling a sense of isolation.

Jeff N , December 14, 2017 at 11:10 am

Seriously, all the centrists act like the US should welcome people from all over the world, while Canada hardly lets ANYONE in. Also, I just got the aforementioned "Nomadland" book from my library, which I'll start on as soon as I finish "The Big Rig" which is (so far) a fantastic book about the way the trucking industry screws its workers.

Siggy , December 14, 2017 at 11:36 am

My friend Max, the neurosurgeon left the US several years ago for Switzerland. His son Peter had a serious brain tumor and went to Switzerland for treatment. Max bankrolled the treatment with a $2 million gift. Max's son is now cancer free and is now working at CERN and is also in the process of immigrating. Max and his son at beneficiaries of a very substantial trust fund that is sited in Nevada. Max renounced his US passport and it cost 30% of his assets. Max's son is facing a similar cost. It was easy for Max and his son, both are extremely wealthy and Max's parents were Swiss. Lesson: portable skills that enjoy strong demand and loads of income.

freedeomny , December 14, 2017 at 11:54 am

I've often thought of moving abroad but see myself more as living in a different country for only part of the year. I'd love to hear more from those who are ex-pats.

Pinhead , December 14, 2017 at 11:55 am

Home ownership in Germany is 52% and it is below 45% in Switzerland. It is 65-75% in almost all other rich countries including the US. It is actually around 85% in Russia and 90% in Cuba although the amenities are not quite the same.

Altandmain , December 14, 2017 at 11:56 am

I think that it has become increasingly apparent that the rich have no sense of noblesse oblige. They are in it for themselves and nobody else.

I'd be very interested to see if they believe their own propaganda on things like Ayn Rand and Social Darwinism. I know that many libertarian types can be, but the more extreme Ayn Rand types? Or is this just a coping mechanism?

It may be like oil executives who for years publicly denied global warming, but knew the truth. I think that deep inside, many wealthy people know exactly how worthless they are to society and insecure. They will never admit the truth though in public.

But the only bargain "world city" I know of is Montreal.

Canadian here. Montreal has it's pros and cons. I have talked with a few people who are fed up with that city and left.

Pros:
+ Cheap rent (especially compared to any other large city)
+ Very cultured city, for lack of a better term (night life, arts, exotic places to eat that you can actually afford, that sort of thing)
+ For a while it was Canada's job creation capital due to our weak dollar
+ Cheap tuition for students compared to rest of Canada
+ Cheap hydro! Car insurance is also much cheaper.
+ Considered the best city in North America for cycling ( https://www.mtlblog.com/lifestyle/montreal-ranked-1-bicycle-friendly-city-in-north-america ). There's also lots of parks and green spaces.
+ Apart from NYC and if you live in the middle of the city, Montreal is one of the few North American cities where you probably don't need a car

Cons:
– Becoming increasingly unillingual (French), which is one of the reasons why one of my colleagues left Montreal
– Buddy of mine says healthcare is not very good by Canadian standards and being an English speaker will be a big disadvantage (the government is actively trying to get people to be French) and I believe there is mandatory French schooling for parents of English origin
– Quality of roads is pretty awful in Quebec I find and drivers can be aggressive. Infrastructure as a whole is aging.
– Winter isn't that cold (By Canadian standards mind you), but Montreal does get quite a bit of snow.
– Outside of the boom periods, it can be hard to find a good job or frankly, a job
– Wages in many jobs isn't as good (although often the lower cost of living makes up for it, so net you may not be that much worse off, and in some cases, even better off)
– Some of the worst traffic congestion in Canada
– Quebec separatism politics
– There are cultural issues you should be aware of: http://www.cbc.ca/news/canada/montreal/quebec-low-birthrate-immigration-1.3573966
– A lot of consumer goods aren't as available in Canada, although you can rent a US mailbox or use Kinek at the border (Expensive because our dollar is weaker and you have to pay for import taxes, US taxes, along with the mailbox fees). On the other hand, there are some items in Canada and especially Quebec that are not as available in the US.

On the fence:
– If you own a home, I have been told that many parts of Montreal are a "Buyers market" now so if you ever want to move out
– There are government services like affordable childcare, but they do have long waitlists. That said, child care is cheaper than in the rest of Canada as this still does drive the costs of the private sector down.
– The US is making it harder for Americans to renounce their US citizenship for those moving from the US ( https://www.theglobeandmail.com/news/politics/delays-costs-mount-for-canadians-renouncing-us-citizenship/article28688026/ )
– Taxes are higher, but the majority of payers (especially those not in the six figures and with children) will find themselves better off I'd say in Quebec due to the better services.
– A lot of folks in Quebec say that Montreal is expensive compared to the rest of the province, although for a city its size, it is fairly affordable

The big challenge though is that Canada's immigration system is pretty restrictive, and yes older immigrants are at a drawback (the purpose is to attract immigrants that are likely to pay more in the system over their life than take out).

The other big issue with Canada is that neoliberalism, although not as bad as the US, has very strong backers and I fear could get worse. We seem to be following the dark path the US has undergone. I just hope that a genuine left can come out, not this neoliberal identity politics stuff that really serves the rich.

Rates , December 14, 2017 at 1:28 pm

It's really not that hard to move to a third world country. It's practically a lateral move.
1. Bad public transport. Check.
2. Corrupt government. Check.
3. High wealth inequality. Check.
4. Increasingly bad infrastructure. Check.

I am sure there are plenty of areas where the US is ahead, but plenty where it's behind like affordable healthcare. But really at the end of the day, moving is not easy because of : language, and for active people scratching that itch to be productive.

tagio , December 14, 2017 at 1:54 pm

Yves, the US is also no place for young people. My wife and I have been visiting South America checking out possible retirement locations. In Ecuador, we found a young Swiss man (late 20s) with his Ecuadorian girlfriend who were running the Hacienda we stayed in near Cotacachi. The 80-year old owner had been in a car crash and had to have someone take over operations right away. The owner's daughter was friends with the young Swiss man and recommended him to her father. In the United States you would never see someone his age given this much responsibility. He had trained in the hospitality field and came to Ecuador a couple of years earlier because he would actually have the opportunity to own and operate his own business, which he considered an impossibility in Western Europe. He told us his Swiss parents were also seriously considering re-locating to Ecuador for a better quality of life in retirement (and presumably – my guess – to be near the eventual grandchildren). They were not wealthy but had sufficient funds to provide relatively small seed capital for their son's business in Ecuador.

In Montevideo, we met a young woman in her early thirties from Montana and her French husband, a chef, who had just opened the café we had stopped in for postres and tea some 8 months earlier. They left the U.S. about 6 or 8 years ago (can't recall exactly) because they concluded they had no opportunities there, and came to Montevideo after a friend recommended it. They now have two daughters in school there.

I spoke with a prominent immigration attorney in Montevideo who told me that it's not just Americans, many Western Europeans were also emigrating to Uruguay "because of social issues." I didn't press for an explanation.

It's a mistake – and implicitly demeaning to the country – to think of these places as retirement havens. A North American or European young adult might actually be able to build a life for themselves in these places because the capital investment hurdles are low, and there are opportunities.

anonn , December 14, 2017 at 2:00 pm

Every time I talk to my Boomer father he wonders how I could be so irresponsible as to not, like him, have "saved for retirement." He's got an Air Force pension, a local government pension, a pension from a private employer, and social security. There's a 0% chance I'll ever be able to pay off my student loans. I have less take-home money after 20 ostensibly successful years in my profession than I did when I was 15 years old and working in a deli.

For most people in my generation, our retirement plans are to hope to win the lottery, and if not, suicide.

jrs , December 14, 2017 at 2:13 pm

They often did have to pay out of their salaries into those pensions as well, so he has a tiny bit of a point, it wasn't all free money. But they were of course much better deals than the 401ks on offer now, that we are lucky to even be able to have purely for the tax benefits, which most employers aren't even contributing to.

HotFlash , December 14, 2017 at 8:31 pm

I remember my friend's mother, an RNA (Cdn equiv of an LPN) who religiously contributed to her voluntary pension plan. It was hard for her, single mother in the 50's and 60's, but she considered it the responsible thing to do. When she came to retire in the mid 70's she was disappointed (understatement) to find that the pension she had sacrificed to contribute to for all those years paid her a whopping $17 per month.

When I was planning for my retirement, in the 70's and 80's, I was looking at interest rates of 7 to 10 % -- truly! It is no accident that interest rates are now less than the rate of inflation, unless you are paying out, of course. We are being robbed in every possible way.

sharonsj , December 14, 2017 at 2:46 pm

I'm pre-baby boomer, with no pension because of the industry I worked in. But I do own my own home in rural Pennsylvania for how long, I'm not sure. 20% of my modest income goes to school and property taxes. I recently let a handicapped friend live in my other building; he gets $700 a month and $85 in food stamps. Currently both of us are struggling to deal with paying to heat our homes, so the last time he was bitching to me I said: "Why else do you think old people are living in trailers in the Arizona desert?"

I considered not only Arizona but Cuba. I know enough Spanish to get by. But I decided that I would stay in the U.S. I think everyone needs to downsize and simplify because, unless the American people wake up and revolt, things aren't going to get any better.

P.S. I tried to research bankruptcy and mortgage foreclosure rates in Pennsylvania. Nothing current, but I found that the rates continually increased every year, and this was well before the 2008 implosion. So I assume that the situation is probably dire by now.

Kate , December 14, 2017 at 2:59 pm

What's a second world country? And Montreal is inexpensive?

Anyway thinking from a young person's perspective it's even worse. Employment prospects are crap everywhere especially Europe where there is some inkling of a social safety net.

Yves Smith Post author , December 14, 2017 at 5:34 pm

As I said, it's an inexpensive world city. You missed that. It's even been rated that way. Rent is cheap. My costs would be 40% or so lower than in NYC.

Inode_buddha , December 14, 2017 at 7:11 pm

Yeah, but that's not a very high hurdle: almost *anything* is cheaper than NYC in particular, and NYS in general. Not to mention less stressful. I tend to recommend Buffalo and outlying suburbs/rural areas, but then again I'm biased, being a native of the area. Real estate differences can be dramatic even within NYS: I routinely compare prices and taxes in Erie county vs Wyoming county. Its a real eye-opener, especially compared to anything near Albany or NYC.

OpenThePodBayDoorsHAL , December 14, 2017 at 3:57 pm

This entire thread is simply heartbreaking, Americans have had their money, their freedom, their privacy, their health, and sometimes their very lives taken away from them by the State. But the heartbreaking part is that they feel they are powerless to do anything at all about it so are just trying to leave.

But

"People should not fear the government; the government should fear the people"

tagio , December 14, 2017 at 4:39 pm

It's more than a feeling, HAL.
https://www.newyorker.com/news/john-cassidy/is-america-an-oligarchy
Link to the academic paper embedded in article.

As your quote appears to imply, it's not a problem that can be solved by voting which, let's not forget, is nothing more than expressing an opinion. I am not sticking around just to find out if economically-crushed, opiod-, entertainment-, social media-addled Americans are actually capable of rolling out tumbrils for trips to the guillotines in the city squares. I strongly suspect not. This is the country where, after the banks crushed the economy in 2008, caused tens of thousands to lose their jobs, and then got huge bailouts, the people couldn't even be bothered to take their money out of the big banks and put it elsewhere. Because, you know, convenience! Expressing an opinion, or mobilizing others to express an opinion, or educating or proselytizing others about what opinion to have, is about the limit of what they are willing, or know how to do.

MyLessThanPrimeBeef , December 14, 2017 at 5:12 pm

I apologize if I missed them, but so far, no votes for

1. retiring to North Korea.

2. retiring to anywhere along the New Silk Road.

Kk , December 14, 2017 at 6:16 pm

100M US citizens in 1945; 200M in 1976; 320M in 2016. Population up and resources down. The politicians would give you anything to get a vote, the reason they don't is that the money is not there. Everything goes up in price and wages stagnant because that's how economies adjust to less resources to share. Canada and Australia and Europe are going the same way as the US, not because of nefarious politicians or greedy rich people, although they certainly exist, but because the sums don't add up any more. MMT is just one example of grasping at straws. I wonder what part of 'you are doomed' old people don't understand? Apart from the last 80 years or so, people got old and died; now they get old, get sick long term, go bankrupt and then die.

mtnwoman , December 14, 2017 at 7:10 pm

I have a very rare good, very old insurance policy.

I sure hope you can hold onto it Yves. I also had a really good private BCBS NC policy. This year they killed it and threw me onto ACA which is horribly expensive and crappy if you are single and make > $48200. 5 years to Medicare .if it's still there.

I have also lived internationally in my late 30's. It takes huge effort to liquidate here and to move. I believe it's risky to be an alien in a country if there is unrest -- and unrest is coming imo.

I'm scouting Panama this Feb but I also just read the central america will be ground zero for climate change and they are already having droughts.

Canada or NZ are likely the best choices for immigration if that were even possible.

Wukchumni , December 14, 2017 at 7:46 pm

My mom is a lapsed Canadian that became a Yanqui in the 1950's, and i've got oodles of relatives up over in the Gulag Hockeypelago

No real desire to relocate there, but am curious as to how easy/hard it would be to do it, based on my bonafides?

homeroid , December 14, 2017 at 9:05 pm

I live in Alaska. Can in no way think of living somewhere else. At sixty years of being. My body is a bit worn hard and put away wet. I have no property, no retirement, no substantial savings. What i do have is knowledge.

Now driving a cab for cash in a small city on the coast. I make furniture as my backup income. Was a cabinetmaker at a time. In fact i count on making furniture till i cannot.

Expecting to have SS is not something i count on. I know all the wild plants to forage, wild game to be had-small game. Fish of course, living on the coast.

But when i cannot pay rent i will have to rely on the generosity of friends to let me put up a shack on their property to get by, or squat on land. The woman who lets me live with her for the last twenty-two years will be able for retirement next year. We will set her up with something simple in town. I shall head for the woods. Am building a foot powered wood lathe. You may find me one day on the side of the road turning simple items for pittance + beer.

judy sixbey , December 14, 2017 at 9:16 pm

Getting a little tired of this leave the country stuff. Heard it from my dad in the 60's (Australia). Heard it from my husband this morning (Canada). I am 66 years old and intend to fight it out on this line, like Grant, until they carry me out of here in the funeral home van. This is my country, major f–ked as it presently stands.

[Jul 17, 2017] The Retirement Wealth Inequality Machine naked capitalism

Jul 17, 2017 | www.nakedcapitalism.com

Sluggeaux , July 13, 2017 at 1:52 am

More asset-shuffling through public-private partnerships will not solve the moral catastrophe of short-termerism and greed that prevents enterprises from investing in the human timeframe of a lifespan, that might support a proper social safety net. A sane government which had the interests of all citizens at heart would impose a confiscatory tax system on asset shufflers and short term greed. This is the opposite of the policies of our political class, who prefer voter suppression to the sort of democracy that would find the impoverishment of our elders intolerable.

Disturbed Voter , July 13, 2017 at 3:01 am

Wonderful insight, why I read comments.

Enquiring Mind , July 13, 2017 at 1:42 pm

Voters should say, en masse, "When I hear the phrase Public-Private Partnership, I reach for my gun."

Crazy Horse , July 13, 2017 at 3:24 pm

"A sane government which had the interests of all citizens at heart" In the One Exceptional Country? Not in my lifetime or that of my children.

Its all very fine to talk about how wonderful your favorite band-aid would be if only the Repugnant or Democon team would support it, but in the real world there is only one semi-valid retirement strategy.

Emigrate to a country that is sufficiently un-exceptional to not have to support an Empire and which is poor enough to allow you to live on whatever savings or pension you have accumulated.

Tomonthebeach , July 13, 2017 at 3:11 am

This larger role of government proposal overlooks the fact that is just creates more piggy banks for workers to raid to buy new cars, finance big ticket purchases, etc.

This human irrationality is common with today's IRAs. Congress has shown willingness to expand access to retirement savings in order for workers to raid their pots of gold. We have just seen this with legislation relaxing withdrawal in the federal TSP. Thus, how such programs are set up and administered is likely to merely expand financial asset management fees while collecting taxes and penalties to boost the treasury – with little improvement in retirement outcomes.

diptherio , July 13, 2017 at 1:10 pm

the fact that is just creates more piggy banks for workers to raid

Bad workers! Wanting to have nice things! Don't they know only their corporate task-masters get to raid banks (piggy or otherwise)?

As always, greedy workers are the problem. Brilliant analysis [/sarc]

Moneta , July 13, 2017 at 7:35 am

The first thing that government could do is guarantee an acceptable pension to all those who live past 80. Then we would not all have to save as if we will live to 95, bloating financial markets for nothing.

And it should be funded from current earnings, not through financial markets.

Dead Dog , July 13, 2017 at 12:56 pm

80? Most of us don't get that far, Moneta

Try 55? That's what it used to be for Australian women .

Now, it's 70

Moneta , July 13, 2017 at 4:36 pm

We just hit the peak of 5 workers per retiree. This number will be going to 2.5 over the next couple of decades.

I think you don't realize how low the standard of living has to drop to fund an age 55 retirement.

2/3 of boomers have less than something like 100k saved up so this means they will be asking the young to fund their retirement because I don't see the 1%ers doing it, without some huge transformation which would take a decade or two sidelining boomers anyway.

This situation should have been planned for 30-40 years ago but it wasn't because the general meme at the time was that the markets would save the boomers.

When a squirrel plans for winter, it stores nuts, meaning it does not eat them all.

In our economic system we've been eating all our nuts plus using millions of years of energy to eat even more than we needed. Our obesity epidemic is one blatant symptom. Even most of those with big investment portfolios have overindulged just think of how many joules of energy they have spent in their lifetimes yet they are still expecting their investments to represent claims on future resources.

I guess it can work out if our planet can support it and the US can force its way on the world for another few decades but I have trouble believing that a country with more than 30% of its population over 60 can cling to its reserve currency status while net importing.

I believe we can fund a 55+ retirement if most retirees accept to rent a room in their kids' house but the kids have to somehow get out of the basement of their parents' still mortgaged house and take possession of the main floor. That's the conundrum.

washunate , July 14, 2017 at 12:19 pm

Yeah, that's the question. Is retirement a universal human right or a privilege? This whole notion of focusing on the plight of the elderly as a group is bizarre. In the US context, older generations are significantly wealthier than younger generations.

If we are really talking about people living with dignity, then such a policy should apply to people of all ages, not just older Americans.

Moneta , July 13, 2017 at 7:42 am

Health care and retirement plans should not be through the employer because it promotes discrimination. These should be portable.

funemployed , July 13, 2017 at 8:19 am

How bout a UBI for the elderly and disabled, and free healthcare for everyone? Seems like the simplest solution to me.

Aside from the fact that it seems like the obviously right thing to do, as an oldish millennial, I'd prefer to have them out of the forced-labor market anyway.

funemployed , July 13, 2017 at 8:26 am

I've also long thought that providing care for the elderly, disabled, and children could go a long way toward filling the roles of a job guarantee for us relatively young and able-bodied.

Left in Wisconsin , July 13, 2017 at 7:46 pm

On the one hand, the job part of the job guarantee already exists almost everywhere in the U.S. The problem is the job stinks – low pay and often very hard work.

On the other hand, it is foolish, and inhuman, to think of these jobs as overflow job guarantee jobs in an MMT JG. We need an economy, and society, that values caring over (mostly idiotic) for-profit paid work.

cocomaan , July 13, 2017 at 9:07 am

How bout a UBI for the elderly and disabled,

Maybe we can put "social" in the name, because it's the social safety net. And since it's a source of financial security, we should also put "security" in the name.

Wait! Wait, I got it!

Moneta , July 13, 2017 at 9:13 am

But isn't it based on earnings? Which for tens of millions were based on 10$ an hour which is not a livable wage thanks to CEO wage inflation going from 30x lowest wage to over 300x?

katiebird , July 13, 2017 at 9:16 am

Actually laughing outloud!!! OMG.

Except that I have. Friend who is struggling on $759/mo Social Security . who can live on that?

funemployed , July 13, 2017 at 9:42 am

Love it. That was my thought too. Just convert social security to a UBI. Maybe even one not tied to a regressive payroll tax.

cocomaan , July 13, 2017 at 10:23 am

Just to respond to all of you, the Townsend Plan from back in the 1930's when Social Security was being devised, pledged to give out $200/month to people of age: https://www.ssa.gov/history/briefhistory3.html According to an inflation calculator I used, that's $3400/month per person.

They actually paid out more like $50/month. Which is more like $900 in our money today.

Ida May Fuller was the first person ever paid out: https://en.wikipedia.org/wiki/Ida_May_Fuller interesting story.

jrs , July 13, 2017 at 2:06 pm

Social Security is fine, it just needs to be increased, and the age lowered (to at least what it used to be). Calling it a UBI, although it is one, will just lead to people trying to tie it to costs of living which varies widely across the country, it just needs to be increased a lot to be on par with what much of the rest of the world offers.

washunate , July 14, 2017 at 12:23 pm

And how about expanding this odd and surely un-American idea of providing security and care to people of all ages? Ridiculous, right?

rjs , July 13, 2017 at 8:47 am

coincidentially, i just read
" In 2016, California residents 62 and older took out more payday loans than any other age group, according to industry data compiled in a new report from the Department of Business Oversight. Seniors entered into nearly 2.7 million payday transactions, 18.4% more than the age group with the second-highest total (32 to 41 years old). It marked the first time that the DBO report on payday lending, published annually, showed seniors as the top payday lending recipients. The total transactions by the oldest Californians in 2016 represented a 60.3% increase from the number reported for that age group in 2013. The fees can bring annual percentage rates that top 400%. In 2016, the average APR was 372%, according to the DBO report. Customers typically take out multiple loans in a year, ending up in what critics call a "debt trap." .. The average payday loan borrower 62 years or older took out almost seven payday loans last year, compared with the average of 6.4 loans for all customers"

https://www.americanbanker.com/opinion/no-one-should-have-to-rely-on-payday-loans-in-retirement?utm_campaign=regulation%20reform-jul%2012%202017&utm_medium=email&utm_source=newsletter&eid=969759b033715b3e2ccac996e9e27347&bxid=57449de4e9328b2d608b4d55

Jim A. , July 13, 2017 at 8:48 am

It is simply the case that with an ageing populace, we will in total be spending more on Cumadin, nursing home beds and depends than we used to. Pensions, public or private don't buy warehouses of this stuff to use later. A larger amount of our current GDP will be spent on this than on health club memberships and daycare than if our population wasn't ageing. Those who are currently working will have a greater percentage of the wealth that the create devoted to purchases of these goods and services than used to be the case when there were fewer elderly. Some of this may be paid for with higher payroll taxes, some with higher income taxes (because bonds in the SS trust fund) and some because the value of equities goes down as pensions become net sellers rather than purchasers of assets. The more people are looking for a magic and relatively painless solution, the further we are from actually figuring out how to do this.

Moneta , July 13, 2017 at 9:19 am

The thing is that many with underfunded guaranteed pensions will be getting good pensions while those with no guaranteed pensions will be getting peanuts.

Not to mention those with pensions based on 10$ per hour while others were making much more. Those who made more feel entitled to their money by they refuse to see how social, fiscal and monetary policies contributed to the wealth disparity. Many of the winners were not better but just at the place at the right time.

There has to be a redistribution within the older population first before we skim the pay checks of the young still working.

Middle Class , July 13, 2017 at 6:35 pm

So your solution includes taking money from those who saved and invested, and re-distribute it to those who spent everything they earned? As someone in the "saved and invested" category, I find that plan to be a non-starter.

When I was setting aside 15% of my income for savings and investments, paying extra on my mortgage, and driving older cars, I have friends who (at the same income level as my wife and I) literally spent everything they earned. They had lots of fun, and lots of new stuff that I didn't.

Fast forward 30+ years, and now – in my late 50's – I'm planning my retirement (before my 60th birthday). My friends? None of them are even thinking of retiring, and one couple has said they will need to work into their 70's.

We made different choices, and ended up in different places – but that doesn't obligate me to hand them what I have.

Yves Smith Post author , July 13, 2017 at 8:37 pm

What a bunch of total nonsense.

If you've been able to work on a consistent basis at decent enough paying jobs that you could save, it is substantially due to luck: being born into a stable middle to upper middle class family, being white and male, being born at a time when there was enough growth in the economy that you could land good jobs early in your career, which is critical for your lifetime earnings trajectory. Oh, and not having you or a spouse or a child get a costly medical ailment that drained your savings. And not winding up in a job where you were being ethically compromised and stood up against it, resulting in career and earnings damage.

Did you miss that college grads had a worse time that high school grads and even dropouts in landing jobs in 2008-2010? And getting no or crap jobs then set them back permanently? And this includes graduates in the supposedly more "serious" STEM fields, where contrary to DC urban legend, there aren't a lot of entry level jobs. You do well if you find employment, but save in a few niches like petroleum engineering, the unemployment rate is actually worse for STEM college grads overall than liberal arts grads.

Sluggeaux , July 13, 2017 at 9:17 pm

Yves, I think that Middle Class would acknowledge the "luck of the draw" on pension or not. It's just that neo-liberalism would only redistribute within the laboring classes, not from the looting .01 percent responsible. The Arnold Family Foundation cronies in Rhode Island are making your argument. Those who lucked into wage-earning with a pension shouldn't be the first redistribution.

flora , July 13, 2017 at 9:40 pm

If almost all the increase in productivity and income over the past 30 years had not gone to the top 1%, where it is essentially exempt from SS taxes, there wouldn't be a problem.
If the Middle and Working Classes still earned the same share of national income they earned before Reaganomics there wouldn't be a problem. Lots of people with good incomes; those incomes almost all subject to SS deductions.

Sluggeaux , July 13, 2017 at 10:45 pm

The cap on Social Security tax is an inverted welfare benefit. One of many Reaganite cons adopted by the Clintonites/Obots.

Heraclitus , July 13, 2017 at 11:09 pm

I don't think the cap was invented by Reagan:

https://www.ssa.gov/planners/maxtax.html

Heraclitus , July 16, 2017 at 7:05 am

Your response to Middle Class puzzled me. It is undoubtedly true that there is luck involved in his success. However, he was comparing himself to peers that seemingly had most of the same luck but made different life choices. I think one can recognize his luck and his thrift and appreciate them both.

Moneta , July 13, 2017 at 11:26 pm

It's not my solution. It's how the cookie will probably crumble. I'm in my late 40s and I'm in the category who saved but I also realize that I was in the lucky group with extra income and chances are I'm going to pay for that luck.

I am planning my future around those odds.

AnnieB , July 13, 2017 at 7:55 pm

"There has to be a redistribution within the older population first before we skim the pay checks of the young still working."

Increased taxes on the social security of wealthy people has been proposed, so has increased Medicare premiums for wealthy people. These ideas were part of the "grand bargain" proposed by some Republicans and Democrats, including Hilary Clinton.

What is considered "wealthy" in these proposals has yet to be determined. I don't think that the "grand bargain" specified that the increased revenue would be used to help impoverished seniors either. Anyway, how much of a surplus would these increased taxes generate ? Enough to give poor retirees a meaningful cost of living rebate on their tax returns?

I'm not necessarily against proposals such as these, but
a better and more certain solution would be to rein in the military/security complex, stop all the wars for oil, and get the government back in the business of working for the citizens of this country. I bet we could find a few extra dollars that way.

Moneta , July 13, 2017 at 11:32 pm

If you stop investing in the MIC you will send the signal that you are weakening and renouncing being the "protectors" of the planet. This means potentially losing your reserve currency status. That means you would lose your easy money printing and net importing advantages.

Mel , July 13, 2017 at 1:17 pm

The currency issuer can create new spending with the constraint being generating too much inflation.

I worry about leaving this statement to stand alone, because The Market is an independent thing, and it's in The Market that inflation is created or not. Players out there are capable of creating inflation on their own. Abba Lerner's article on Functional Finance (linked here a month or so ago) tells us that the remedy is taxation. I.e. spending to generate well-being shouldn't be blamed for inflation. Applying the taxation remedy will take some political backbone.

Yves Smith Post author , July 13, 2017 at 8:45 pm

No, inflation is created in the real economy due to any of commodites inflation (cost-push inflation), wage-pull inflation (created by too much demand, or in MMT terms, too much net government spending) and more recently and not sufficiently acknowledged, by monopolies and oligopolies (see pricing of cable services and drugs, which have monopolies via patents) . Interest rates are a different matter and are controlled by the central bank. We've had risk-free interest rates below the inflation rate for years now thanks to the ministrations of the Fed.

Central banks have the power to kill the economy (raising interest rates so high that it induces inflation) but not much/any power to stimulate (save goosing asset prices, which only trickles down a bit to the real economy). The cliche is "pushing on a string".

flora , July 13, 2017 at 9:33 pm

I'm a great supporter of Social Security. There's nothing inherently wrong with Social Security. The problem has been the politicians. In the mid-1980s the Reagan admin with Dem support changed CPI price calculations (and have been doing so ever since) in order to make any cost-of-living inflation adjusted increase in SS be less than the true CPI inflation numbers. They also made something like the first $25,000.00 of retiree income (all sources) tax exempt . but did not index that number to inflation. They were clever in hiding the time erosion aspects of that "grand bargain." They also raised the retirement age. They used the "saved" monies these changes to pay for tax cuts for the well off.

I think adding another mandatory paycheck deduction for private savings accounts controlled by others would simply be another pot of money for politicians and Wall St firms to rummage. Fees? Churn? "Special" tax treatment? I appreciate the good intentions of the proposal. However, I'd rather see proposals for stronger protections and honest CPI accounting for existing Social Security.

adding: the number of workers to retirees is less important than the productivity per worker, which has been going up steadily for the past 40 years. If workers were still earning the share of income from productivity and profits that they earned up until Reagonomics there wouldn't be a problem. Since Reaganomics, however, almost all the gains in productivity and income have gone to the top 1-2%. Meaning that most of the productivity gains are not reflected in SS taxes. The top 1% pay SS security tax on only a tiny, tiny bit of their income. So less and less national total income is subject to SS tax. Falling SS tax receipts are less a function of fewer-workers-to-retirees than to less nation total earned income subject to SS tax. imo.

Chris , July 13, 2017 at 10:28 pm

Is no one talking about just abolishing the income cap on social security taxes anymore? I thought I read somewhere that would largely fix any holes in the program and allow retirees to get the COLA that they need to keep up with inflation

DumbDave , July 13, 2017 at 10:55 pm

"The currency issuer can create new spending with the constraint being generating too much inflation".

The problem with this is money. Money >> currency. As we have seen, the market can create its own money independent of the currency issuer, making inflation/deflation difficult for the monetary authority to control, e.g. the Eurodollar market.

Ep3 , July 16, 2017 at 1:10 pm

Does anyone know anyone who has retired and lived solely on their 401k, just like a pension? And this person did not inherit any large chunk of money to assist in providing retirement funding. I want an example of a factory worker, McDonald's worker, etc where they were part of the working class.

Why not just expand social security? I understand she advocates in addition to SS we have this mandatory investing thru public/private partnerships.

But when you have that, doesn't the govt have to establish guaranteed rate of return? Because when people invest, there has to be a winner and a loser, always. Otherwise, some people's investments may not make a return enough to support them financially.

[Apr 12, 2017] Expand Social Security, don't revive 17th century tontines

Apr 12, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron , April 11, 2017 at 03:38 AM
RE: Expand Social Security, don't revive 17th century tontines

http://www.epi.org/blog/expand-social-security-dont-revive-17th-century-tontines/

...Tontines, like Social Security, traditional pensions, and life annuities, insure against the risk of living longer than expected in retirement. The problem of outliving one's savings has gotten worse as Social Security benefits have been trimmed back and private sector employers have replaced traditional pensions with 401(k)-style savings plans. In theory, 401(k) savers can insure against longevity risk by purchasing life annuities, but few actually do. There are several reasons for this, starting with the fact that few have significant savings to begin with-a problem exacerbated by current low interest rates that lock annuitants into low annual payments. In addition, potential buyers must navigate complex and tricky insurance markets and face prices driven up by adverse selection and asymmetric information, the classic problem of markets for individual insurance whereby people at greater risk (of living longer, in this case) are more likely to purchase insurance and have an incentive to conceal information to avoid higher risk-adjusted premiums, leading to higher prices for all consumers and a shrinking market

Potential annuity buyers also behave in ways are hard to square with fully-informed and rational behavior, such as overvaluing lump sums relative to their equivalent in annuitized benefits and exhibiting loss aversion-in this case, the tendency to dwell on the potential financial losses associated with dying prematurely rather than the potential gains from living a long life. Could tontines at least counter these behavioral challenges? One psychological hurdle for would-be annuity buyers is the fact that insurance companies profit from annuitants' early death, which puts people in a pessimistic and suspicious frame of mind. Advocates say tontines could be structured so that only investors-not issuers-would benefit from the deaths of others in the pool, which might or might not alleviate these concerns. (Tontine murders were once a common melodramatic plot device in plays and murder mysteries)...

*

[A fairly thorough discussion of the pros and cons of various investment and private insurance options for retirement security are discussed concluded by the obvious solution.]

*

...Unlike a tontine scheme, where payments simply increase in inverse proportion to the share of surviving investors, such longevity and return-smoothing adjustments are complex and require trust in the system, so may be better suited to government-sponsored plans than private sector ones. The simplest solution, of course, is simply to expand Social Security, an increasingly mainstream idea among Democrats but not one that is likely to fly in the current Congress.

Gerald Scorse , April 11, 2017 at 10:57 AM
Re "Expand Social Security..."

"The problem of outliving one's savings has gotten worse as Social Security benefits have been trimmed back and private sector employers have replaced traditional pensions with 401(k)-style savings plans."

Social Security benefits have been trimmed back? When did this happen? (Are you referring to the changes made back in 1986, which gradually lengthened the full-benefit retirement age to 67? It would have been helpful to say so.)

And it's not entirely accurate to say that 401(k)-style retirement plans have worsened the problem of outliving one's savings. For millions of retirees, the opposite has been true; with the cooperation of the stock market (we're in the second-longest bull market in 85 years), they're withdrawing tens of thousands every year and seeing their total holdings *increase* at the same time. Traditional defined-benefit plans do provide greater security, but they're no match for 401(k)s, IRAs and other similar plans at actually increasing in value.

This aspect of defined-contribution retirement plans hasn't gotten nearly the exposure that the negative aspects have. It's just as true though.

sanjait -> Gerald Scorse... , April 11, 2017 at 01:54 PM
"we're in the second-longest bull market in 85 years"

Sure ... after the biggest crash in 80 years. And since when is the length of time a bull market lasts, rather than long term compound annual returns, the important metric?

You're attempt to describe the upside of retirement savings in at-risk equity investments seems to be built on a shaky and selective view of recent history.

[Apr 04, 2017] Big Companies Shake Fingers at Employees for Raiding 401K accounts

Notable quotes:
"... If I had a 401K, I would not be trusting those jackals with my money. My ex lost pretty much everything after he had contributed for 12+ years. ..."
"... As far as cutting off Wall Street from the teat of the Fed, this is a virtual impossibility. Wall Street, the Fed, and the Federal Government, and particularly the National Security State, are all just different faces of the same entity. It would be like trying to separate the front and the back of a dollar bill. You can't do it without destroying the whole thing. ..."
"... "Companies are worried about their employees retirement prospects" Gotta love the language. Maybe they should pay their employees more ..."
"... this is why I don't read the news anymore. The ongoing casual lies are embedded within a broader tapestry of falsehood. ..."
"... Even of the boomers I bet many of them don't have pensions. Why? They didn't work for government or fortune 500s, and it was probably never that many people with lifetime at careers at small companies that got pensions. But much of the employment is small businesses. ..."
"... "The great lie is that the 401(k) was capable of replacing the old system of pensions," No kidding. There are so many great lies with 401(k)'s, the biggest being that it is now expected that people should be able to save enough for their own retirement if they would only assume some personal responsibility. ..."
"... Over the years, I have been astonished at how little many executives understand about finance, taxes, and business. I have always wondered what they actually do in their cocooned meetings. Generally speaking, those meetings result in hilarious memos re-organizing people that don't appear to have anything to do with the normal business while cutting costs that are essential to executing the business. ..."
"... So it is not a surprise to me that a high-level executive would be unaware that a 401k is tax-deferred, not tax-exempt. He probably also thinks that a hedge fund is guaranteed to outperform the S&P 500 and has already moved his money into one, which means he will have less money to pay his taxes with. ..."
"... I'm curious: If you pay the interest on the 401k loan with already-taxed money, is that interest taxed again upon withdrawal from the 401k? ..."
"... Yes it is a 35% tax savings, even if not in the highest bracket. Say in the 25% fed bracket (income of $37,950 to $91,900). Then California income taxes for that income can come to nearly 10%. ..."
"... many 401k accounts tend to have higher costs for equivalent funds than one can get in a rollover IRA. Buyer gots to do their research. ..."
"... No, he's correct. 401(k)s have TONS of hidden fees. You can't even get full disclosure of the full fees. You are guaranteed to have lower fees and more choices at Vanguard. ..."
Apr 04, 2017 | www.nakedcapitalism.com
Michael Fiorillo , April 3, 2017 at 7:21 am

Soylent Green is people!

cnchal , April 3, 2017 at 7:29 am

Since American companies are run by the greediest psychopaths on the planet, the real reason for the objection to 401K withdrawals might as well be that selling overpriced stock and using the cash to pay bills, reduces the opportunity of the chief corporate psychopaths to cash out on their stock options.

It's personal. How dare a peasant beat a corporate bigwig by cashing out early, and reduce the bigwig's monetary takings by even a penny.

Tapping or pocketing retirement funds early, known in the industry as leakage, threatens to reduce the wealth in U.S. retirement accounts by about 25% when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College's Center for Retirement Research.

That's 25% less available funds that Wall Street can steal from customers. Starve the beast? How do we cut them off from the teat of the FED?

Bernie Sanders: The business of Wall Street is fraud and greed.

Portia , April 3, 2017 at 12:23 pm

precisely. If I had a 401K, I would not be trusting those jackals with my money. My ex lost pretty much everything after he had contributed for 12+ years.

Helix , April 3, 2017 at 4:32 pm

Re: " American companies are run by the greediest psychopaths on the planet "

I have a quibble with this point of view. Greed takes many forms, and greed for power is just as motivating as greed for wealth. So I'm of the opinion that corporate psychopaths have plenty of company in the halls of government, particularly in the National Security arena. These people have shown that killing hundreds of thousands and destroying the lives of millions more is not enough to satisfy their lust for power and control. Oh no, not nearly enough. The beast you speak of must eat every day.

As far as cutting off Wall Street from the teat of the Fed, this is a virtual impossibility. Wall Street, the Fed, and the Federal Government, and particularly the National Security State, are all just different faces of the same entity. It would be like trying to separate the front and the back of a dollar bill. You can't do it without destroying the whole thing.

And if I was Marc Jones, I wouldn't be crying "ovens" too loud. It's happened before, and by people who may not have been all that much further along the psychopath curve than the ones we are dealing with now.

Larry , April 3, 2017 at 7:52 am

I have friends who are just past their mid-30s and borrowed against their 401k to make a house purchase. A promotion lead to a desire for a bigger home in a nicer town (i.e. schools) and when they sold their current house a combination of real estate transaction fees and being slightly underwater on mortgage (I thought housing prices always went up!?) meant the only place they could go for excess savings was their retirement accounts. Now that's something I would never do, but I understand the motivation. And from their perspective, things are still on the upswing in terms of their age and career expected earnings.

I have another colleague who has been at our large company long enough to still have a pension plan, while our U.K. colleagues are still in a union. Instead of wondering why our older colleagues have it so good with regards to benefits and time off, they just joke about the days of a pension being gone and make with the old man cracks.

Quanka , April 3, 2017 at 8:10 am

"Companies are worried about their employees retirement prospects" Gotta love the language. Maybe they should pay their employees more

If you actually believe that's what companies are concerned about but seriously this is why I don't read the news anymore. The ongoing casual lies are embedded within a broader tapestry of falsehood.

Moneta , April 3, 2017 at 8:51 am

They can't pay more they need to maximize their eps or stock price for the big pension plans who own them.

The irony is that they need to minimize the pay of their workers to maximize the pensions of workers not necessarily in their firm.

jrs , April 3, 2017 at 12:22 pm

Well they could just make contributions to the 401ks for employees themselves without even requiring the employee to put anything in (without requiring matching). Some companies do do this. Probably better than just paying them more if they are really worried about their retirement funds, because if they just paid them more there's a good chance it wouldn't go to retirement. I'm not opposed to more pay, just realistic about how much might go to retirement. A pension of course is better but small companies aren't going to manage that financially even if they wanted to.

Even of the boomers I bet many of them don't have pensions. Why? They didn't work for government or fortune 500s, and it was probably never that many people with lifetime at careers at small companies that got pensions. But much of the employment is small businesses.

KYrocky , April 3, 2017 at 8:29 am

"The great lie is that the 401(k) was capable of replacing the old system of pensions," No kidding. There are so many great lies with 401(k)'s, the biggest being that it is now expected that people should be able to save enough for their own retirement if they would only assume some personal responsibility.

But the math has never worked. According to Reaganomics, personal responsibility is the solution to retirement needs, medical costs, education costs, child care costs, unemployment, etc. No one has ever been able to produce a household budget for a family in the lower half of income that would ever come remotely close to fulfilling the conservative's fantasy of personal responsibility. It. Can't. Be. Done.

The great lie that is the 401(k) and Reaganomics serves the same purpose as so many other conservative lies: it allows more money to flow to Wall Street and the richest Americans. It also is used to justify tax cuts for the rich and cuts in social programs. It is about the greed of the few against the living standards of the rest of our society.

The 401(k) was intended to be a supplemental income to a pension, but those pensions no longer exist and are never coming back. In the face of what has happened, particularly the graft Wall Street and financial managers have imposed on 401(k)'s and other retirement investments, what is needed is a much more muscular Social Security system for retirement.

jrs , April 3, 2017 at 12:28 pm

Does anyone know what percentage of boomers (or even older boomers) have pensions? I'm guessing it's not all that high (even if it's 50%, that means half would be relying on SS and other savings etc.).

jfleni , April 3, 2017 at 8:33 am

It's a good reaon to increase SSI, as Bernie and friends say; lock it up so the plutocrat thieves won't plunder it first!

Moneta , April 3, 2017 at 8:40 am

So if all benefited from well funded DB plan wouldn't the economy be smaller from less spending and markets even more overvalued?

Oh no, the economy would have been smaller so there would have been less money to save

My head hurts thinking about all those what ifs!

It just seems to me that the cost of living for the vast majority will always equal disposable income because there is alway someone out there younger, willing to work longer hours, willing to take a pay cut or pay extra for a house. Arbitrage rules.

Moneta , April 3, 2017 at 9:10 am

Asking everyone to save for 30 years of retirement is a farce and sure to fail. And we are currently witnessing its failure. There are just too many variables.

All it takes is for someone out there to plan using a life expectancy of 80 while another with the same income uses 95. This gives them way more cash flow during their working years to increase the price of everything screwing up the plans of those using more conservative assumptions.

And this is just one variable

Moneta , April 3, 2017 at 9:44 am

And if every American saved for retirement owning part of the equity index, wouldn't that be approaching communism?

Interesting that capitalists would have thought up such a pension system. Lol!

PhilM , April 3, 2017 at 10:19 am

Pension funds own about 1/6th of equities as it is.

m , April 3, 2017 at 9:09 am

Since companies don't care if you survive after you leave them and I bet in many of these big box stores newbies and old timers probably earn about the same amount 10-15/hr. What is the real reason they want to stop leakage? That 25% drop in gambling money & earnings for fund managers.
I am guilty moved on to new job and cashed it out. I didn't put any money in, don't care and don't see this as a real way to ?retire.
After 2008 it seems like 401ks are just a place to dump garbage. What do I know, I am young & dumb.

Moneta , April 3, 2017 at 9:15 am

Older workers = higher health care expenses and higher matching contributions.

phemfrog , April 3, 2017 at 9:17 am

Question:
So my spouse has changed jobs 4 times in the last 5 years. Each time we have to cash out the old 401k and deposit it in the new one. Some times this rollover was done by direct wire transfer from old to new, but one time they sent us a check, which we signed over to the new 401k account. Are these somehow being counted as "cashing out"? We though these are really rollovers? Just curious

jrs , April 3, 2017 at 12:40 pm

is there a reason you aren't just depositing it in an IRA when she leaves?

Billy-Bob , April 3, 2017 at 12:55 pm

If you move monies from one 401k into another, or transfer it into a rollover IRA it is not considered as a taxable event, I.e., you did not cash out.

oh , April 3, 2017 at 9:21 am

The Wall Street crooks through the governments they own have convinced the majority of the people that 401(k)s are good because of (1) tax deferral and (2) company contributions. Americans are obsessed with paying lower taxes that they let the Wall Street Banksters get their claws on their savings. The laws dictate that only the banksters/brokers can keep and handle your savings. Each trade results in a commission. Add to this mix the myriad of so called financial consultants who churn the account for their own benefit. When Wall Street crashes, Good Bye!

m April m , April 3, 2017 at 10:25 am

Exactly! And they dump sub prime this and that in there. No fiduciary obligation=garbage.

Octopii , April 3, 2017 at 9:23 am

BIL (high-level TV executive mostly unemployed for two years) withdrew his entire 401k without understanding the tax consequences. April 15 a very large number is due to the Feds. Oops.

DH , April 3, 2017 at 9:40 am

Over the years, I have been astonished at how little many executives understand about finance, taxes, and business. I have always wondered what they actually do in their cocooned meetings. Generally speaking, those meetings result in hilarious memos re-organizing people that don't appear to have anything to do with the normal business while cutting costs that are essential to executing the business.

So it is not a surprise to me that a high-level executive would be unaware that a 401k is tax-deferred, not tax-exempt. He probably also thinks that a hedge fund is guaranteed to outperform the S&P 500 and has already moved his money into one, which means he will have less money to pay his taxes with.

DH , April 3, 2017 at 9:35 am

Borrowing against your 401k is only an issue if you are saving in it at a low rate. The really big issue with 401ks is that companies generally do not put much in matching funds in – typically far less than their old pension fund contributions would be. Instead, those funds have been going to pay for exorbitant healthcare insurance plans in the vastly over-priced US healthcare system.

I have borrowed against my 401ks over the years. However, I also save at a pretty high rate, generally at the highest rate that the company permits. So I get the tax savings (been in some of the highest tax brackets for over 20 years and live in a high income tax state, so about 35% or so tax deferral) while building an asset base.

Occasionally, something comes up that needs some cash, so I take a loan against the 401k (generally the value is less than a year's worth of contributions) and set up a schedule to pay it back over a couple of years. Some years the interest rate on the loan (that you are paying to yourself) is higher than the portfolio returns and other years it is lower. In the end, I have come out ahead because I am not trying to save those chunks of money after tax in a bank savings account that pays little or not interest.

Mr. P , April 3, 2017 at 11:10 am

I'm curious: If you pay the interest on the 401k loan with already-taxed money, is that interest taxed again upon withdrawal from the 401k?

jrs , April 3, 2017 at 12:44 pm

Yes it is a 35% tax savings, even if not in the highest bracket. Say in the 25% fed bracket (income of $37,950 to $91,900). Then California income taxes for that income can come to nearly 10%.

Ernesto Lyon , April 3, 2017 at 11:14 am

You almost never want to roll your 401k into a new employers plan. Shift it to your own IRA.

When you roll to your employer's plan you lose flexibility and can even put your pre-existing funds at risk in certain cases.

Billy-Bob , April 3, 2017 at 1:04 pm

Mostly true, but it depends. If the new 410k has good, low cost investment options that one wishes to utilize then it's probably fine. That said, many 401k accounts tend to have higher costs for equivalent funds than one can get in a rollover IRA. Buyer gots to do their research.

Yves Smith Post author , April 3, 2017 at 1:24 pm

No, he's correct. 401(k)s have TONS of hidden fees. You can't even get full disclosure of the full fees. You are guaranteed to have lower fees and more choices at Vanguard.

susan the other , April 3, 2017 at 11:27 am

Not just the corporation investing in equities or stock buybacks, or workers investing in equities, but also the corporations turn themselves into finance/insurance businesses (Westinghouse, etc.) It's funny that they can't see how they have defeated themselves – and they are blaming leakage when spending the money is the antidote to stagnation as the system now works. It's hard to imagine that the corporations want to retire the old workers to make room for new – I don't believe that for a second because they'll gladly retire 4 olds and hire 1new. It's "flexibility" they are looking for.

Stephen Hemenway , April 3, 2017 at 11:44 am

If they want people to retire earlier maybe they could lower the age at which social security pays out.

[Mar 10, 2017] Michael Hudson: Retirement? What Social Obligation?

Notable quotes:
"... This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won't have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's pay check, right off the top. ..."
"... The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich. ..."
"... So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds "in their sleep." That's how the five percent have basically been able to make their money. ..."
"... The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn't. The pretense is that nobody could have forecast this! ..."
"... In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell. ..."
"... We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you're going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You'll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money to do what social democracies are supposed to do. You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... "Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired 'conclusions', to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion." ..."
"... "Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory." ..."
"... "Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system." ..."
"... it insults the intelligence of the audience, ..."
"... we would now call ..."
"... totally insupportable on its face. ..."
"... as a corporate, spiritually mandated obligation, ..."
"... You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... Henry Ford II: Walter, how are you going to get those robots to pay your union dues? Walter Reuther: Henry, how are you going to get them to buy your cars? ..."
"... "You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy." ..."
"... "The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus. ..."
"... The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation. " ..."
Mar 10, 2017 | www.nakedcapitalism.com
Posted on March 9, 2017 by Yves Smith Yves here. This Real News Network interview is from a multi-part series about Michael Hudson's new book, J is for Junk Economics. And after a lively discussion by readers of the economic necessity of many to become expats to get their living costs down to a viable level, a discussion of the disingenuous political messaging around retirement seemed likely. Among the people in my age cohort, the ones that managed to attach themselves to capital (being in finance long enough at a senior enough level, working in Corporate America and stock or stock options) are generally set to have an adequate to very comfortable retirement. The ones who didn't (and these include people I know who are very well paid professionals but for various reasons, like health problems or periods of unemployment that drained savings, haven't put much away) will either have to continue working well past a normal retirement age (even charitably assuming they can find adequately compensated work) or face a struggle or even poverty.

https://www.youtube.com/embed/cdv9EvWxkdc

SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore. I'm speaking with Michael Hudson about his new book J Is For Junk Economics: A Guide to Reality in the Age of Deception.

Thanks for joining me again, Michael.

MICHAEL HUDSON: Good to be here.

SHARMINI PERIES: So, Michael, on page 260 of your book you deal with the issue of Social Security and it's a myth that Social Security should be pre-funded by its beneficiaries, or that progressive taxes should be abolished in favor of a flat tax. Just one tax rate for everyone you criticize. We talked about this earlier, but let's apply what this actually means when it comes to Social Security.

MICHAEL HUDSON: The mythology aims to convince people that if they're the beneficiaries of Social Security, they should be responsible for saving up to pre-fund it. That's like saying that you're the beneficiary of public education, so you have to pay for the schooling. You're the beneficiary of healthcare, you have to save up to pay for that. You're the beneficiary of America's military spending that keeps us from being invaded next week by Russia, you have to spend for all that – in advance, and lend the money to the government for when it's needed.

Where do you draw the line? Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society. You had the first public pension (social security) program in Germany under Bismarck. The whole idea is that this is a public obligation. There are certain rights of citizens, and among these rights is that after your working life you deserve to live in retirement. That means that you have to be able to afford this retirement, and not have to beg in the street for money. The wool that's been pulled over people's eyes is to imagine that because they're the beneficiaries of Social Security, they have to actually pay for it.

This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won't have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's pay check, right off the top.

The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich.

So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds "in their sleep." That's how the five percent have basically been able to make their money.

The idea that Social Security has to be funded by its beneficiaries has been a setup for the wealthy to claim that the government budget doesn't have enough money to keep paying. Social Security may begin to run a budget deficit. After having run a surplus since 1933, for 70 years, now we have to begin paying some of this savings out. That's called a deficit, as if it's a disaster and we have to begin cutting back Social Security. The implication is that wage earners will have to starve in the street after they retire.

The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn't. The pretense is that nobody could have forecast this!

There are so many corporate pension funds that are going bankrupt that the Pension Benefit Guarantee Corporation doesn't have enough money to bail them out. The PBGC is in deficit. If you're going to be a corporate raider, if you're going to be a Governor Romney or whatever and you take over a company, you do what Sam Zell did with the Chicago Tribune: You loot the pension fund, you empty it out to pay the bondholders that have lent you the money to buy out the company. You then tell the workers, "I'm sorry there is nothing there. It's wiped out." Half of the employee stock ownership programs go bankrupt. That was already a critique made in the 1950s and '60s.

In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell.

So it's become a shell game. There's really no Social Security problem. Of course the government has enough tax revenue to pay Social Security. That's what the tax system is all about. Just look at our military spending. But if you do what Donald Trump does, and say that you're not going to tax the rich; and if you do what Alan Greenspan did and not make higher-income individuals contribute to the Social Security system, then of course it's going to show a deficit. It's supposed to show a deficit when more people retire. It was always intended to show a deficit. But now that the government actually isn't using Social Security surpluses to pretend that it can afford to cut taxes on the rich, they're baiting and switching. This is basically part of the shell game. Explaining its myth is partly what I try to do in my book.

SHARMINI PERIES: If the rich people don't have to contribute to the Social Security base, are they able to draw on it?

MICHAEL HUDSON: They will draw Social Security up to the given wage that they didn't pay Social Security on, which is up to $120,000 these days. So yes, they will get that little bit. But what people make over $120,000 is completely exempt from the Social Security system. These are the rich people who run corporations and give themselves golden parachutes.

Even for companies that have engaged in massive financial fraud, the large banks, City Bank, Wells Fargo – all these have golden parachutes. They still are getting enormous pensions for the rest of their lives. And they're talking as if, well, corporate pensions are in deficit, but for the leading officers, arrangements are quite different from the pensions to the blue collar workers and the wage earners as a whole. So there's a whole array of fictitious economic statistics.

I describe this in my dictionary as "mathiness." The idea that if you can put a number on something, it somehow is scientific. But the number really is the product of corporate accountants and lobbyists reclassifying income in a way that it doesn't appear to be taxable income.

Taking money out and giving it to the richest 5%, while making it appear as if all this deficit is the problem of the 95%, is "blame the victim" economics. You could say that's the way the economic accounts are being presented by Congress to the American people. The aim is to popularize a "blame the victim" economics. As if it's your fault that Social Security's going bankrupt. This is a mythology saying that we should not treat retirement as a public obligation. It's becoming the same as treating healthcare as not being a public obligation.

We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you're going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You'll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money to do what social democracies are supposed to do. You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation.

You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary "financial/real estate/public enterprise" class that is transforming the economy.

SHARMINI PERIES All right, Michael. Many, many, many things to learn from your great book, J Is For Junk Economics: A Guide to Reality in the Age of Deception. Michael is actually on the road promoting the book. So if you have an opportunity to see him at one of the places he's going to be speaking, you should check out his website, michael-hudson.com

So I thank you so much for joining us today, Michael. And as most of you know, Michael Hudson is a regular guest on The Real News Network. We'll be unpacking his book and some of the concepts in it on an ongoing basis. So please stay tuned for those interviews.

Thank you so much for joining us today, Michael.

craazyman , March 9, 2017 at 10:10 am

It's 10 bagger time for sure. A house in the tropics with servants at your beck and call. Breakfast on the veranda. Lunch at the club. An afternoon sail. Dinner at the house of a famous author. Or some native woman who cooks spicy food and is hotter than the sun. No shuffleboard and pills! You need to stay buff if you wanna live like this. You can't be flabby and short of breath.

j84ustin , March 9, 2017 at 10:21 am

Thanks for this.

flora , March 9, 2017 at 11:47 am

+1. Yes. Great post. Very clear explanation of Greenspan's SocSec bait-and-switch.

PhilM , March 9, 2017 at 10:32 am

Yves's remark on retirement by sector is apt. I laugh bitter tears when I see that a financial CEO contract always includes a "pension," as if the tens of millions of dollars in salary and bonuses weren't enough.

A "pension" is for those who, broken by a life of hard physical labor, finally can't work any more for their crust of bread. It's not another revenue line-item that's barely enough to refuel the yacht.

There was a time when people "saved for retirement." With real rates of return being negative, and all assets priced arbitrarily at the whim of the central bank's policy du jour, I am perfectly frank when people ask "what should they invest in": nothing. Pay down your debt, and spend whatever you have beyond an emergency cushion right now, while you can enjoy it. Savings will inevitably be wasted, by inflation, the "health-care system," or financial-sector scammers. Do not ask for whom the bell tolls; if you have to ask, you can't afford it.

This is all in the context of the Federal Government already spending 20% of GDP, a number that was never designed to happen. It is the States that were supposed to be in charge of the people's welfare, not the national authority. So the argument that we should increase Federal taxes to somehow redistribute wealth is also wrong, because that wealth will simply be wasted, spent by people who are responsible to no one.

At moments like this there are no good choices. Most Europeans have long learned to live with governments that were hostile to them, and that is where we stand now.

Tocqueville's Democracy In America is tough going in spots, but my gosh, what a beautiful world he depicts, when the average Pennsylvanian's tax liability beyond his township was $4 a year.

a different chris , March 9, 2017 at 12:56 pm

I won't argue too hard about your "Federal vs State" argument, but note that if the state is in charge of most taxation then Richy Rich can live in a low tax state next door and employ the well-educated, healthy (single-payer) people in your state.

Sound of the Suburbs , March 9, 2017 at 10:38 am

Just got my copy of "J is for Junk Economics"

Other people are on the same wavelength.

Professor Werner moving from reality to fantasy:

"Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired 'conclusions', to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion."

"Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory."

"A lost century in economics: Three theories of banking and the conclusive evidence" Richard A. Werner

http://www.sciencedirect.com/science/article/pii/S1057521915001477

Even the BoE has quietly come clean about money.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Leaving Paul Krugman looking rather foolish

" banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" Paul Krugman, 2015.

No, it doesn't work like that Paul.

Sound of the Suburbs , March 9, 2017 at 10:46 am

The facts tell all.

Francis Fukuyama talked of the "end of history" and "liberal democracy" in 1989.

Capitalism had conquered all and was the one remaining system left that had stood the test of time.

With such a successful track record, everything was being changed to a new neo-liberal ideology and globalization was used to test this new ideology everywhere.

The Great Moderation seemed to indicate that the new ideology was a great success.

"Seemed" is the operative word here.

A "black swan" arrives in 2008 and nothing is the same again, the Central Bankers pump in trillions to maintain the new normal of secular stagnation.

Sovereign debt crises erupt, the Euro-zone starts to disintegrate, austerity becomes the norm., no one knows how to restore growth and the populists rise.

A new ideology comes in that is rolled out globally and seems to work before 2008.

What happened in 2008?

This is the build up to 2008 that can be seen in the money supply (money = debt):

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

Everything is reflected in the money supply.

The money supply is flat in the recession of the early 1990s.

Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan's loose monetary policy.

When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands (money = debt).

The theory.

Irving Fisher produced the theory of debt deflation in the 1930s.

Hyman Minsky carried on with his work and came up with the "Financial instability Hypothesis" in 1974.
Steve Keen carried on with their work and spotted 2008 coming in 2005.

You can see what Steve Keen saw in the graph above, it's impossible to miss when you know what you are looking for but no one in the mainstream did.

The hidden secret of money.

Money = Debt

From the BoE:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

If you paid off all the debt there would be no money.

Money and debt are opposite side of the same coin, matter and anti-matter.

The money supply reflects debt/credit bubbles.

Monetary theory has been regressing for over 100 years to today's abysmal theory where banks act as intermediaries and don't create and destroy money.

The success of earlier years was mainly due to money creation from new debt (mainly in housing booms) globally feeding into economies leaving a terrible debt over-hang.

Jam today, penury tomorrow.

This is how debt works.

Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions (Michael Hudson and Steve Keen are on the list of 12).

They all saw the problem being excessive debt with debt being used to inflate asset prices (US housing).

The Euro's periphery nations had unbelievably low interest rates with the Euro, the risks were now based on common debt service. Mass borrowing and spending occurs at the periphery with the associated money creation causing positive feedback.

Years later, it was found the common debt service didn't actually exist and interest rates correct for the new reality.

Jam today, penury tomorrow.

Why doesn't austerity work? (although it has been used nearly everywhere)

You need to understand money, debt, money creation and destruction on bank balance sheets and its effect on the money supply. Almost no one does.

Richard Koo does:

https://www.youtube.com/watch?v=8YTyJzmiHGk

Ben Bernanke read Richard Koo's book and stopped the US going over the fiscal cliff by cutting government spending.

Sound of the Suburbs , March 9, 2017 at 11:20 am

Alternative and I would say much more accurate realities:

1) Michael Hudson "Killing the Host", "J is for Junk Economics"

The knowledge of economic history and the classical economists that has been lost and the problems this is causing. Ancient Sumer had more enlightened views on debt than we have today.

2) Steve Keen "De-bunking Economics"

His work is based on that of Hyman Minsky and looks into the effects of private debt on the economy and the inflation of asset bubbles with debt.

3) Richard Werner "Where does money come from?"

The only book generally available that tells the truth about money, I don't think there are any other modern books that do and certainly not in economics textbooks

4) Richard Koo's study on the Great Depression and Japan after 1989 showing the only way out of debt deflation/balance sheet recessions.

https://www.youtube.com/watch?v=8YTyJzmiHGk

Sound of the Suburbs , March 9, 2017 at 11:55 am

The BoE:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

The BoE have made a mistake.

"Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system."

The limit for money creation holds true when banks keep the debt they issue on their own books.

The BoE's statement was true, but is not true now as banks can securitize bad loans and get them off their books.

Before 2008, banks were securitising all the garbage sub-prime mortgages, e.g. NINJA mortgages, and getting them off their books.

Money is being created freely and without limit, M3 is going exponential before 2008.

Dead Dog , March 9, 2017 at 1:02 pm

Thanks SOS, agree. We're at that 08 point now, in fact it's worse.

Pensions should just be a click of the computer, no borrowings, savings or taxes needed and they need to be sufficient to live on.

No, we aren't 'winning'

In Australia, we used to give people the 'aged' at 60 for women and 65 for men. Now its 67 for both, the woman's aged cut in was raised for 'equality' reasons, and it going up to 70 for my kids.

Politicians, judges, CEOs and the c-class, all those 'shiny bums', they can often work well into their 60s. The rest of us experience age discrimination in a tight job market and are forced into menial jobs just when society should be funding their well earned retirement.

diogenes , March 9, 2017 at 10:41 am

The whole "there aren't enough workers to support retirees" meme is risible.

Example: Jane funds an IRA for 30 years. For those 30 years, there is one person paying in, and zero taking out. When Jane retires, the IRA flips to one person taking out, and zero paying in.

Disaster, or working as advertised?

That Serious Thinkers, elected officials and the SSA themselves advance this trope to explain why SS is hopeless is proof of willful mendacity.

Now if these folks admit, well yuh, you paid in over all of these years, but the money ain't there no more, then first, that's an admission of mismanagement (unsurprising), and second, bail us the fuck out like you did Wall Street.

inhibi , March 9, 2017 at 11:48 am

Most every purported "help" by the government is the exact opposite: your paying into a black hole.

Look around you. What around you was paid for by the government? The answer is none of it was. Taxes are a way to keep the bureaucratic structure afloat. What is very clear is that once government reaches a certain size it begins to massively leach off of those that work and gives it to those that "manage".

Look at any industry today and you will find, in the private sector, declining or stagnant wages for the "drones". Then look at the public sector: expanding, better benefits, better wages, less work etc. Thinking about it makes my blood boil. I see truckers making less now then 10 years ago, yet, the industry keeps crying that they "don't have enough workers". Yeah, sorry no one wants to work 25/8 driving around in the day time, sleeping in a truck at night, getting tracked through GPS & get penalized for going above speed limits when they can work for the DMV, make the same amount, and sit at a desk for 7 hours a day with plenty of benefits and vacation time.

Its about time for this system to implode. I see globalization and government expansion as a huge force that will eventually cause a revolution in the States.

Art Eclectic , March 9, 2017 at 12:12 pm

Globalization and the government are simply red herrings meant to distract Trump voters while shareholder value driven corporate overlords continue looting.

a different chris , March 9, 2017 at 1:09 pm

Look around you . The government employs less people than pretty much for my whole life. Please get informed before you go off on a multi-paragraph rant.

http://historyinpieces.com/research/federal-personnel-numbers-1962

If you want a job join the military. Do you think that's a good option?

jrs , March 9, 2017 at 7:01 pm

maybe noone should work in trucking, freight trains are much more energy efficient as far as a means of transporting goods over long distances. Nah I'm not faulting truckers, just saying it makes no societal sense is all except maybe for the last few miles, but then neither do a lot of things. I doubt many people want to work at the DMV, but then maybe the benefits are enough to make a distasteful job seem worth it.

Arizona Slim , March 9, 2017 at 12:37 pm

ISTR reading that the creators of the 401k saying that they never intended it to be a replacement for a pension.

PhilM , March 9, 2017 at 11:05 am

As usual, the abuse of history is the outstanding credibility-buster in this piece. When an author says this,

Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.

why should I believe anything else that he has to say?

The sole instance given is of Bismarck's Germany, actually ground-breaking in its social welfare policies, which came only in the last part of the 19th century.

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

Indeed, retirement in past centuries had a different denotation. Its common use was among the aristocracy, when one of that number determined to remove himself from active (urban) social or political life and withdraw (hence the etymology, "re-tirer"), usually to the country.

Haygood had to resuscitate "rusticate" for the other day, to achieve a modern equivalent of that.

All of this is common knowledge. In case you don't think so, spend five minutes with any book of demographics or social history; and that's just for Europe. Don't let's even ask what "nobody expected to pay for their retirement" meant in early nineteenth-century Alabama.

By the way, Hudson does this all the time. When I can fact-check offhand, from my fund of common knowledge, he is often casually abusing the truth. I can be pretty sure that the rest of what he says is just as unreliable.

Arizona Slim , March 9, 2017 at 12:39 pm

Didn't Bismarck create those social welfare programs in order to prevent unrest in a recently unified Germany?

MBC , March 9, 2017 at 12:52 pm

You may be correct about the 19th century, but it is 2017. And his points about the US tax system, the banks, the wealthiest 1% and our gov't deceiving the middle and lower class are solid. A very basic retirement and healthcare should be provided to all in any decent marginally successful society. Not to mention a supposedly "great" one.

Rick Zhang , March 9, 2017 at 7:21 pm

I think this is where some progressive get tripped up and don't understand why their policies aren't more popular to the wide swaths of America outside of their bubble.

Often times, these people (I use this term loosely to include working class whites in Appalachia as well as Silicon Valley libertarians) like to provide a fair and wide safety net. However, most policies that are advanced are strictly means tested. This causes significant resentment among those just outside of the cutoff lines. Think: Social Security has essentially blanket coverage. Yes, there's some redistribution going on behind the scenes, but if I pay in for 30 years I will get most of my money back. It's wildly popular, while welfare programs are not.

The same applies for health care – Medicare is popular and Medicaid is not. If I pay in for a government program, I want to be able to take advantage of it. Save me the crap about not wanting to subsidize the lifestyles of the 1%; they pay in far more than they would take out of the program. It's a small price to pay to have universal coverage and buy in from all segments of society. So extending Medicare down to everyone is a better political strategy than extending Medicaid upwards to encompass higher income levels.

More reading: https://www.nytimes.com/2017/03/07/business/economy/trump-budget-entitlements-working-class.html

Rick Zhang @ Millennial Lifehacker

Hans Suter , March 9, 2017 at 12:57 pm

why don't try to educate yourself, you may start here https://eh.net/encyclopedia/economic-history-of-retirement-in-the-united-states/

a different chris , March 9, 2017 at 1:12 pm

You read a great deal into a statement that you didn't at all prove was untrue. Not impressive.

The question is, did society believe that it had a responsibility of care for people that got too old to work? You didn't even address that. Yes we know life was "nasty, brutish and (most often) short. That doesn't invalidate what he said.

Dead Dog , March 9, 2017 at 1:13 pm

PhilM 'I can be pretty sure that the rest of what he says is just as unreliable.'

No mate, he speaks truth and may have exaggerated, but the point remains that here, the UK, most of Europe – then the state funds your pension if you need one. It is now a social obligation. Only in the US, do you have this class of people (the working class) who don't deserve retirement and must fund their own meagre pensions, and if the 'pool which funds the pensions' becomes insufficient, well you know the rest.

Taxes see, they fund things, or more often don't, because it's a widely accepted lie to keep the private bank money creation bullshit going forever.

PhilM , March 9, 2017 at 1:41 pm

That's the problem, Dog, I generally agree with his point, and with the responders to my comment, on policy grounds. My point is that leading with something that is provably false, and even probably false to common knowledge, is not a winning tactic; some would say it insults the intelligence of the audience, even.

To me this site, if it's about anything, is about filtering out the BS that is used by people with an agenda to "enhance" their arguments. Lambert does this with a Lancelot-sized skewer. And part of the beauty is the crowd-sourced fact-checking from an extraordinarily informed, and sceptical, community.

I may not have much to add to their expertise, but one thing I do know is some European history, and it drives me berzerk to see people just misuse history as if it strengthens their argument. If they don't know that what they are saying is true, they should not say it. And by "know it is true," I mean, know the source, and the source of the source, and be able to judge its reliability. That is what scholarship is all about: seeing how far down the turtles go.

So when someone just tosses out an assertion about "what the past thought was right," as if that created a moral obligation or not in 2017 (which as MBC quite rightly observed it does not, at least not without a clearer argument), they should be critiqued. When their assertion is based on sloppy cherry-picked facts and wrongly generalized, they should be called out as either uninformed or malicious, in hopes they will be less so in the future.

That's all I was saying; I did not have a point to make about pensions, because I agree with Hudson's viewpoints almost all the time, which is why it is so sad to see him turn out to be so cheesy, so often.

My personal experience of pensions is this: they are a total scam to lock people into exploitive, nearly intolerable working conditions on the flimsiest of promises in the private sector; and in the public sector, they are a way of adding to the debt burden of generations yet to come without the assent of the people: taxation without representation, in effect.

I have seen professionals crumble morally thanks to the force of the pension. It is despicable corporate oppression at the subtle level, because it looks as if they are doing a good thing, which of course they are not. It's more subtle than their obvious screaming cruelties to people and animals and the land, which, it must also be said, nobody does anything about either.

Dead Dog , March 9, 2017 at 2:37 pm

Thanks for replying Phil. Good points.

Yes pension systems aren't perfect, but some people don't have family or money to fall back on when they get old. I am seeing more and more of my own friends in their 60s struggling to earn money through work. They want to stop, but can't afford to.

And, I am dismayed and disheartened of seeing people on the sidewalks that could be my parents. Or, shit, me

Rick Zhang , March 9, 2017 at 7:25 pm

I have no sympathy for these people. Read Hillbilly Elegy and see the perspective from the white working class. More often than not, people who are "struggling" in mid life are those who made bad choices. They abused drugs, had kids out of wedlock, or didn't make a career for themselves. Often, they spend poorly – on luxury items and consuming excessively.

I live now just like how I did when I was a poor student – with a carefully limited budget and spending within my means (more on experiences than products). I save 80% of my income and plan to retire early. More people can do the same.

My mentor/hero bought a fixer upper house that she repaired by herself. She bikes to work every day in the snow, and buys her clothes from thrift stores. She makes a six figure salary.

Save for an uncertain future, folks, and you won't find yourself in dire straits later on in life.

– Rick Zhang @ Millennial Lifehacker

Moneta , March 9, 2017 at 7:52 pm

If everyone saved like you did, the economy would be smaller so there would be even more unemployment and no money for savings

Rick Zhang , March 9, 2017 at 8:26 pm

Tragedy of the commons, eh?

If everyone saved more, we'd reach a happier and more balanced equilibrium. Plus, money that's saved is recycled into the economy through lending.

Or maybe you're arguing that the poor should save more and the wealthy should consume more and keep the economy humming.

– Rick Zhang @ Millennial Lifehacker

Jagger , March 9, 2017 at 1:18 pm

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

I suspect your children or your extended family, were your retirement if you lived long enough pre-20th century times. Also I cannot imagine there was any sort of defined retirement prior to 20th century for the masses. People simply did whatever they could within their families until they couldn't. Work loads probably just decreased with the fragility of old age.

Also many people did live long lives. IIRC, heavy mortality was primarily concentrated in children and childbirth and maybe the occasional mass epidemic or bloody war. Dodge those and you could probably live a fairly long life.

PhilM , March 9, 2017 at 3:38 pm

Quite right; there was a bimodal or multimodal curve, which is why mean averages of life expectancy are not all that enlightening. But the fact is that most people who worked or fought, worked or fought their whole lives, until they were incapacitated; then there was their family, or the Church, or the poorhouse, or starvation, usually leading to mortal illness, if it had not done so before then.

The other side of that story is that the old folk were there as part of the social and economic unit: helping to pick the harvest with the very youngest; sharing skills and knowledge across four or five generations, century after century-rather than being shuffled off to die in some wretched cubby, doing "retirement" things. There's a terrific little book, Peter Laslett's The World We Have Lost, that gives a well-sourced and interesting picture of pre-industrial family life that pushes people to overcome some of their self-satisfaction about this kind of thing.

watermelonpunch , March 9, 2017 at 5:39 pm

I remember reading where they found a Neanderthal remains that showed that this guy was definitely disabled to the point where he couldn't have survived alone. Which means someone else helped him live longer.
That's what humans have always done pretty much, before money. People paid in by being part of society, and then their community helped them later. Social insurance is just the money big civilization version of it isn't it?

I'm just thinking of the people with aging parents and children with parent cosigned student loans And what if they were responsible for paying the $90,000+ / year nursing home payment and all the medical bills, instead of Social Security, Medicare, Medicaid On top of trying to help their kids get through college.

The whole scenario is a bad joke and getting worse.

Moneta , March 9, 2017 at 1:19 pm

There wasn't 15-20% of the population expecting to live 30 years in retirement and the next generations to pay for their still mortgaged McMansions and trips to the tropics.

I have no issues paying for retirees. I have issues with asking the younger generations to pay for lifestyles that are bigger than theirs. The Western retirement lifestyle is too energy and resource intensive.

jrs , March 9, 2017 at 2:48 pm

I don't think most people collecting a social security check actually have a big lifestyle, much less trips to the tropics, that's a Charles Schwab commercial, not a reality for most people. What Social Security has done is mostly reduce the number of old people living in poverty. Ok so young and middle age people are still living in poverty, making everyone live in poverty including people that are old and frail and sick is not an improvement. Are retired people's lifestyles actually shown to be more energy intensive, I think in many ways they would be less so, ie not making that long commute to the office everyday anymore etc..

polecat , March 9, 2017 at 2:58 pm

This -- Without adequate resources and, most importantly, energy, there are no pensions -- indeed, there is no middle class as well !!

Anonymouse , March 9, 2017 at 4:04 pm

Sorry, but your comment is delusional. It is impossible for someone retired on only Social Security to "pay for their still mortgaged McMansions and trips to the tropics". In what universe is that possible on a MAXIMUM annual income of less than $32,000? Googling "maximum social security benefits" generates the following info:
"The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years. Depending on when you retire and how much you made while working, your benefits may be considerably less. The estimated average monthly benefit for "all retired workers" in 2016 is $1,341."

jrs , March 9, 2017 at 6:51 pm

I suspect a lot of people (younger than boomers) might be still mortgaged to a small degree when they retire as housing costs have gone up so that people can't afford a mortgage when they are young, so if they buy real estate at all it's at middle age, buy the first home in their 30s or 40s or 50, for a 30 year mortgage. But McMansions have nothing to do with that.

Moneta , March 9, 2017 at 9:01 pm

First of all I did specify that a 15-20% group is doing quite well.

– Debt in retirement is increasing
http://www.investopedia.com/financial-edge/1012/boomers-staying-in-debt-to-retire-in-comfort.aspx

-Average/median square footage house 1973 vs. 2010. https://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf

-Social Security represents half of retirement income for half of retirees. https://www.fool.com/investing/general/2016/02/28/how-much-of-my-income-will-social-security-replace.aspx

-Income distribution (see page 9)
https://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf

************

The income distribution table shows that the younger retirees 65-75 are not suffering when compared to the working population they seem to have a good thing going for them

Merging all these data points, it becomes quite apparent that there is a large percentage of retirees who still carry debt while collecting social security.

Increasing social security to some group means making another group pay

PlutoniumKun , March 9, 2017 at 1:59 pm

As usual, the abuse of history is the outstanding credibility-buster in this piece. When an author says this,

Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.

why should I believe anything else that he has to say?

The sole instance given is of Bismarck's Germany, actually ground-breaking in its social welfare policies, which came only in the last part of the 19th century.

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

Indeed, retirement in past centuries had a different denotation. Its common use was among the aristocracy, when one of that number determined to remove himself from active (urban) social or political life and withdraw (hence the etymology, "re-tirer"), usually to the country.

Historically, he is right and you are entirely wrong, which is not surprising as Michael Hudson is originally a philologist and historian and has specialised in economic history.

The modern conception of retirement is mostly a 20th Century invention, but throughout history, there are many versions of 'retirement', and they were almost always paid out of current expenditures. Roman soldiers were paid lump sums and frequently given land on reaching retirement age through the Aerarium Militare. Militaries throughout ancient and medieval history had similar schemes, and not just for officers, but again, these were rarely if ever paid out of a contribution scheme – it was considered an obligation of the State.

In many, if not most societies, it was accepted that aristocratic employers and governments had obligations to elderly staff – for example, fuedal workers would keep their homes when they were no longer capable of working, and this extended well into the 19th Century. Organised religions would almost always have systems for looking after retired religious members, again, always paid out of current revenues, not some sort of investment fund. The concept of a fixed retirement age (outside of the military) is a relatively modern one, but the concept of 'retirement' is not modern at all.

PhilM , March 9, 2017 at 5:40 pm

This is the worst strawmanning bull**** I have seen in a while; it is simply infuriating. I don't have the time to put all of what follows into perfect order, but here's what I can tap out in a minute or two.

If, PK, you are trying to prove that some people in the past have stopped work and still gotten paid, as part of their lifetime compensation for the work they have done, and that this is, de facto, compensation during what we would now call "retirement," you win. Straw man knocked over.

So let me again quote what Hudson says, just so your argument can be demonstrated as the pointless distraction that it is:

"Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society."

That couldn't be clearer. "Nobody anticipated," as in "nobody." Meaning it was a generally accepted social value that . what follows. What follows is "people," as in "people"; not just soldiers, or priests, or servants; "people," ie, Gesellschaft; and then, "their own retirement," (which can only imply a period when they were old enough still to do something productive that earned money, but chose not to, instead; because otherwise it would be called "disability," right?). "That was viewed as an obligation of society," meaning, it was a right, not a privilege or gift or compensation, and it was universal, because it applied to "people," and "nobody" thought otherwise.

There is just nothing there that is justifiable in any way based on the history of the nineteenth century. The only exception is Bismarck's Germany, which is adduced as proof of the statement, which is totally insupportable on its face.

If you stand by that, and are trying to suggest that "retirees," meaning as a group everyone in society beyond a pre-defined age, as opposed to the disabled, were ever perceived as having a societally based right to welfare support before the very late nineteenth or early twentieth century, and that only in a very few, very advanced places, you fail three times over.

You do this in classically ahistorical ways: you conflate Gesellschaft with Gemeinschaft; you adduce the military of the ancient world, which is just hilariously anachronistic, but even those prove you wrong when examined closely; you completely misconstrue the rules of the corporately organized ancien regime, which by the way was ancient history as far as the post-Dickensian industrializing Europe that Hudson speaks of; you adduce the military and the priesthood as if they were representatives of "society" as a whole, which they were not–they were adherents of the body that made the rules, and liked to keeps its friends close, and could reward them. The same, while you are at it, was true of some different varieties of public servants–but not many, and again, not before the late nineteenth century, and certainly not in the US:

"Like military pensions, pensions for loyal civil servants date back centuries. Prior to the nineteenth century, however, these pensions were typically handed out on a case-by-case basis; except for the military, there were few if any retirement plans or systems with well-defined rules for qualification, contributions, funding, and so forth. Most European countries maintained some type of formal pension system for their public sector workers by the late nineteenth century. Although a few U.S. municipalities offered plans prior to 1900, most public sector workers were not offered pensions until the first decades of the twentieth century. Teachers, firefighters, and police officers were typically the first non-military workers to receive a retirement plan as part of their compensation."

https://eh.net/encyclopedia/public-sector-pensions-in-the-united-states/

Your ad hominem appeal to Hudson's authority as a historian is amusing: it is actually not surprising that Hudson is wrong, and I am right; because he is an economic historian, with a special faculty, apparently, for conducting contemporary policy polemics; and I would be happy to give you my professional authority, except that this is the internet, so appeals to professional authority don't mean anything at all, but I'll just put it to you that it is more than sufficient; but leaving that aside, I am without a polemical agenda, except just this one: that the past needs to be respected in its totality, and that even when being used to score points in contemporary policy arguments. I know which of us has more credibility here just by reading Hudson's sentences, which are devoid of historical meaning or sensitivity; and I know that I, as a historian, would never knowingly misuse the past to make a point about the present, because that is being a bad, bad doctor.

You bring up three cases: military, clergy, and servants. Those are exactly not what Hudson is talking about when he mentions Bismarck, or the nineteenth century, or retirement and its old age provisions as a whole, so you basically proved my point just by failing to address the actual argument. What Hudson is referring to-because he says so with his one example-is the Bismarckian "Gesellschaft" obligation to what had in previous centuries been called the the third estate in generic terms. Not, mind you, the first and second estates and their servants and adherents. If Hudson were talking about pensions for the military, he would have said so, and his argument would have ended there, in a paragraph, because they are fully protected in that regard and have been, at least more than the average citizen, since the GI Bill. Pensions for the military is not part of some kind of "social obligation" for retirees; it is a reward for long service, and therefore not some kind of "right of social welfare," but a kind of compensation, and it was not much, at that, in the 19th century.

The regular clergy, which made up most of the clergy until the dissolutions, did not retire: their jobs were for life, because they lived a life of prayer, and that was not something that ever ended. The Church supported all clergy as a corporate, spiritually mandated obligation, not as a generalized "social obligation" like social security, or what Bismarck instituted. If your point is that certain corporate groups took care of their privileged members when they no longer worked, that is one thing; if your point is that "retirement" as a condition that merited social welfare, in general, the clergy don't make that for you. They were exceptions to the general rule that people had to fend for themselves, a rule that applied to the entire third estate by definition from time immemorial.

Lastly, servants: those who "retired" in the nineteenth century very often did not have the same treatments as servants in the ancien regime, many of whom died in harness in any case. But, if their employing families did continue to provide for them, they did so not out of a sense they were meeting the "obligation of society to the retired," but as a matter of family or community duty, noblesse oblige. It was completely at the mercy and discretion of the family involved. It was a matter of personal honor, and still is, when servants have been your friends and companions and have prepared and eaten the same food you have, and cleaned your mess and watched your back and brushed your horses and trained you to ride, and seen your youthful foolishness, sometimes for generations. Those are not "obligations of society"; they are personal and family and moral obligations. So Cato the Elder took some heat for his recommendations on discarding old and broken down slaves, but nobody suggested it was up to the Republic to pay for them instead. Since you're going to the ancient world, you might better have used that example than that of the soldiers.

And so all that is what Hudson is not talking about. He's talking about Bismarck's social security as a moral precedent, reflecting a widely held belief in the popular right to a social safety net after a certain age.

So of course some people were "pensioned." They were called "pensioners," and many of them were not at all "retired," but had gone on to work at other things, like soldiers who opened up fish-and-chips shops (q.v.). That does not mean that there was ever a Gesellschaft-like concept of "retirement" as a condition that brought the right to support by the commonwealth; not before Bismarck. That's what Hudson's reference tries to imply, that such a concept was common in the 19th century, at a widespread societal level in Western Civilization, and it is provably, demonstrably, obviously wrong. If it weren't, why would the Old-Age Pensions Act 1908 have ever been passed?

"Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society."

You simply cannot construe that to have any truth, given the facts of the century. You can straw-man me about the concept of "retirement" all you like, although you are still wrong there, because the groups you name aren't people who "work for a living," which is the third estate; they are the first and second estates, and their adherents: those who fight for a living, and pray for a living, and those who obey them.

So the fact remains that Hudson's statement was just polemical fluff, and no historian worth the name should have uttered it. I guess I'll sit here and wait for his response, because yours, well .

fresno dan , March 9, 2017 at 11:05 am

"He didn't call FICA wage withholding a tax, but of course it is."

This just drives me to apoplexy. 1, that it is not called a tax, and 2, that wage taxes are never ever reduced.
Incessant yammering about "incentives" – but doesn't a wage tax disincentivise both employers and employees with regard to wage work? – – Endless talk about how CEO's can't do ANYTHING unless their taxes are REDUCED!!!!!!! But somehow .that just goes out the window when it comes to wages – TAXES MUST GO UP.
Cheney – deficits don't matter .except apparently with regard to social security ..

The other scam about FICA and its "separate" funding is that social security being in balance is OH SO IMPORTANT – deficits will be the death of it. Yet the general fund is in deficit (see Mish today for a bunch of stuff on the hypocrisy of repubs on the deficit) and ever more deficit and nobody seriously cares about it or worries about it. MONEY can always be found for invading for Iraq, and paying for invading anybody is NEVER a problem. Feeding old folks, on the other hand, sure strains the resources
Its like it is as important to keep a reserve army of the impoverished as it is to keep the empire.

Dead Dog , March 9, 2017 at 1:22 pm

FD -'This just drives me to apoplexy' Breathe, buddy.

Yes, mate, feeding old folks – looking after the oldies so they have health care, decent food and a home.

How well each country does it reflects their views on whether it's a social obligation. For many countries, there is no safety net and families provide the care, if they can.

It's becoming that way in the west too. I don't see many governments increasing welfare for our poorest people, benefits are being gutted and those that did save for retirement are seeing their funds looted and zero interest paid

Hemang , March 9, 2017 at 11:17 am

Life in Indian joint family is great- no retirement work- food for life for a member- great lack of boredoms and lonely depressions- life, life ,- exquisite vegetarian food fit for Gods- low tech human scale towns- GREAT TO BE ALIVE ON 3 dollars a day! This talk of retirement and working and senior junior savings is so pathetic that my sex drive just evaporated into thin air reading it! Get a life.

Disturbed Voter , March 9, 2017 at 12:51 pm

Destruction of the family by public and private corporations, with the assistance of disruption by multiple industrial revolutions is key.

Sluggeaux , March 9, 2017 at 11:25 am

It's good to read Michael Hudson's call-out of FICA as a mechanism to crush workers and transfer wealth to the already rich.

FICA is indeed the worse sort of deductive reasoning. It is based on the premise that the rich are entitled to be rich, and that the masses want to take their money from them. In America in particular, wealth has historically been based on grants from the sovereign to loot the commons (timber, agriculture, mineral extraction, railroads, military procurement, data mining, etc.). These grants to loot the commons have nearly always been based on corrupt practices of cronyism and bribery. Alchemists like Greenspan simply provide theo-classical mumbo-jumbo after-the-fact justification for their piracy.

Ironically, I was just reading about impending failure of the Oroville Dam, a prime example of America as the seat of greed. It was well-known that the spillways were inadequate and crumbling due to 50 years of use. However, the Reagan-ites of Southern California refused to tax themselves in order to save Oroville and Yuba City, 450 miles away.

It's sad that everyone, especially the rich, think that they can blow-up the United States and then fly to their bolt-hole in New Zealand or Australia - or if you're not so rich to a shack in Panama or Thailand. I suspect that we will soon find ourselves to be unwelcome pariahs in those places.

Arizona Slim , March 9, 2017 at 12:41 pm

And, if you're a freelancer like I am, you get to pay both sides of the FICA tax, employee and employer. Fun, fun!

Dead Dog , March 9, 2017 at 1:24 pm

They may be unwelcome by the masses, but money still talks and, if you haven't got any, well you just stay right where you are.

mk , March 9, 2017 at 1:25 pm

200,000 people (even if they all voted) is not a political threat to the state and feds.

Rick Zhang , March 9, 2017 at 8:30 pm

How is FICA a redistribution to the wealthy? If anything, what you pay in buys you a share of the distributions when you retire. That means the output is roughly proportional to the input you contribute. The wealthy stop contributing after roughly the $120,000 limit, but that doesn't mean they take an outsized distribution. They take home exactly the same (pre-tax) as someone who only made $120,000 per year.

If anything there's a bit of redistribution behind the scenes that favours the poor. See my earlier post. If you make too many changes to Social Security such that it becomes another welfare program, it will lose its popular backing and eventually get axed.

– Rick Zhang @ Millennial Lifehacker

MMT is the Key , March 9, 2017 at 12:30 pm

Neoliberalism is OUT-DATED. Rather, for the past four decades, it's been fiat currency for the .01% and gold standard straitjacket ideology for everyone else.

"The mainstream view is no longer valid for countries issuing their own non-convertible currencies and only has meaning for those operating under fixed exchange rate regimes,

'The two monetary systems are very different. You cannot apply the economics of the gold standard (or USD convertibility) to the modern monetary system. Unfortunately, most commentators and professors and politicians continue to use the old logic when discussing the current policy options. It is a basic fallacy and prevents us from having a sensible discussion about what the government should be doing. All the fear-mongering about the size of the deficit and the size of the borrowings (and the logic of borrowing in the first place) are all based on the old paradigm. They are totally inapplicable to the fiat monetary system' (Mitchell, 2009).

We might now consider the opportunity afforded by the new monetary reality, effectively modelled by MMT. A new socio-political reality is possible which throws off the shackles of the old. The government can now act as a currency issuer and pursue public purpose. Functional finance is now the order of the day. For most nations, issuing their own fiat currency under floating exchange rates the situation is different to the days of fixed exchange rates. Since the gold window closed a different core reality exists – one which, potentially at least, provides governments with significantly more scope to enact policies which benefit society.

However, the political layer, in the way it interacts with monetary reality, has a detrimental effect on the power of democratic governments to pursue public purpose. In the new monetary reality political arrangements that sprang up under the old regimes are no longer necessary or beneficial. They can largely be considered as self-imposed constraints on the system; in short the political layer contains elements which are out-of-date, ideologically biased and unnecessary. However, mainstream economists have not grasped this situation – or perhaps they cannot allow themselves to- because of the vice-like grip that their ethics and 'traditional' training has on them.

MMT provides the best monetary models out there and highlights the existence of additional policy space acquired by sovereign states since Nixon closed the gold window and most nations adopted floating exchange rates. We just need to encourage the use of the space to enhance the living standards of ordinary people."

Heterodox Views of Money and Modern Monetary Theory (MMT) by Phil Armstrong (York College) 2015

https://www.youtube.com/watch?v=d57M6ATPZIE

PhilM , March 9, 2017 at 2:08 pm

Hear, hear!

A new socio-political reality is possible which throws off the shackles of the old. The government can now act as a currency issuer and pursue public purpose. Functional finance is now the order of the day. For most nations, issuing their own fiat currency under floating exchange rates the situation is different to the days of fixed exchange rates. Since the gold window closed a different core reality exists – one which, potentially at least, provides governments with significantly more scope to enact policies which benefit society.

What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda: to undermine the mores underlying centuries of private-property-based liberal capitalism. Those mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something, and so representative democracy and property rights, which are the keys to a functioning productive civil society and underlie all human progress for eight hundred years, can survive a bit longer.

The very real and useful core of MMT, which describes what we see happening since the gold standard fell, and is therefore unimpeachable from a certain objective turn of mind, is Janus-faced. On the one hand, it acknowledges what the Framers knew intuitively when they gave the Federal government the power of issuing money: the sovereign makes the money. On the other, as often used here, and especially in your comment, it is a rationale for a government unrestrained by property rights and representative constraints on its power of expenditure. That will not end well, simply because it will not last long, and it will end in a military despotism or landed aristocracy (if you're lucky). Because it always has, and you are not going to change that, are you?

Jim , March 9, 2017 at 4:25 pm

In one of the recently discovered lectures (1940) by Karl Polanyi, in referring to post-war Europe (post 1918) he argued:

"The alternative was between an integration of society through political power on a democratic basis, or if democracy proved too weak, integration on an authoritarian basis in a totalitarian society, at the price of the sacrifice of democracy."

It is still the same issue today which PhilM nicely illuminates when he states: "..What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda to undermine the mores underlying centuries of private-property-based liberal capitalism. These mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something "

The national security state already has a potentially totalitarian hold on us and in the future the MMT scenario "as a rationale for a government unrestrained by property rights and representative constraints on its powers of expenditure" might nicely finish us off.

It would no longer be the neo-liberal present where the whole of society must be subordinated to the needs of the market system, but the other extreme, where the whole of society must be subordinated to the needs of the state supposedly working in the "public interest."

PhilM , March 9, 2017 at 5:48 pm

Thank you for your reply. You said it better than I did, especially with the citation of Polanyi, one of my personal heroes.

Grebo , March 9, 2017 at 7:27 pm

it is designed and propounded with an agenda: to undermine the mores underlying centuries of private-property-based liberal capitalism.

You say that like it's a bad thing :-)

the last barrier to prevent state capitalism from becoming completely authoritarian

State capitalism? If this is supposed to be a topical reference I don't get it.

as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something

How so? Did "taxation" restrain Bush from spending trillions on invasions? Can't you have representation without taxation?

representative democracy and property rights, which are the keys to a functioning productive civil society and underlie all human progress for eight hundred years

I thought that was the Catholic Church
"Property rights"-the private monopolisation of the gifts of nature-at least in their traditional form, seem to me to be the third fundamental flaw in our political economy, along with Capitalism (narrowly defined) and our bogus monetary ludibrium. We need a new Church.

Allegorio , March 9, 2017 at 2:20 pm

MMT: great stuff. With you 100%. The issue is corruption and this culture of privilege and corruption we live in. You better believe the government will be issuing currency for other than the public interest. The fact is we live in an MMT economy now, it's just that the currency created by the government is being passed out to the ethnically privileged .001%. The talk of deficits and national debt is all a smoke screen to cover up this fact. It is way past time to educate the masses on this theme, kudos to Michael Hudson & Steve Keen.

Katy , March 9, 2017 at 12:31 pm

J is for Junk Economics: Amazon's "#1 New Release in Business & Professional Humor." Facepalm.

Sluggeaux , March 9, 2017 at 1:02 pm

OMFG, you're not making this up!

Bezos really is a contraction of Beelzebub

Disturbed Voter , March 9, 2017 at 12:54 pm

One part of society parasitical on the productive part .. starts small. $1 per $1000, then $10 per $1000 until it gets to $1000 per $1000. Neither bought politicians, nor bought citizens, stays bought.

Of course we shouldn't expect women and children to work that is destructive of reproduction and child raising. Some women should work some children should work but only a few. Otherwise obvious system dynamics will reduce the net population in quality and quantity.

djrichard , March 9, 2017 at 1:13 pm

You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation.

This is a zero-sum game for the elite. They're already soaking us. If they soak us on tolls, they'll have to take less money soaking us another way.

In contrast, Fed Gov reducing spending is not a zero-sum game for the elite. That means less money to be soaked up from the public. Unless of course, the public compensates by taking out more private debt. In which case, ka ching for the elite again.

That said, I don't think the mind-set really is to reduce Fed Gov spending. Rather, the mind-set is to reduce entitlements so that other Fed Gov spending can be increased, namely on defense, intelligence communities, etc. And I really don't think the elite have much of a dog in that fight. After all, the elite suck up all the money regardless of how it's spent by the Fed Gov. So my guess is that this campaign to reduce entitlement spending is being waged by the other agencies in the Fed Gov and the eco-system that feeds off them.

susan the other , March 9, 2017 at 1:28 pm

In the 1980s Greenspan pushed for massive increases in FICA. And Reagan spent it on Star Wars. Recently I've read that that wasn't really a missile shield project but a cyber technology project. Today we read that the CIA has disseminated all this accumulated and obsolete technology; leased it out to private contractors; or variously bribed the Europeans with it. Etc. Fast-back to the 1930s and FDR took the same SS money for WW2. In the 60s, JFK agonized about the budget and the value of the dollar and could see no reason to go into Vietnam, but oops. LBJ bulldozed through Congress our Medicare plan, which upped SS contributions, and he went promptly into Vietnam, spending it all and stuffing the retirement funds with treasuries. Shouldn't we all be looking at how transitory these achievements (or disasters) have been. Maybe nothing more than boosting the economy for a few years every other decade or so. Money could achieve much more than this if we accepted as fact the fleeting benefits of misspending it and instead concentrated on a steady economy benefiting all. Hubris rules, but it doesn't ever make things better.

Jim Haygood , March 9, 2017 at 1:34 pm

'it's a myth that Social Security should be pre-funded by its beneficiaries' - Sharmini Peries

If it's a myth, it's one that's incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.

After about a century of experimentation, we know how to fund pensions securely: estimate the present value of the future liability using an appropriate discount rate, and then keep it funded on a current basis.

Social Security grossly violates this model in three respects. First, it is only about 20 percent funded, headed for zero in 2034 according to its own trustees.

Second, because Social Security does not avail itself of the Capital Asset Pricing Model developed in the 1960s, it invests in low-return Treasuries, which causes required contributions to be cruelly high. Had Soc Sec been invested in a 60/40 mix of stocks and bonds, FICA taxes could have been half their current level and funded higher benefits.

Third and finally, Social Security is treated as an off balance sheet obligation in the Financial Report of the United States. Unlike the legally enforceable obligation of private pension sponsors to make good on their promises, the government refuses to take responsibility and put itself on the hook. The Supreme Court has ruled that Social Security essentially is a welfare program, which Congress can cut back or cancel at will. So much for "security" - there isn't any.

Social Security is part of a general pattern of government taking a sleazy, second-rate approach to its social promises, by exempting itself from well-established prudential rules mandating best practices. Frank Roosevelt wanted his constituents to be forever dependent on the kindness of perfidious politicians. He got his wish.

a different chris , March 9, 2017 at 4:18 pm

>we know how to fund pensions securely: estimate the

C'mon Jim you can do better than that. Here is dictionary.com, do you see the problem with your statement?

know:
verb (used with object), knew, known, knowing.
1. to perceive or understand as fact or truth; to apprehend clearly and with certainty:

estimate
verb (used with object), estimated, estimating.
1.to form an approximate judgment or opinion regarding the worth, amount, size, weight, etc., of; calculate approximately:

ajea , March 9, 2017 at 8:15 pm

If it's a myth, it's one that's incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.

You're incorrect.

Read Luther Gulick's memo to FDR. Read to the end:
https://www.ssa.gov/history/Gulick.html

Jim A , March 9, 2017 at 2:10 pm

When you lend money to the profligate, they are happy. When you ask to be repaid, they are furious. It turns out that is just as true when workers who payroll taxes on their whole income "lend money" to the wealthy by paying excess amounts to the SS trust fund which in turn, enabled tax cuts for the wealthy. The wealthy are incensed that the SS trust fund, which has "lent" trillions to the treasury is now demanding to be "repaid" with interest.

Tim , March 9, 2017 at 2:40 pm

That's the trick about S.S. that gets me. You cannot pay in 15% of your income with some amount of reasonable compounding interest for your entire career and not have a massive nest egg at the end. But the math is done straight up such that there never was interest on the payments, so we are entitled to very little, despite every other form of investing on the planet returning some kind of interest.

It's one of the reasons I argue for a Sovereign Wealth Fund to retain and manage all SS recepts, so at least the contributions and return on investment are accounted for in plain sight, so nobody can bait and switch.

And heaven forbid the Sovereign wealth fund could also be used as government bank that loans (our) money direct to citizens, without private banks getting a cut.

It ain't utopia, but it is a way of playing their game and still winning results and the pr war even in the face of the most anti-sociailst conservative.

Tim , March 9, 2017 at 2:33 pm

We need to keep up with the Feudalism 2.0 Moniker.

We continue to refine society towards only 4 classes of people:
Warlords/Politicians
Productivity Owners
Rent Extractors
The Oppressed

Over the last 35 years the productivity owners have been making a run, vacuuming up all the productivity improvements leaving everybody else stagnant, before considering inflation, but with the robotic age coming, they are just getting warmed up.

a different chris , March 9, 2017 at 4:23 pm

>but with the robotic age coming, they are just getting warmed up.

Hmmm.

Henry Ford II: Walter, how are you going to get those robots to pay your union dues?
Walter Reuther: Henry, how are you going to get them to buy your cars?

Apparently not an actual quote, but one Reuther certainly endorsed.

You know "they" are just planning to kill 2/3 of us off, don't you? The elite are evil and sure many of them are stupid, but far from all of them.

ChrisAtRU , March 9, 2017 at 4:07 pm

"You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy."

Spot.On.

From Marx's "Capital", Chapter 26 (The Secret of Primitive Accumulation):

"The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus.

The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation. "

[Jan 24, 2017] One of the simplest ways to commit a political suicide for Trump is to touch Medicare or Social Security.

Jan 24, 2017 | economistsview.typepad.com
pgl : , January 24, 2017 at 09:03 AM
Trump's nominee to head OMB is Mick Mulvaney - someone who sees as a high priority slashing Social Security and Medicare:

http://talkingpointsmemo.com/dc/watch-live-mick-mulvaney-confirmation-hearing

One would think progressives would make it a high priority that this appointment does not go through.

libezkova -> pgl... , -1
One of the simplest ways to commit a political suicide for Trump is to touch Medicare or Social Security.

[Jan 21, 2017] The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

Notable quotes:
"... Wasn't there a recent discussion about how 401(k)s are a sham? ..."
"... Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers. ..."
"... from Miles Kimball the supply-sider ..."
"... how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more. ..."
Jan 21, 2017 | economistsview.typepad.com
Peter K. : , January 20, 2017 at 04:26 AM
"As I explained in my May 14, 2015 column "How Increasing Retirement Saving Could Give America More Balanced Trade":

I talked to Madrian and David Laibson, the incoming chair of Harvard's Economics Department (who has worked with her on studying the effects of automatic enrollment) on the sidelines of a Consumer Financial Protection Bureau research conference last week. Using back-of-the-envelope calculations based on the effects estimated in this research, they agreed that requiring all firms to automatically enroll all employees in a 401(k) with a default contribution rate of 8% could increase the national saving rate on the order of 2 or 3 percent of GDP."

Wasn't there a recent discussion about how 401(k)s are a sham?

Progressive neoliberals....

Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers.

Peter K. -> Peter K.... , January 20, 2017 at 04:26 AM
from Miles Kimball the supply-sider
Peter K. -> Peter K.... , January 20, 2017 at 04:41 AM
how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more.
Peter K. -> Peter K.... , -1
The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

[Jan 05, 2017] How 401K screw american people

Jan 05, 2017 | economistsview.typepad.com
Fred C. Dobbs : January 04, 2017 at 08:41 AM , 2017 at 08:41 AM
Sorry about that whole 401(k) mess
http://www.bostonglobe.com/opinion/2017/01/03/sorry-about-that-whole-mess/thg2cxOBY7dnbnnpLVyS4L/story.html?event=event25
via @BostonGlobe - Dante Ramos - January 3

In the nondescript world of public policy, oopsies don't get any bigger than this.

In a remarkable story (#) in Tuesday's Wall Street Journal, several early champions of 401(k)s, the now-ubiquitous tax-deferred plans that help workers sock away retirement funds, expressed regrets for what their efforts later yielded: Private pensions have withered. Individual workers now shoulder risks that large corporations once bore. Investment fees chip away at account owners' returns. The typical American worker is badly underprepared for old age.

"I helped open the door for Wall Street to make even more money than they were already making," said benefits consultant Ted Benna - sometimes known, according the Journal's Timothy W. Martin, as the "father of the 401(k)." "We weren't social visionaries," said former Johnson & Johnson human-resources executive Herbert Whitehouse, who helped popularize the plans. "The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, the former head of the American Society of Pension Actuaries.

Whoops.

Older Americans' fear of leaving the workforce with nothing saved surely added to the economic unease that Donald Trump channeled in his campaign. ...

Instead, a Republican Congress and the incoming Republican president are preparing to repeal Obamacare and replace it with individual health savings accounts, or something else, or perhaps nothing at all. At the least, the new regime in Washington should heed a lesson from the 401(k) debacle: When you fiddle with the safety net, you should consider how people and corporations behave in real life. ...


#- The original champions of
the 401(k) lament the revolution
they started http://www.wsj.com/articles/the-champions-of-the-401-k-lament-the-revolution-they-started-1483382348
via @WSJ - Timothy W. Martin - January 2

Herbert Whitehouse was one of the first in the U.S. to suggest workers use a 401(k). His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life.

Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start.

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. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979.

"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.

Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.

"The great lie is that the 401(k) was capable of replacing the old system of pensions," says former American Society of Pension Actuaries head Gerald Facciani, who helped turn back a 1986 Reagan administration push to kill the 401(k). "It was oversold."

Misgivings about 401(k) plans are part of a larger debate over how best to boost the savings of all Americans. Some early 401(k) backers are now calling for changes that either force employees to save more or require companies to funnel additional money into their workers' retirement plans. Current regulations provide incentives to set up voluntary plans but don't require employees or companies to take any specific action. ...

The advent of 401(k)s gave individuals considerable discretion as to how and even whether they would save for retirement. Just 61% of eligible workers are currently saving, and most have never calculated how much they would need to retire comfortably, according to the Employee Benefit Research Institute and market researcher Greenwald & Associates.

Financial experts recommend people amass at least eight times their annual salary to retire. All income levels are falling short. For people ages 50 to 64, the bottom half of earners have a median income of $32,000 and retirement assets of $25,000, according to an analysis of federal data by the New School's Schwartz Center for Economic Policy Analysis in New York. The middle 40% earn $97,000 and have saved $121,000, while the top 10% make $251,000 and have $450,000 socked away.

Savings gap

And the savings gap is worsening. Fifty-two percent of U.S. households are at risk of running low on money during retirement, based on projections of assets, home prices, debt levels and Social Security income, according to Boston College's Center for Retirement Research. That is up from 31% of households in 1983. Roughly 45% of all households currently have zero saved for retirement, according to the National Institute on Retirement Security.

More than 30 million U.S. workers don't have access to any retirement plan because many small businesses don't provide one. People are living longer than they did in the 1980s, fewer companies are covering retirees' health-care expenses, wages have largely stagnated and low interest rates have diluted investment gains.

"I go around the country. The thing that people are terrified about is running out of money," says Phyllis C. Borzi, a U.S. Labor Department assistant secretary and retirement-income expert.

Some savers underestimate how much they will need to retire or accumulate too much debt. Lucian J. Bernard is among those wishing he had a do-over. The 65-year-old lawyer from Edgewood, Ky., doesn't have much savings beyond a small company pension and Social Security. He cashed out a 401(k) in the 1980s to fund law school and never replenished it. He implores his daughter to start saving.

"It's a little easier saying it than doing it," he says.

Defenders of the 401(k) say it can produce an ample retirement cache if employers provide access to one and people start saving early enough. People in their 60s who have been socking away money in 401(k)s for multiple decades have average savings of $304,000, according to the Employee Benefit Research Institute and Investment Company Institute.

"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."

The 401(k) can be traced back to a 1978 decision by Congress to change the tax code-at line 401(k)-so top executives had a tax-free way to defer compensation from bonuses or stock options.

At the time, defined benefit-pension plans, which boomed in popularity after World War II, were the most common way workers saved for retirement.

A group of human-resources executives, consultants, economists and policy experts then jumped on the tax code as a way to encourage saving. Ted Benna, a benefits consultant with the Johnson Companies, was one of the first to propose such a move, in 1980, leading some in the industry to refer to him as the father of the 401(k).

Selling it to workers was a challenge. Employees could put aside money tax-free, but they were largely responsible for their own saving and investment choices, meaning they could profit or lose big based on markets. They also took home less money with each paycheck, which is why 401(k)s were commonly called "salary reduction plans."

Traditional pension plans, on the other hand, had weaknesses: Company bankruptcies could wipe them out or weaken them, and it was difficult for workers to transfer them if they switched employers.

Companies embraced the 401(k) because it was less expensive and more predictable to fund than pensions. Company pay-ins ended when an employee left or retired.

Employees, for their part, were drawn to an option that could provide more than a company's pension ever would. Two bull-market runs in the 1980s and 1990s pushed 401(k) accounts higher.

Economist Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis, says she offered assurances at union board meetings and congressional hearings that employees would have enough to retire if they set aside just 3% of their paychecks in a 401(k). That assumed investments would rise by 7% a year.

"There was a complete overreaction of excitement and wow," says Kevin Crain, who as a young executive at Fidelity Investments in the 1990s recalled complaints about some of its funds underperforming the S&P 500. "People were thinking: Forget that boring pension plan."

Two recessions in the 2000s erased those gains and prompted second thoughts from some early 401(k) champions. Markets have since recovered, but many savers are still behind where they need to be. ...

run75441 said in reply to Fred C. Dobbs... , January 04, 2017 at 10:42 AM
Yeah, I saw that too.

"An oops, you are screwed moment. We are sorry!"

sanjait said in reply to Fred C. Dobbs... , January 04, 2017 at 12:39 PM
Well, they could probably take some small solace in the fact that traditional pensions were going to die off anyway.

We no longer live in a world where lifetime employment is typical. The majority of workers change jobs multiple times in life.

Fred C. Dobbs -> Observer... , January 04, 2017 at 02:58 PM
'People don't use them.'

That seems to be the point of the article. People find easy excuses/good reasons/ essentials require them to pull out their 401k funds. That is sooo wrong!

But, also, that's life.

ilsm -> Observer... , January 04, 2017 at 04:24 PM
Folks under forty ought to invest in Soylent Green stock.
Libezkova -> Observer... January 04, 2017 at 10:18 PM

Yes it is possible to create a sizeable retirement fund if you have a stable job with 401K plan. But many people don't and changing companies create difficulties for them (and associated losses).

Also you intimately depend on the stability of dollar during retirement as your holdings are not indexed to inflation as for Social Security and a typical pension. As well on the stability of bond and stock market. Then there is such phenomenon as inherent instability of financial sector under neoliberalism (aperiodic market crashes).

Also you do not have the time to follow the market so you either use index funds (where returns can be wiped out due to sharp recession and associated market crush close to your retirement) or you run unbalanced portfolio and eclectic trading strategy with oversize risks. Especially if your investing is fashion/sentiment driven.

Getting something like 2008 events on your first year of retirement can cut your funds almost in one third if not more, if you panic and sell at low point.

I think you do not understand the most despicable part about 401k: It offload all the risk to individual and remunerates (wildly) Wall Street, which became the middleman between the man and his money, charging an annual fee.

This offloading of all the risks to individual is an immanent feature of neoliberalism, so we have what we have. In this sense 401K is a perfect neoliberal invention, perfect for redistribution of wealth up.

Also many people are not trained to distrust all wealth management and fund manager types and get into various types of traps, when fool and his money are soon parted.

Let me remind you what happened with 401K accounts in 2008 -- they dropped for a year around 30%. And similar volatility you can experience several times during your lifespan, on average probably once is a decade, or even more often. And quick recovery like in 2003 or 2009-2010 is not guaranteed at all.

There is also element of adverse selection in many if not most 401K plans companies providing 401K plan often hire intermediaries which handle 401K for some other services, and as a result 401k provide limited selection of expensive and inappropriate for retirement funds which are not suitable for balanced portfolio. Usually 401K are overloaded with stock funds, some with high fees and risky strategy (international stock market, emerging markets, etc).

A good example here is Wall Mart which behaves as for 401K as a real predator hunting its pray in a pack with another predator (Merrill Lynch)

If all 401K participants are allowed to invest in 30 year government bonds without any financial change (but not via evergreen bond funds, who are in reality money vampires) that will be a slight improvement over the current situation were bond funds provided are often real financial sharks (say 0.5% annually on 2% return or 25% of nominal return). Which is somewhat true even for Vanguard (to say nothing about Fidelity). These ghastly, lazy, incompetent predators don't care much about 401K investors.

401K also created that whole parasitic branch of financial industry, with a lot of people employed. But to manage a sizable mutual fund is not a very exiting job either, if you try to do it honestly. There are way too many variables beyond your control.

Employee pensions funds can do the same staff more economically (but they require higher participation from the companies -- around 10% instead of 3-4% matching in 401K). So along with offloading of risk switching to 401K also confiscated a part of your retirement fund.

401K funds are also not free from fraud (hidden fees) and mismanagement. The 401K plans typically promote neoliberal "Cult of equities" which benefits Wall Street and large speculators, like Goldman Sacks. As well of day traders and HFT as they create daily volume.

And last but not least 401K created those huge companies like Fidelity and Vanguard which dominate the boards of most publicly trading companies, making the USA a classic case of rentier capitalism (monopolization of holding of stocks). They also create a perfect playing field for shorting shocks and facilitating derivatives such an options.
And this "greed is good" manta is corrupting even better of them such as Vanguard, which now started offering some shady services and such.

[Jan 04, 2017] The switch to 401k impoverished most pensioners, benefitted only few at the top

Notable quotes:
"... I helped open the door for Wall Street to make even more money than they were already making ..."
"... "The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, the former head of the American Society of Pension Actuaries. ..."
Jan 04, 2017 | economistsview.typepad.com
Fred C. Dobbs : , January 04, 2017 at 08:41 AM
Sorry about that whole 401(k) mess
http://www.bostonglobe.com/opinion/2017/01/03/sorry-about-that-whole-mess/thg2cxOBY7dnbnnpLVyS4L/story.html?event=event25
via @BostonGlobe - Dante Ramos - January 3

In the nondescript world of public policy, oopsies don't get any bigger than this.

In a remarkable story (#) in Tuesday's Wall Street Journal, several early champions of 401(k)s, the now-ubiquitous tax-deferred plans that help workers sock away retirement funds, expressed regrets for what their efforts later yielded: Private pensions have withered. Individual workers now shoulder risks that large corporations once bore. Investment fees chip away at account owners' returns. The typical American worker is badly underprepared for old age.

" I helped open the door for Wall Street to make even more money than they were already making ," said benefits consultant Ted Benna - sometimes known, according the Journal's Timothy W. Martin, as the "father of the 401(k)." "We weren't social visionaries," said former Johnson & Johnson human-resources executive Herbert Whitehouse, who helped popularize the plans. "The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, the former head of the American Society of Pension Actuaries.

Whoops.

Older Americans' fear of leaving the workforce with nothing saved surely added to the economic unease that Donald Trump channeled in his campaign. ...

Instead, a Republican Congress and the incoming Republican president are preparing to repeal Obamacare and replace it with individual health savings accounts, or something else, or perhaps nothing at all. At the least, the new regime in Washington should heed a lesson from the 401(k) debacle: When you fiddle with the safety net, you should consider how people and corporations behave in real life. ...


#- The original champions of
the 401(k) lament the revolution
they started http://www.wsj.com/articles/the-champions-of-the-401-k-lament-the-revolution-they-started-1483382348
via @WSJ - Timothy W. Martin - January 2

Herbert Whitehouse was one of the first in the U.S. to suggest workers use a 401(k). His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life.

Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start.

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. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979.

"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.

Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.

"The great lie is that the 401(k) was capable of replacing the old system of pensions," says former American Society of Pension Actuaries head Gerald Facciani, who helped turn back a 1986 Reagan administration push to kill the 401(k). "It was oversold."

Misgivings about 401(k) plans are part of a larger debate over how best to boost the savings of all Americans. Some early 401(k) backers are now calling for changes that either force employees to save more or require companies to funnel additional money into their workers' retirement plans. Current regulations provide incentives to set up voluntary plans but don't require employees or companies to take any specific action. ...

The advent of 401(k)s gave individuals considerable discretion as to how and even whether they would save for retirement. Just 61% of eligible workers are currently saving, and most have never calculated how much they would need to retire comfortably, according to the Employee Benefit Research Institute and market researcher Greenwald & Associates.

Financial experts recommend people amass at least eight times their annual salary to retire. All income levels are falling short. For people ages 50 to 64, the bottom half of earners have a median income of $32,000 and retirement assets of $25,000, according to an analysis of federal data by the New School's Schwartz Center for Economic Policy Analysis in New York. The middle 40% earn $97,000 and have saved $121,000, while the top 10% make $251,000 and have $450,000 socked away.

Savings gap

And the savings gap is worsening. Fifty-two percent of U.S. households are at risk of running low on money during retirement, based on projections of assets, home prices, debt levels and Social Security income, according to Boston College's Center for Retirement Research. That is up from 31% of households in 1983. Roughly 45% of all households currently have zero saved for retirement, according to the National Institute on Retirement Security.

More than 30 million U.S. workers don't have access to any retirement plan because many small businesses don't provide one. People are living longer than they did in the 1980s, fewer companies are covering retirees' health-care expenses, wages have largely stagnated and low interest rates have diluted investment gains.

"I go around the country. The thing that people are terrified about is running out of money," says Phyllis C. Borzi, a U.S. Labor Department assistant secretary and retirement-income expert.

Some savers underestimate how much they will need to retire or accumulate too much debt. Lucian J. Bernard is among those wishing he had a do-over. The 65-year-old lawyer from Edgewood, Ky., doesn't have much savings beyond a small company pension and Social Security. He cashed out a 401(k) in the 1980s to fund law school and never replenished it. He implores his daughter to start saving.

"It's a little easier saying it than doing it," he says.

Defenders of the 401(k) say it can produce an ample retirement cache if employers provide access to one and people start saving early enough. People in their 60s who have been socking away money in 401(k)s for multiple decades have average savings of $304,000, according to the Employee Benefit Research Institute and Investment Company Institute.

"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."

The 401(k) can be traced back to a 1978 decision by Congress to change the tax code-at line 401(k)-so top executives had a tax-free way to defer compensation from bonuses or stock options.

At the time, defined benefit-pension plans, which boomed in popularity after World War II, were the most common way workers saved for retirement.

A group of human-resources executives, consultants, economists and policy experts then jumped on the tax code as a way to encourage saving. Ted Benna, a benefits consultant with the Johnson Companies, was one of the first to propose such a move, in 1980, leading some in the industry to refer to him as the father of the 401(k).

Selling it to workers was a challenge. Employees could put aside money tax-free, but they were largely responsible for their own saving and investment choices, meaning they could profit or lose big based on markets. They also took home less money with each paycheck, which is why 401(k)s were commonly called "salary reduction plans."

Traditional pension plans, on the other hand, had weaknesses: Company bankruptcies could wipe them out or weaken them, and it was difficult for workers to transfer them if they switched employers.

Companies embraced the 401(k) because it was less expensive and more predictable to fund than pensions. Company pay-ins ended when an employee left or retired.

Employees, for their part, were drawn to an option that could provide more than a company's pension ever would. Two bull-market runs in the 1980s and 1990s pushed 401(k) accounts higher.

Economist Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis, says she offered assurances at union board meetings and congressional hearings that employees would have enough to retire if they set aside just 3% of their paychecks in a 401(k). That assumed investments would rise by 7% a year.

"There was a complete overreaction of excitement and wow," says Kevin Crain, who as a young executive at Fidelity Investments in the 1990s recalled complaints about some of its funds underperforming the S&P 500. "People were thinking: Forget that boring pension plan."

Two recessions in the 2000s erased those gains and prompted second thoughts from some early 401(k) champions. Markets have since recovered, but many savers are still behind where they need to be. ...

run75441 -> Fred C. Dobbs... , -1
Yeah, I saw that too.

"An oops, you are screwed moment. We are sorry!"

[Dec 26, 2016] The Quiet War on Medicaid - The New York Times

Dec 26, 2016 | www.nytimes.com
--> The Quiet War on Medicaid

By GENE B. SPERLING DEC. 25, 2016

Continue reading the main story Share This Page Continue reading the main story

Progressives have already homed in on Republican efforts to privatize Medicare as one of the major domestic political battles of 2017. If Donald J. Trump decides to gut the basic guarantee of Medicare and revamp its structure so that it hurts older and sicker people, Democrats must and will push back hard . But if Democrats focus too much of their attention on Medicare, they may inadvertently assist the quieter war on Medicaid - one that could deny health benefits to millions of children, seniors, working families and people with disabilities.

Of the two battles, the Republican effort to dismantle Medicaid is more certain. Neither Mr. Trump nor Senate Republicans may have the stomach to fully own the political risks of Medicare privatization. But not only have Speaker Paul D. Ryan and Tom Price, Mr. Trump's choice for secretary of health and human services, made proposals to deeply cut Medicaid through arbitrary block grants or "per capita caps," during the campaign, Mr. Trump has also proposed block grants.

If Mr. Trump chooses to oppose his party's Medicare proposals while pushing unprecedented cuts to older people and working families in other vital safety-net programs, it would play into what seems to be an emerging strategy of his: to publicly fight a few select or symbolic populist battles in order to mask an overall economic and fiscal strategy that showers benefits on the most well-off at the expense of tens of millions of Americans.

Without an intense focus by progressives on the widespread benefits of Medicaid and its efficiency, it will be too easy for Mr. Trump to market the false notion that Medicaid is a bloated, wasteful program and that such financing caps are means simply to give states more flexibility while "slowing growth." Medicaid's actual spending per beneficiary has, on average, grown about 3 percentage points less each year than it has for those with private health insurance, according to the Center on Budget and Policy Priorities - a long-term trend that is projected to continue. The arbitrary spending caps proposed by Mr. Price and Mr. Ryan would cut Medicaid to the bone, leaving no alternative for states but to impose harsh cuts in benefits and coverage.

Continue reading the main story Advertisement Continue reading the main story

Mr. Price's own proposal, which he presented as the chairman of the House budget committee, would cut Medicaid by about $1 trillion over the next decade. This is on top of the reduction that would result from the repeal of the Affordable Care Act, which both Mr. Trump and Republican leaders have championed. Together, full repeal and block granting would cut Medicaid and the Children's Health Insurance Program funding by about $2.1 trillion over the next 10 years - a 40 percent cut.

Photo
Tom Price, President-elect Trump's choice for secretary of health and human services, has made proposals to deeply cut Medicaid. Credit Joshua Roberts/Reuters

Even without counting the repeal of the A.C.A. coverage expansion, the Price plan would cut remaining federal Medicaid spending by $169 billion - or one-third - by the 10th year of his proposal, with the reductions growing more severe thereafter. The Henry J. Kaiser Family Foundation estimated that a similar Medicaid block grant proposed by Mr. Ryan in 2012 would lead to 14 million to 21 million Americans' losing their Medicaid coverage by the 10th year, and that is on top of the 13 million who would lose Medicaid or children's insurance program coverage under an A.C.A. repeal.

The emerging Republican plan to "repeal, delay and replace" the A.C.A. seeks to further camouflage these harmful cuts. Current Republican plans to eliminate the marketplace subsidies and A.C.A. Medicaid expansion in 2019 would create a health care cliff where all of the Medicaid funds and subsidies for the A.C.A. expansion would simply disappear and 30 million people would lose their health care.

Advertisement Continue reading the main story

In the face of such a manufactured crisis, the Trump administration could cynically claim to be increasing Medicaid funding by offering governors a small fraction of the existing A.C.A. expansion back as part of a block grant. No one should be deceived. Maintaining a small fraction of the current Medicaid expansion within a tightly constrained block grant is not an increase.

Some might whisper that these cuts would be harder to beat back because their impact would fall on those with the least political power. Sweeping cuts to Medicaid would hurt tens of millions of low-income and middle-income families who had a family member with a disability or were in need of nursing home care. About 60 percent of the costs of traditional Medicaid come from providing nursing home care and other types of care for the elderly and those with disabilities.

While Republicans resist characterizations of their block grant or cap proposals as tearing away health benefits from children, older people in nursing homes or middle-class families heroically coping with children with serious disabilities, the tyranny of the math does not allow for any other conclusion. If one tried to cut off all 30 million poor kids now enrolled in Medicaid, it would save 19 percent of the program's spending. Among the Medicaid programs at greatest risk would be those optional state programs that seek to help middle-income families who become "medically needy" because of the costs of having a child with a serious disability like autism or Down syndrome.

Democrats at all levels of government must aggressively communicate the degree to which these anodyne-sounding proposals would lead to an assault on health care for those in nursing homes and for working families straining to deal with a serious disability, as well as for the poorest Americans. With many Republican governors and local hospitals also likely to be victimized by the proposals of Mr. Ryan and Mr. Price, this fight can be both morally right and politically powerful . Republicans hold only a slight majority in the Senate. It would take only three Republican senators thinking twice about the wisdom of block grants and per capita caps to put a halt to the coming war on Medicaid.

Gene B. Sperling was director of the National Economic Council from 1996 to 2001 and from 2011 until 2014.

[Dec 23, 2016] Republicans try link cutting Social Security with balancing budget but they face a fundamental problem with their math duto to need to granfather people older then 55

Just doubling the ceiling for SS contributions will sove the problem. $120K is too low.
Dec 23, 2016 | economistsview.typepad.com
likbez : December 23, 2016 at 04:07 PM

From
"One neat trick to stop Social Security 'Reform'"
http://angrybearblog.com/2016/12/one-neat-trick-to-stop-social-security-reform.html
=== quote ===
Republicans constantly try to bring Social Security into ongoing debates about 'Balanced Budgets'. But they face a fundamental problem with their math. For a variety of reasons, some quite reasonable and others nakedly political (seniors vote) nearly every 'Reform' proposal out there promises to hold 55 and older harmless. Meaning you can't have any more than miniscule effects on Cost projections until today's 54′s and younger start retiring. Except for a handful of early retirees that event happens 11+ years in the future, which is to say outside the 10 year Budget Scoring window.

You can't have a fix to a problem scored over 10 years with a solution starting Year 11. Sure the 'Reformers' will blather about "Infinite Future Horizons". But any proposal that spares current seniors from cuts will score close to zero by CBO and JCT. You just have to count years on your fingers.
... ... ...

GOP plans to "reform" Social Security often take this form

1. Américas $20 trillion public debt is unsustainable

2. Current Budget Deficits add to that debt

So far so good

3. Social Security must be part of that discussion

4. 55 and orders must be shielded from changes that allow them no time to adjust

5. (The Bush/Krasting argument) Payrolll tax increases across the board are neither politically possible nor econimically wise

All three of these are doubtful. This post points out that 2 and 3 +4 (2nd edit) are incompatible within a structure that assumes 10 year budget scoring. Argue or acknowledge that specific point and we can move on.
... ... ..
GOP point one is interesting on several fronts. One it is debatable on its own terms. It it is not clear that current Public Debt is unsustainable on a percentage of GDP basis, especially when you take that in the form of Debt Service at current and projected 10 year rates. A $10 trillion debt at 8% (roughly Bush era) is twice as expensive as a $20 trillion debt at 2% in debt service terms and assuming principal rollover. Simply put Obama years have seen a massive refi of Public Debt. Much credit for which belongs to the Feds QE1 and QE 2.

... ... ..

Jim A, December 15, 2016 11:31 am

Of course that 22% benefit cut is an illusion created by thinking that the SS trust fund is something more substantial than your left pocket borrowing from your right pocket and giving it IOUs.

Assuming that we were to simply run out the clock and make no changes to SS until the trust fund ran out. On the day before the trust fund ran out we would have combined general revenues and government borrowing sufficient to redeem the special, non-negotiable bonds held in the trust fund. On the day afterwards, the general revenue and the ability to the US treasury to borrow money wouldn't have changed. Under current law we would at that point be forced to cut benefits to all retirees by 22%.

Presumably that 22% of revenue that was NOT being spent to repay the trust fund would be applied as deficit reduction. Or used for tax cuts or new discretionary spending. Of course those are all political impossibilities, and would never happen.

It is important to the Republicans that want to reform SS that people never realize that we can afford to pay the shortfall in SS revenues from the treasury. Because once people realize that, they will be more comfortable with that than they will be with the alternatives.

[Dec 18, 2016] Will Donald Trump Cave on Social Security

First Bush II bankrupted the country by cutting taxes for rich and unleashing Iraq war. Then Republicans want to cut Social Securty to pay for it
Notable quotes:
"... His nominee to run the Department of Health and Human Services, Tom Price, a Republican congressman from Georgia, has been a champion of cuts to all three of the nation's large social programs - Medicare, Medicaid and Social Security. When discussing reforms to Social Security, he has ignored ways to bring new revenue into the system while emphasizing possible benefit cuts through means-testing, private accounts and raising the retirement age. ..."
"... But Mr. Price, who currently heads the House Budget Committee, has found a way to cut Social Security deeply without Congress and the president ever having to enact specific benefit cuts, like raising the retirement age. ..."
"... Mr. Trump's hands-off approach to Social Security during the campaign was partly a strategic gesture to separate him from other Republican contenders who stuck to the party line on cutting Social Security. But he also noted the basic fairness of a system in which people who dutifully contribute while they are working receive promised benefits when they retire. Unfortunately, he has not surrounded himself with people who will help him follow those instincts. ..."
www.nytimes.com

Donald Trump campaigned on a promise not to cut Social Security, which puts him at odds with the Republican Party's historical antipathy to the program and the aims of today's Republican leadership. So it should come as no surprise that congressional Republicans are already testing Mr. Trump's hands-off pledge.

... ... ...

As Congress drew to a close this month, Sam Johnson, the chairman of the House Social Security subcommittee, introduced a bill that would slash Social Security benefits for all but the very poorest beneficiaries. To name just two of the bill's benefit cuts, it would raise the retirement age to 69 and reduce the annual cost-of-living adjustment, while asking nothing in the way of higher taxes to bolster the program; on the contrary, it would cut taxes that high earners now pay on a portion of their benefits. Last week, Mark Meadows, the Republican chairman of the conservative House Freedom Caucus, said the group would push for an overhaul of Social Security and Medicare in the early days of the next Congress.

... ... ...

Another sensible reform would be to bring more tax revenue into the system by raising the level of wages subject to Social Security taxes, currently $118,500. In recent decades, the wage cap has not kept pace with the income gains of high earners; if it had, it would be about $250,000 today.

The next move on Social Security is Mr. Trump's. He can remind Republicans in Congress that his pledge would lead him to veto benefit cuts to Social Security if such legislation ever reached his desk. When he nominates the next commissioner of Social Security, he can choose a competent manager, rather than someone who has taken sides in political and ideological debates over the program.

What Mr. Trump actually will do is unknown, but his actions so far don't inspire confidence. By law, the secretaries of labor, the Treasury and health and human services are trustees of Social Security. Mr. Trump's nominees to head two of these departments, Labor and Treasury - Andrew Puzder, a fast-food executive, and Steve Mnuchin, a Wall Street trader and hedge fund manager turned Hollywood producer - have no government experience and no known expertise on Social Security.

His nominee to run the Department of Health and Human Services, Tom Price, a Republican congressman from Georgia, has been a champion of cuts to all three of the nation's large social programs - Medicare, Medicaid and Social Security. When discussing reforms to Social Security, he has ignored ways to bring new revenue into the system while emphasizing possible benefit cuts through means-testing, private accounts and raising the retirement age.

There is no way to mesh those ideas with Mr. Trump's pledge. But Mr. Price, who currently heads the House Budget Committee, has found a way to cut Social Security deeply without Congress and the president ever having to enact specific benefit cuts, like raising the retirement age. Recently, he put forth a proposal to reform the budget process by imposing automatic spending cuts on most federal programs if the national debt exceeds specified levels in a given year. If Congress passed Mr. Trump's proposed tax cut, for example, the ensuing rise in debt would trigger automatic spending cuts that would slash Social Security by $1.7 trillion over 10 years, according to an analysis by the Center for American Progress, a liberal think tank. This works out to a cut of $168 a month on the average monthly benefit of $1,240. If other Trump priorities were enacted, including tax credits for private real estate development and increases in military spending, the program cuts would be even deeper.

Mr. Trump's hands-off approach to Social Security during the campaign was partly a strategic gesture to separate him from other Republican contenders who stuck to the party line on cutting Social Security. But he also noted the basic fairness of a system in which people who dutifully contribute while they are working receive promised benefits when they retire. Unfortunately, he has not surrounded himself with people who will help him follow those instincts.

Susan Anderson is a trusted commenter Boston 1 hour ago
There is a simple solution to Social Security.

Remove the cap, so it is not a regressive tax. After all, Republicans appear to be all for a "flat" tax. Then lower the rate for everyone.

There is no reason why it should only be charged on the part of income that is needed to pay for necessary expenses should as housing, food, medical care, transportation, school, communications, and such. Anyone making more than the current "cap" is actually able to afford all this.

There is no reason the costs should be born only by those at the bottom of the income pyramid.

As for Republican looting, that's just despicable, and we'll hope they are wise enough to realize that they shouldn't let government mess with people's Social Security!

Thomas Zaslavsky is a trusted commenter Binghamton, N.Y. 1 hour ago
The idea hinted in the editorial that Trump has any principle or instinct that would lead him to protect benefits for people who are not himself or his ultra-wealthy class is not worthy of consideration. No, Trump has none such and he will act accordingly. (Test my prediction at the end of 2017 or even sooner; it seems the Republicans are champing at the bit to loot the government and the country fro their backers.)
Christine McM is a trusted commenter Massachusetts 2 hours ago
I wouldn't hold Trump to any of his campaign promises, given how often he changes positions, backtracks, changes subjects, or whatever. His biggest promise of all was to "drain the swamp" and we know how that turned out.

He might have a cabinet of outsiders, but they are still creatures from outside swamps. That said, if there is even the barest of hints that this is on the agenda, I can pretty much bet that in two years, Congress will completely change parties.

Imagine: cutting benefits for people who worked all their lives and depend on that money in older age, all in order to give the wealthiest Americans another huge tax cut. For a fake populist like Trump, that might sound like a great idea (he has no fixed beliefs or principles) but to his most ardent supporters, that might be the moment they finally get it: they fell for one of the biggest cons in the universe.

Rita is a trusted commenter California 2 hours ago
Given the Republican desire to shut down Medicare and Social Security, it is not hard to predict that they will do so a little at a time so that people will not notice until its too late.

But since the Republicans have been very upfront with hostility towards the social safety net, one can conclude that their supporters want to eliminate social safety net.

Mary Ann Donahue is a trusted commenter NYS 2 hours ago

RE: "To name just two of the bill's benefit cuts, it would raise the retirement age to 69 and reduce the annual cost-of-living adjustment..."

The COLA for 2017 is .03% a paltry average increase of $5 per month. There was no increase in 2016.

The formula for how the COLA is calculated needs to be changed to allow for fair increases not reductions.

Mary Scott is a trusted commenter NY 4 hours ago
Republicans have been promising to "fix" Social Security for years and now we are seeing exactly what they mean. We can see how low they're willing to stoop by their plan to cut the taxes that high earners now pay on a portion of their benefits and decimate the program for everybody else. I wouldn't be surprised if they raised SS taxes on low and middle income earners.

There has been an easy fix for Social Security for years. Simply raise the tax on income to $250,000 thousand and retirees both present and future would be on much firmer footing. Many future retirees will be moving on to Social Security without the benefit of defined pension plans and will need a more robust SS benefit in the future, not a weaker one.

Don't count on Donald Trump to come to the rescue. He seems to hate any tax more than even the most fervent anti-tax freak like Paul Ryan. Mr. Trump admitted throughout the campaign that he avoids paying any tax at all.

The Times seems to want to give Mr. Trump limitless chances to do the right thing. "Will Donald Trump Cave on Social Security" it asks. Of course he will. One has only to look at his cabinet choices and his embrace of the Ryan budget to know the answer to that question. Better to ask, "How Long Will It Take Trump To Destroy Social Security?"

At least it would be an honest question and one that would put Mr. Trump in the center of a question that will affect the economic security of millions of Americans.

serban is a trusted commenter Miller Place 4 hours ago
Cutting benefits for upper income solves nothing since by definition upper incomes are a small percentage of the population. The obvious way to solve any problem with SS is to raise taxes on upper incomes, the present cap is preposterous. People so wealthy that SS is a pittance can show their concern by simply donating the money they get from SS to charities.
david is a trusted commenter ny 4 hours ago

We can get some perspective on what Social Security privatization schemes would mean to the average SSS recipient from Roger Lowenstein' analysis of Bush's privatization scheme.

Roger Lowenstein's Times article discusses the CBO's analysis of how the Bush privatization scheme for Social Security would reduce benefits.

http://www.nytimes.com/2005/01/16/magazine/16SOCIAL.html?_r=1&amp;pagewa...

"The C.B.O. assumes that the typical worker would invest half of his allocation in stocks and the rest in bonds. The C.B.O. projects the average return, after inflation and expenses, at 4.9 percent. This compares with the 6 percent rate (about 3.5 percent after inflation) that the trust fund is earning now.

The second feature of the plan would link future benefit increases to inflation rather than to wages. Because wages typically grow faster, this would mean a rather substantial benefit cut. In other words, absent a sustained roaring bull market, the private accounts would not fully make up for the benefit cuts. According to the C.B.O.'s analysis, which, like all projections of this sort should be regarded as a best guess, a low-income retiree in 2035 would receive annual benefits (including the annuity from his private account) of $9,100, down from the $9,500 forecast under the present program. A median retiree would be cut severely, from $17,700 to $13,600. "

[Dec 15, 2016] GOP Plans to Gut Social Security naked capitalism

Notable quotes:
"... Talking Points Memo ..."
"... Social Security has succeeded because Roosevelt insisted it be paid for by the workers who would get the benefits, "so no damn politician can take it away from them." ..."
"... "These who pant after the very dust of the earth on the head of the helpless also turn aside the way of the humble; " ..."
Dec 14, 2016 | www.nakedcapitalism.com

Originally published at Angry Bear

The Republicans have opened a new assault on Social Security. At present all I know about it is what I read in a Talking Points Memo by Tierney Sneed Key House GOPer Introduces Bill With Major Cuts To Social Security .

The trouble with Sneed's article is that she does not appear to know what she is talking about. She just wrote down what some "experts" told her with no idea what the words mean.

For example, she says,

"A 65 year-old at the top of the scale, a $118,500 average earner, would see his benefits cut by 25% when he retired, compared to the current law, and that reduction would grow to 55 percent compared to current law by the time the retiree was 85 years old."

Well, which is he, "at the top of the scale" or an "average earner"?

The point is probably trivial but I point it out so you will be on your guard if you read her article.

Additionally she quotes Paul Van de Water, who is someone who actually knows that Social Security can be fixed entirely and forever by simply raising the payrolll tax one tenth of one percent per year until the balance between wage growth and growth in the cost of retirement is restored. But somehow she doesn't bother to mention this, or maybe Van De Water forgot to mention it because he favors a "tax the rich" solution without understanding that that will turn Social Security into welfare as we knew it, and lead to its ultimate destruction by those rich who would then be paying for it.

Social Security has succeeded because Roosevelt insisted it be paid for by the workers who would get the benefits, "so no damn politician can take it away from them."

But the damn politicians keep lying and journalists keep repeating the lies without spending ten minutes thinking about them. The basic "facts" about the Republican proposal, introduced by Texas Congressman Sam Johnson appear to be :

This turns Social Security into a straight welfare plan. Most people will be paying for benefits they will never get. The very poorest are promised a larger benefit for awhile until the bogus cost of living adjustment, and increased retirement age do their work. Moreover it is not clear what happens to "the rich" who lose their "side income" as they get older. And of course there is always the fun of going to the welfare office every month to prove that you don't have any hidden assets.

Meanwhile, the CRFB (Committee for a Responsible Federal Budget). an organization dedicated to the destruction of Social Security by misrepresenting the facts, is playing cute games like "use our calculator to find out how old you will be when SS runs out of funds."

But SS will never run out of funds as long as the workers are allowed to pay in advance for their own benefits. With no change at all in SS, SS will pay 80% of "scheduled benefits," but this is 80% of scheduled benefits which meanwhile have grown 25% in real value. So the GOP "plan to save SS" is out and out theft.

CRFB has another cute game: "use our calculator to design your own plan to save social security." But when I used their calculator it did not allow "increase the payroll contribution by one tenth percent (for each the worker and the employer) per year for twenty years.

There are other ways to accomplish the same end, but this seemed to be the simplest way to fit the CRFB "calculator." Someone with more time and a newer browser might want to try seeing what they get. But look at small per year increases in payroll contribution. For example, I think a 0.4% increase (combined), about two dollars per week for each the worker and the employer, should solve the problem in ten years, but I haven't done the numbers on that myself.

Meanwhile, something that calls itself "the Bipartisan Policy Center, says "Ultimately, we are going to need something that's a little more balanced between benefits saving and revenue changes in order to get a proposal that could pass Congress and get approved by the president," said Shai Akabas, director fiscal policy at the Bipartisan Policy Center."

It's hard to see how much cuts ("benefit savings") make sense to balance a dollar a week increase in the payroll tax (revenue changes), but that's the kind of thinking that "Bipartisan" gets you. "Hey folks, we can save you a dollar a week just by gutting Social Security so it becomes meaningless as insurance so workers can retire at a reasonable age."

I am getting too discouraged. As long as no one is working to tell the people how this will work for them, we are just going to stand around like sheep and watch them cut our throats.

ambrit , December 14, 2016 at 4:28 am

As someone who grew up with the promise of Social Security as a minimal income support system for my old age I can attest to the fact that when the "average" retiree, who has almost no individual savings accrued, steps in the pile of Social Security "reforms," there will be not just a wailing and gnashing of teeth.

Modern age old people no longer can rely on extended families for support. Those extended families have been fragmented by the pressures of "modern" socio-economics. This is prime territory for a demagogue.

The Twentieth Century had World War 1.0 and a subsequent "Lost Generation." It's increasingly looking like the Twentyfirst Century will have the GFC, Social Support 'Reforms' and a subsequent "Euthanized Generation."

Remember, this process will not affect just oldsters. It will suck in those closest to said oldsters as emergency support resources. It won't be only oldesters who will be watching elites "over iron sights."

PlutoniumKun , December 14, 2016 at 6:06 am

Perhaps someone will enlighten me, but this is one thing that really puzzles me about the Republican determination over many years to gut social security. I can understand their ideological fixation with it – what I can't understand is why they are so willing to play electoral fire with it. Surely this directly attacks millions of core Republican voters?

They may be able to fool many of them with deceptive slogans, but surely when the prospect of finding their pensions slashed faces them, even the most supine and gullible middle American Republican voter in their middle to late years is going to realise they've been had. The backlash could be enormous. I find it hard to see how any rational politician would want to go near it.

Cry Shop , December 14, 2016 at 6:39 am

They will find a way to blame it on the Democrats, and more importantly, on Blacks, Hispanics and other minorities. They will sell the cuts and privatizations as the only way to save the system that has been so badly damage by the fore mentioned, and as long as their base gets their beliefs from Faux News, Bretbart, etc; it's quite probably the Republicans will succeed in getting what they want while screwing down the ever hapless Democratic party.

I've met more than a few who'd almost be pleased to suffer as long as they thought blacks were being made to suffer even more. There's no logic when hate gets this strong.

Leigh , December 14, 2016 at 7:29 am

Exactly, the same way they have mortally wounded our once stellar public education system, (a system once good enough to educate our "Greatest Generation) – is now a shell, death by a thousand cuts

Also, if you think income disparity is bad now? – hang on to your wallet, because after 4 years of Trump and his prospective cabinet picks, it will hit the stratosphere.

"There's no logic when hate gets this strong" – so true.

Scott , December 14, 2016 at 7:49 pm

Smart to point at the educational system.
I have not found many youths who can tell me what they want to do. I find this really weird.
It is true that if you know what you want to do the library will do.
Thanks to Ben Franklin, inventors, engineers had a place to hang out and collect information they could use.
Maybe you had to live in NYC to have a NYCity library card, but it is a big city.
Meantime Charter schools, which sounded great to us when at Kenwood on the Southside, are gaining ground and collecting tax money regardless of results.
They are said now in Not Conscious to be handing out diplomas same as Public Schools did to get some bodies out the door.
I was a graduate, but denied attendance at the diploma hand out thing, cause I refused to pay, for my public school diploma. Public education, supposed to be free to citizens.
People think I didn't graduate.
The Union believed in Trump. I get sick about lots of things. It will be worse than they think.
Education & Defense are what the government is for.

Steve C , December 14, 2016 at 7:50 am

Twelve years ago the Republicans needed the Democrats to actually plunge the knife on the back. Democrats like Joe Lieberman dearly wanted to lend a bipartisan hand but Pelosi and Reid actually rallied to prevent it. Talking Points Memo was all over it then. Now they're on top of Paul Ryan's machinations to privatize Medicare and this Social Security scam. Kind of raised some old feelings for TPM, but they're also heavily flogging the CIA Russian hacking dembot campaign.

About the only thing I knew about Hillary's agenda is that she wanted to means test Social Security and Medicare and start new wars. Obama wanted to do many of the cuts in Sam Johnson's bill but was foiled by Tea Partiers who couldn't take yes for an answer or were smarter than they seemed.

Both Schumer and Pelosi said the Democrats would oppose any of these current plans. We'll see.

Pat , December 14, 2016 at 8:10 am

I would hope they would realize that Social Security and Medicare are issues where the only winning move is to expand them. IOW, they need to realize this is an area where the campaign donors need to be told to pound sand, shut up and expect to pony up – as in you ARE going to be paying more into the system.
But these are people who thought there was no way that Clinton could lose, that this Russia nonsense is a winning strategy and that ACA was going to be good for Democrats once people got to know it. IOW, their grasp of reality outside their bubble might as well not exist it is so broken.
So while my fingers are crossed they still want their jobs AND aren't completely delusional, I also know we better put the fear of the voters into every member of Congress about grannies and wannabe grannies with canes beating them to a pulp any time they leave their house.

And by grannies I mean anyone on SS, and wanna be grannies everyone who someday might be able to retire or at least only work part time after retirement age because of SS.

Steve C , December 14, 2016 at 8:34 am

For Democrats it's not about winning. It's about pleasing the donors.

Pat , December 14, 2016 at 9:22 am

IF they cannot win an election they will not have any donors, and they are rapidly getting to the point where a Democrat getting elected to a national office is the exception. Not to mention there are a large number of states where that is pretty much the case. There is no reason to try to bribe people so you can have them in your pocket if they are powerless.

They are terrible at strategy, but eventually they may figure out they need voters. You do NOT alienate seniors as seniors are the most reliable voters around. Oh, and most of those seniors have grandchildren they think deserve Social Security and Medicare as well. The only winning strategy is to protect and expand.

Steve C , December 14, 2016 at 1:42 pm

I forgot to mention the consultant class. Absent a hostile takeover the Democrats may not be fixable. Their disdain for and disconnect from the voters will do them in.

Larry Motuz , December 14, 2016 at 8:16 pm

Gerry-mandering: When politicians pick the voters, instead of the voters picking the politicians.

Fixing that could fix politics.

Spring Texan , December 14, 2016 at 9:54 am

Would love to see this repeated and repeated, because although it's hard, we need to grasp this fact:
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.

dontknowitall , December 14, 2016 at 8:31 am

Sam Johnson the same Sam Johnson who wrote "I spent seven years in the Hanoy Hilton. The Hanoy Hilton is no Trump hotel." back in July ? Who milks his Vietnam tour of duty like a rabid milkmaid Who says "I do not feel like a hero, and I do not call myself one" in the tones of one who thinks the exact opposite? Who is constant cahoots with McCain (who is currently trying to sink a Trump presidency) why am I not surprised that a neoliberal faction of the senatorial republican party in seeking to weaken a populist president-elect is reaching for the third rail with both hands and smearing all republicans with the same brush. I doubt very much Trump will weaken social security since he knows it is the only thing his rebellious base of Deplorables can depend on call me simple but Trump won this election against practically everyone and he knows his base is the only sure recourse he has.

Praedor , December 14, 2016 at 12:47 pm

I don't count on that (Trump knowing not to touch Social Security). I wouldn't be surprised if he went for privatization. HE will never ever need Social Security so why concern himself over it? He's already throwing his electoral base under the bus with his cabinet picks. Every single one of them is a direct violation of his pre-election promises.

oh , December 14, 2016 at 1:51 pm

I heard that there special rooms available for Johnson and McCain at the Hanoi Hilton! I urge them to take advantage of this excellent offer.

susan the other , December 14, 2016 at 12:28 pm

I think Hillary also wanted to increase the payroll tax by 3% (an enormous amount of money) and use it to privatize 3% of the SS funds to make up for shortfalls, ostensibly. They better have a good insurance policy so that'll be another 3%. All this nonsense because we refuse to admit we need social policies and social funding of the basic things. We are committing suicide 24/7 these days. Why don't we just call it all insurance?

oh , December 14, 2016 at 1:53 pm

The financial (rentier) crowd want to get their claws on the SS funds. They'll achieve their goal unless we kick their puppets out of Congress.
They already have their teeth into your IRA funds, student loans, home mortgages and your bank funds, It won't be too long before a Trojan Horse Prez signs away your SS. Beware!

Praedor , December 14, 2016 at 12:43 pm

We'll see if the Dems stand firm and fight back OR go for the old "bipartisanship!" bullcrap and instead agree to a lessor CUT. They would then promote it as the two sides working together.

Typical neoliberal Dem establishment move.

Or are the progressive forces ascendant and ready to fight absolutely?

We'll see. In any case, the House will pass it, no question. The test is in the senate where the Dems still have some teeth available (whether they USE those teeth is another thing altogether).

Steve C , December 14, 2016 at 1:44 pm

If so, the Democrats are finished.

jrs , December 14, 2016 at 9:34 pm

Yea Senate that consists of a bunch of millionaires (on both sides).

Paul P , December 14, 2016 at 2:29 pm

The Democratic Party must be made to defend Social Security as they rallied
against Bush's privatization plan. They will do so for political advantage, but they
too have attacked Social Security. Obama attacked it on three occasions–the Deficit Commission, the chained CPI added to a budget proposal, and the timing of married couples claiming benefits–and, were it not for Monica Lewinsky distracting
Bill Clinton, Bill Clinton would have been attempting to privatize Social Security, not Bush.

Now it the time to contact your senators and representatives: NO CUTS.

jawbone , December 14, 2016 at 4:34 pm

As things stand, what you recommend is the best action to take as of right now. It is not enough, but when letters come in to Dems and Repubs stating the senders will NEVER vote for anyone who votes to mess with Social Security, Medicare, Medicaid, there might be some reactions.

BUT it needs to be many, many, many people writing, calling, and meaning it when stating "Representative/Senator XXX, you mess with this and you will never, ever get a vote from me."

How do we get enough people to take action???

Is Bernie on the ball about this?

Cry Shop , December 14, 2016 at 7:17 pm

Humm, if you are depending on Bernie or any one politician to save you, then you've lost the point of Democracy. It's all of you forcing them to do the right thing.

Bernie Sanders has said it himself, even FDR said to Black Activist asking for an anti-discrimination executive order to the defense industry: "I agree with you, I want to do it, now make me do it." They did do it, by threatening a strike during WWII, for which some were sent to jail. That's what it's going to take, because voting once every 2 or 4 years isn't going to cut it.

Paul Art , December 14, 2016 at 7:24 am

They will never attack current beneficiaries. This is a lesson they have learnt over the years. This is why they changed tack in the 1980s and keep raising the eligibility age which is a very soft target. One thing the GOPers understand really well is, GOPer Seniors ALWAYS vote and some Dem Seniors vote sometimes. So they will leave current beneficiaries alone. GOPer Seniors – almost all of them are driven by the conviction (Tea Party types) that Social Security and Medicare are under jeopardy because of illegal immigration and because Social Security funds are being raided and handed over to other beneficiaries like those on Disability etc. They have plenty of traction on this because if you go ask the average 25 year old or even a 40 year old today whether they can count on Social Security, most of them being morons and having swallowed the MSM propaganda will tell you, 'I don't think it will be around when I get to 65'. I am fairly certain there are polls to back this up. This is what the Greenspan Blue Ribbon Commission cleverly did under Reagan. The people who are in their 50s today were in their late 20s in the 1980s and clueless about what exactly Greenspan did to the eligibility age. So telling current beneficiaries that its good to cut benefits for future beneficiaries makes a lot of sense to current beneficiaries. In any case SS is toast. I think we will have to wait for the entire cycle of Old Age poverty to take root again in another 50-60 years and for the tide to turn. It was wide spread old age poverty that prompted FDR and also Trueman into action for SS and Medicare respectively.

Sewer species like Pete Peterson and the Hedge Funders target SS because it is a very productive way to create mass unemployment and lower wages. They don't want people removed from the labor market by SS when they become 65. Their secret longing is to drive down wages to the point where the per hour rate will equal the human mules you see pulling overloaded hand carts in Mumbai, India or Shangai, China. This is really the agenda. This is basically the psychology of monopoly thinking. When you have captured markets up to a 95% level then you start looking like an idiot because you have closed off growth altogether. Monopolies do not grow because there are no more markets left. So the next thing to do is increase profits via driving labor costs down – standard Michael Porter Harvard Business School trick. This is what they have been doing in the last 40 years.

Cry Shop , December 14, 2016 at 8:31 am

+1

It's how they are selling every sort of deregulation. it destroys the future, but who gives a damn about their children and grand-kids, the ungrateful snots. Shipping the old folks off to the retirement home has divorced them from both the care and of caring about their descendants.

RUKidding , December 14, 2016 at 10:21 am

Your comment about the old folks home is right on target. The better class of senior housing establishments are often the most fortified of bubble worlds, and the Seniors there spend hours ranting to each other about how the younger generation has screwed them over somehow. I've witnessed it first hand. They've been carefully taught not to give a crap about future generations, including their own kids and grandkids. It's all about MEEEEEEEEEEE .

BeliTsari , December 14, 2016 at 9:11 am

Thank you, I think a lot of us have noticed the veracity of this, especially over the last four decades. Show of hands who else out there is sufficiently paranoid, to consider signing-up a year early & simply absorbing the hit, with some silly fantasy of being grandfathered-in?

RUKidding , December 14, 2016 at 10:22 am

Hand is raised in the air.

My siblings have done that for just this reason.

BeliTsari , December 14, 2016 at 11:45 am

Thanks! I was dizzy from a bad head cold, working in very bagger-ridden environs (a quite literally Dikensian hell-hole in Pennsyltucky), applying for Medicare and fishing through obfuscatory pleonasm, picking Plan D & N insurers the 2nd or 3rd page in, they ask you if you're applying for "benefits" at this time! Jesus Anybody ANYBODY??? I have some meager equity (at least, last time I looked?) sufficient for a decade or so. But with Republicans dying young?

Steve H. , December 14, 2016 at 12:01 pm

: pleonasm

New word, thank you.

You can never have too many words

BeliTsari , December 14, 2016 at 12:05 pm

I doubtless stole it from Izzy Stone or Frank Zappa, while high?

UserFriendly , December 14, 2016 at 10:49 am

Increasing the retirement age while the average life expectancy is decreasing seams especially crewel. Combine that with that piece from the times that showed people like me, born in the 80's only have a 50% chance of earning more than our parents and that we are already drowning in student debt and that is a full on assault on the youth of this country. Screw the national debt burdening future generations, this will actually burden us. This really is the worst country in the world. Fuck Patriotism.

jawbone , December 14, 2016 at 4:37 pm

Phrases to remember: "Hurry Up and Die" and "Soylent Green is People."

JTMcPhee , December 14, 2016 at 11:23 am

Anyone who has a chance of affecting the behavior of AARP when it comes to SS and Medicare needs to step up and apply whatever pressure they can to get that thing to return to its origins and "work the issue" for their members, present and future. I know, it's mostly just another front for insurance and other sales pitches and scams and "cruise packages" and other lifestyle crap, but at least there has to be some skeletal remains of the original bones of the organization in there somewhere.

Or failing that, is there another entity that might be worth supporting and joining with, to go on the offensive and fight back? I would hate to think it's all futility and "47%" from here on out.

Susan Nelson , December 14, 2016 at 7:03 pm

Alliance for Retired Americans https://retiredamericans.org/
Social Security Works http://www.socialsecurityworks.org/

JTMcPhee , December 14, 2016 at 9:17 pm

Thanks. Will examine for signs of actual utility versus collection of data and $$.

Cry Shop , December 14, 2016 at 8:42 pm

AARP's origins? It was founded by an insurance salesman as a slick way to sell, yep you guessed it, the industry's interests to a powerful bank of less than bright voters.

JL , December 14, 2016 at 11:54 am

Just want to point out that you both degrade avg 40yo for thinking they can't count on SS and in the same post claim SS is toast.

Some of us don't think we'll be able to count on SS because the elite are determined to raid that cash flow, not because we've swallowed the B's line.

jrs , December 14, 2016 at 9:43 pm

Some of us question if there won't be mass human extinction before then. Maybe there will be no old age for many people alive today including yours truly. But nonetheless, if by some miracle the worst doesn't happen then Social Security is important.

Marco , December 14, 2016 at 7:34 am

Prez Hope and Change's support for chained-CPI will certainly complicate the fight against this. If Obama and his Rubinite stable of bean-counting butt-boys were for it then it must be okay?

Steve C , December 14, 2016 at 1:51 pm

See Paul Art's comment above. Obama worked to keep wages low to please the Pete Petersons of the world.

voteforno6 , December 14, 2016 at 7:36 am

They're banking on getting some Democratic support, to make it bipartisan. With weasels like Mark Warner in the Senate, they might get some Democrats to sign on to this.

RUKidding , December 14, 2016 at 10:37 am

Eh? Democrats will line up with their Republican BFFs to screw over the proles. Given how Democrats are now a very Rump party in this nation, what have they got to lose? Why take of their alleged "constituents" in the 99% What a laugh. The constituents of the Dem pols are, have always been, and will continue to be the .01%. So the Dems will happily oblige their real constituents by screwing over the proles. Anyone who expects a different outcome is not living in reality.

Carolinian , December 14, 2016 at 8:20 am

Perhaps it's because "the banks own this place." Also the Republicans, like the Dems, are running on the fumes of past ideological obsessions and Social Security was always seen as a prime Dem vote getter and flagship of the hated New Deal. Remember Karl Rove wanted to take the country back to the McKinley administration. But mostly it's probably because people like Paul Ryan are creatures of their funders.

NotTimothyGeithner , December 14, 2016 at 9:32 am

Plenty are stupid, but the Democrats are in complete disarray. The GOP will face push back from their voters, but the Democrats as they are now are not a threat to win any time soon. AARP recognizing the interests of its members can shake Washington, but right now, the GOP sees no threat to its rule.

oh , December 14, 2016 at 2:33 pm

Many of the not so weathy Repubs are 'rich wannabes'. So they'll gladly toe the line on cut social security cuts and free market memes. They think that they have noting to worry about because they'll be wealthy before they retire and they won't need SS. Boy, do I have a few bridges and lots of swamp land to sell them!

John Wright , December 14, 2016 at 10:17 am

One can note the Social Security "reform" is usually pushed by wealthy individuals who feign concern about saving a system for the future of less well off Americans.

Also, Social Security is a system that is of little import to the wealthy as they will not be depending on it for basic living expenses.

The wealthy's real fears are of a raising of the income cap that will hit them directly or of an effort to support higher wages for the citizens currently paying into Social Security, hitting their business profits.

While it may seem unexpected they can get help from Democrats in this effort (Obama, Bill Clinton ) but I suspect this is so because wealthy donors support the effort and the Democrats can pitch the "saving" aspect while collecting campaign cash.

If a politician is not re-elected as a result, they might have a more lucrative career at a think tank or as a lobbyist.

Of course, if the wealthy are so concerned about the alleged Social Security problem that is looming in the future, where were far sighted wealthy Americans when it came to questioning the Iraq War, the drug war, the lack of financial reform, and all the USA military/covert actions that have done great harm to public finances?

Strangely, Social Security "reform" is a big concern of theirs, and the other USA efforts that have caused much harm, are not.

Then there is climate change, again, wealthy individuals are more concerned about "saving social security" than saving the planet.

Also the "reform minded" politicians do not appear to allow that current social security benefits probably are used by many entire low income families. So cutting grandma's benefits also could immediately hit her kids/grandkids financially.

A secondary effect is that lowering SS benefits means the wages of current workers can be lowered in concert as their SS payments, which flow to current recipients, can be lowered, perhaps even allowing another Social Security reform effort to be promoted.

The ability of TPTB to sell this to the American public should not be underestimated as the advertising/public relations/MSM has been successful in promoting/maintaining many bad ideas.

sharonsj , December 14, 2016 at 12:38 pm

The wealthy are not concerned about saving anything unless they can make money off it. They are already getting richer from the endless wars on terror and drugs, and taking planetary resources for themselves. The only reason they talk about "reforming" Social Security and Medicare is to get their hands on that money as well. And please do not expect the corporate media to explain any of this to the dumbed-down masses.

Michael C , December 14, 2016 at 10:25 am

The Republicans can afford to play with potential policial backlash for two reasons: First, they relentlessly beat out false narratives about the demise of SS and its inadequacies so that their flase story becomes a part of the consciousness of citizens. (This is the same thing done to attack teachers, unions, the post office, government, etc. You put out the lie long enough, it becomes the truth.) Second, they have been engaged in not one knife to the heart of the program but an attempt to promote its demise by a thousand cuts, little by little, until the program is no longer viable. I know for a fact that young people have bought into the lies put forth by them and do not think the program will be there for them because they too have bought the lie. Those pushing to kill the most effective program in US history, one that has kept the elderly from complete poverty, are nothing more than evil. They want no public programs, and all revenue funnelled into corporate models that enrich the 1%.

Deloss Brown , December 14, 2016 at 11:41 am

Sure, I can explain it.

Conservatives love destruction for its own sake. Smashing the Alaska Wildlife Refuge, smashing the ancient city of Baghdad, spilling oil all over North Dakota, wrecking Social Security, all these things have a political component, but it is the destruction itself that makes them absolutely adorable to Conservatives. Bear in mind this pervasive love of destruction, and many Conservative initiatives will become more clear.

And the "base" goes along with it, because many of them have been inculcated with the theory that it is more pleasurable to do someone else harm than to do one's self good. Given a choice to make, they will always pick the former. Hope this helps.

Me, I find NC's alarm and amazement at the Republican plans to wreck Social Security ingenuous. What did you think would happen? God knows you were warned.

diogenes , December 14, 2016 at 4:12 pm

Yeppers.

https://www.youtube.com/watch?v=FNt0anp7WK8

juliania , December 14, 2016 at 7:03 pm

Who warned us? Not the media. Not Obama. Who? I'm thinking naked capitalism.com, best Paul Revere substitute I can come up with at the moment.

Nobody here needed warning. Nobody is alarmed or amazed. And nobody stuck their heads in the sand and figured everything is going to be peachy. What we did need was a well written reminder.

And we got it. Thanks, Yves.

jrs , December 14, 2016 at 9:48 pm

People drunk a whole lot of Koolaid like "it takes a Democrat to cut social security". Koolaid was spilled all over in drunken Koolaid orgies at one point toward the end of election silly season. But the party is over and all that is left is the wreckage. Of course Hillary may have done the same thing as we weren't exactly getting any encouragement from her that she wouldn't and rather in fact got hints that she might (support for Peterson committee, her retirement plans for private investment etc. – to supplement Social Security of course). None of which were absolute certainty that she would cut it of course, but they aren't always honest about that are they, so not encouraging either.

Glen , December 14, 2016 at 12:29 pm

It's best seen as an all out effort to wreck any good that the government does for common people so that they can beat the war drum of government failure. This then serves as the smoke screen to hide just how much ultra rich directly benefit from government support through bailouts, privatization, tax cuts, subsidies, and out right theft and fraud. And just how much more they will get when Social Security and Medicare are privatized and benefits are shrunk. Those are large streams of government controlled funds, and they want it.

Social Security and Medicare work extremely well, and should be expanded. But don't delude yourself into thinking this is obvious to most people. Both political parties are dedicated to killing Social Security and Medicare and are extremely adept at spouting the " we must kill it to save it" BS.

Waldenpond , December 14, 2016 at 1:09 pm

Ds movement to the right and their continuation of R policies, no matter how vile, actually redeems the R party for the next election. If they take turns governing only on behalf of the .9, .09 and .01% they take turns redeeming the other branch of the money party. The colluding media will propagandize every bit of corruption and sleazebaggery as 'no other option' trot out imaginary deficits.

The voted out politicians will enthusiastically do it because they enter office looking for the big sellout as they will receive the only objective they ever had in achieving elected office . lucrative appointments and sinecures at parasitizing corporations, think tanks, scam foundations and presidential libraries.

Harris , December 14, 2016 at 5:11 pm

He will limit the changes to those under 50 ( ie those with much much lower voting percentages than 60+'ers ).

Johnson is 85, so I doubt any of this was his idea.

Praedor , December 14, 2016 at 12:08 pm

Screw your "iron sights". I'll use my reflex sight and hit center every time.

JTMcPhee , December 14, 2016 at 12:40 pm

Exactly. But not everyone has a reflex sight or scope. And a lot of people who do have such a very wrong notion of who the targets ought to be, the ones that actually pose the greater=st immediate threat

Though 4,000 veterans appearing at Cannon Ball with the #NoDAPL presence probably have or are developing a correct "sight picture" and target designation

ambrit , December 14, 2016 at 4:37 pm

Oh H-! Where is my 3-9X40 when I need it?
The late lamented science fiction writer Mack Reynolds penned a screed along these line a ways back about a pissed off ageing Lord Greystoke and the fate of the old in America called "Relic."

Scott Frasier , December 14, 2016 at 2:05 pm

The plan will be structured to only hurt future retirees. The solution to this political problem is to have anyone who will be affected demand that they be allowed to opt out from now on and to receive a refund, with interest, of all of their previous contributions to the system because the "earned benefits" have been taken away. Ownership in America is a sure winner politically.

I don't expect Democrats to have the balls to actually propose this, but it would leave the plans in tatters because without the tax stream and the already contributed taxes it won't be able to pay current retirees. Now that would get the current retirees attention!

Jeremy Grimm , December 14, 2016 at 2:14 pm

Not only can old people no longer depend on their extended families for support I'm afraid many young people in that extended family have had to rely on the older people for support. My young adult children are not doing terribly well in the new economy and I don't see things improving for them any time soon - if at all. I've had to step in and help a little here and little there more and more as the costs for those unplanned surprise expenses keep blindsiding my children.

juliania , December 14, 2016 at 7:08 pm

Very true!

Battaile Fauber , December 14, 2016 at 4:55 am

Well, which is he, "at the top of the scale" or an "average earner"?

I interpreted that as he earns an average of 118k, putting him at the top of the scale.

Mike , December 14, 2016 at 6:35 am

And maybe that is what the author thought, but it doesn't work. Wages above the SS max don't get taxed and don't add to the final benefit, so people who have an average salary equal to the max have a benefit that is below the max. The difference would depend on how much the salary fluctuates, year by year.

Naomi , December 14, 2016 at 9:15 am

Exactly correct. This author misinterpreted. But Sneed's original grammar was sloppy as well. Should've read, "earning an average of $118,000".

BecauseTradition , December 14, 2016 at 4:55 am

Perhaps a serious attack on welfare for the rich would persuade the enemies of Social Security that those who live in glass houses should not throw stones?

ambrit , December 14, 2016 at 5:13 am

To make such an attack, one needs must take over the "reins of power." In short, your suggestion is revolutionary. (I'm not averse to such, just observing.)

BecauseTradition , December 14, 2016 at 8:22 am

I mean an ideological attack since much welfare for the rich is not yet recognized as such (e.g. government provided deposit insurance instead of a Postal Checking Service or equivalent, e.g. interest on reserves, e.g. other positive yeilding sovereign debt).

not a rich person , December 14, 2016 at 10:06 am

government provided deposit insurance is for the rich?

who knew?

BecauseTradition , December 14, 2016 at 10:52 am

Yes it is. It is part of the means by which the poor, the least so-called creditworthy, are forced to loan to depository institutions to lower the borrowing costs of the rich, the most so-called credit worthy.

The ethical alternative is an inherently risk-free Postal Checking Service or equivalent for all citizens, their businesses, etc. Then the poor need no longer lend (a deposit is legally a loan) to banks, credit unions, etc or else be limited to unsafe, inconvenient physical fiat, aka "cash."

JTMcPhee , December 14, 2016 at 11:27 am

And of course the Few are planning to do away with "cash." Already happening several places

Higgs Boson , December 14, 2016 at 5:50 am

And yet our crumbling empire has ample treasure to play game of thrones all over the world.

JTMcPhee , December 14, 2016 at 12:13 pm

It's slightly old news, but "Congress" is also hurting the Troops (another easily cut-able bunch) that are doing that "war" thing all over the world. http://www.stripes.com/news/us/congress-passes-defense-budget-with-troop-benefit-cuts-1.319021 , and with more detail on the "sausage making" process, there's this (note the remarks about "furious lobbying" by beneficiaries and entitled persons): http://thehill.com/policy/defense/overnights/225785-overnight-defense-budget-would-cut-military-benefits The efforts to cut VA disability and health care benefits, and of course pensions and stuff, are constant. Just like SS and Medicare. Maybe there are some congruencies of interests and constituencies here? A "base," of sorts?

Interesting that maybe 4,000 veterans showed up and formed up at Cannonball/DAPL, to stand against the thugs and "government" and with the Native Americans who seem to have found a set of honest and attractive memes to present to the rest of us. The Bonus Marchers got the MacArthur Fist way back when, but I'm wondering how all those troops trained in maneuver-and-fire would take to further (planned) assaults on their livelihoods and families, while they are ever more being "deployed" to protect the as-s-ets and post-national "interests" of the Few

lyman alpha blob , December 14, 2016 at 2:25 pm

+1

Marie Parham , December 14, 2016 at 6:41 am

Not to worry. Organization is taking place. In New York State the Bernie delegates have kept in touch since the convention. They have organized into 25 affiliates state wide. We have had a conference already. The Lower Hudson Valley affiliate may be able to defeat the Trump agenda all by itself. We tuned into the Our Revolution call and decided to do our own thing. https://twitter.com/NYPANetwork

Larry , December 14, 2016 at 7:08 am

Any similar initiative in Massachusetts? The last time the Republicans tried to gut SS under Bush, the Democrats came out in force and held meetings on weekends around Rhode Island (where I was living at the time) to fire up opposition to the plan. I'm anticipating Elizabeth Warren and other MA democrats will oppose this, but want to be ahead of that by looking for other avenues of opposition like Bernie's coalition, such that it is.

Paul Art , December 14, 2016 at 7:26 am

I seriously doubt anyone would be enthused by a Democrat party still headed by that Super Frisco Water Carrier Pelosi. I know I would not for one. The bell tolls for Bernie but the man has been struck dumb.

UserFriendly , December 14, 2016 at 10:55 am

If you already have an OR local or state group and you want to be affiliated with national, or at least talk to national DM me on twitter and I can get you in touch, I have a friend who works for them.
https://twitter.com/UserFrIENDlyyy

dao , December 14, 2016 at 7:03 am

Social security has already been cut over the last several years without a peep out of anyone. No cost of living adjustments in 3 of the last 8 years. Actual inflation is at least 2 points higher than the reported figures. Social security has been cut 15-20% since the financial crisis.

RUKidding , December 14, 2016 at 10:26 am

Yep. And I have elderly friends who are suffering bc of it. But everyone is very passive having bought into the propaganda that this is "just the way it is," and "there's just not enough money" to provide anymore via SS. So we have a very passive population, who've mostly all bought the propaganda about how "broke" Soc Sec is we proles, yet again, have to suck it up bc the wealthy certainly cannot be expected to have the income cap raised heave forfend.

Gcw919 , December 14, 2016 at 11:27 am

Just got my Soc Security statement. My net gain, for 2017, after an increased deduction for MediCare, is .nothing. See, there's no inflation (except my car insurance, home insurance, health insurance, food, etc have all gone up). And to add insult to injury, our benefits (derived from involuntary deductions from our paychecks) are called "entitlements."
As our elected "representatives" are so adamantly opposed to these programs, and would like to reduce them to table scraps, I am eagerly awaiting the announcement that Congressional pensions and healthcare benefits are going to be discontinued.

Fran , December 14, 2016 at 12:47 pm

Same here. Any small gain was offset by increase in deduction for Medicare. In addition to the rising costs you cite, I find I am paying increased local taxes, among other things. So, like most people, we must contend with stagnant income to pay rising cost of living (and I mean the necessities).
I started paying into the system in 1965. Medicare used to be no cost and cover all medical expenses, so that is a cut in itself. I knew that I could not rely on SS in my old age, and I live modestly.
I agree with your last comment. I have never seen why our representatives in Congress should receive any different coverage than the citizens they are elected to represent. As individuals, they can supplement it, just as we have to.

GregL , December 14, 2016 at 12:28 pm

I was notified yesterday via letter that my SS benefits will increase 4.00 / mo next year. This will be a great help because my rent went up 7.00 / mo to 1600.00 for my studio apt.

ambrit , December 14, 2016 at 4:40 pm

Woah there. You were paying only 1593.00 a month before? You related to the landlord perhaps?

bkrasting , December 14, 2016 at 7:24 am

What is the status of SS today?

Current law says that in approximately 13 years all benefits will be cut – across the board – by 20-25%.

That is an unacceptable outcome.

What to do with this reality? The answer is "Something" must get done. The wrong answer is, "Don't do anything, wait 13 years, and then fall off a cliff".

The proposal that in the author's words "Guts" SS actually increases benefits by 9% for the bottom 20% of beneficiaries. The cost of the proposal falls on those who have high incomes before AND after reaching age 65. The proposal stabilizes SS for the next 75 years, and there are no new taxes required. Exactly what is wrong with that?

not a rich person , December 14, 2016 at 10:10 am

what is wrong with that is that far more than the "bottom 20 percent of beneficiaries" rely on Social Security income.

apparently you are not aware of that.

craazyboy , December 14, 2016 at 12:03 pm

In the post pension plan age, I think the 20%-90% bracket needs it. Maybe up to the 99% bracket once our current 401K bubble bursts and Housing Bubble II bursts.

Pat , December 14, 2016 at 11:13 am

So the only option are things that actually punish today's working class and weaken the system by eliminating the all in/all the same position? No, it isn't. The problem is that the answer is to slowly raise the payroll tax AND eliminate the cap – something that should have been done decades ago once it became clear that the people who lived the longest on SS were largely those who stopped paying payroll taxes at some point throughout the year. But we cannot consider those.

Nope we have to talk about raising the retirement age when life expectancy for most is dropping and we have to go with things that mean that you need to start living like you have to choose between drugs and eating cat food from day one because your benefit will never increase regardless of how much more your food, housing or medicare premium increase, or there even if they allow cost of living they write off things because you can give up steak for chicken over and over.

Waldenpond , December 14, 2016 at 2:21 pm

Instead of a expanding to a more universal program, you support turning SS farther into a program that categorizes individuals, assigns a hierarchy and then ranks them according to some random definition of human and who is most deserving.

There's nothing wrong at all with having nothing but contempt for others and hiding behind some made up term of 'cost'. It's perfectly reasonable to deny the means to the dignity of housing and food to others.

or .

roadrider , December 14, 2016 at 7:56 am

The fact the last two Dim-o-crat presidents (Clinton and Obama) and not a few Dim-o-crat Senators and Congressmen are in agreement about "saving" Social Security doesn't help either. Clinton's plan was derailed by the Lewinski thing and Obama's because the Republicans wouldn't take yes for an answer (didn't want him to get credit for it but don't mind doing it themselves)

mikimurphy , December 14, 2016 at 8:59 am

In case anyone has not noticed, they are already cutting SS benefits by stealth means. There have been no cost of living increases in 3 of the last 5 years, and for my personal SS benefits, the measly .3% increase next year goes away entirely with the increase in medicare payments. I suspect many folks, like my sister who is 78 and still working full time, do not realize that the increases they are receiving are due entirely to their still being in the work force. In addition, with the cutbacks that have been forced on the administrative side of SS, more mistakes are being made. A friend of mine was declared "dead" by SS (something that also happened to me with my tiny pension plan). When she attempted to correct the error, the SS employee discovered that "thousands" of people had been similarly affected. This happened last summer and my friend is finally receiving her benefits, but a month late and for some reason the agency cannot issue that catch-up check. She is still working and so not completely bereft, but what in the world are the folks doing who have no other income??? I suppose our overlords will be most pleased that the constant annoyances they are causing us will result in our passing away from sheer anger and frustration.

RUKidding , December 14, 2016 at 10:30 am

That's interesting. I have a friend, who is still in her 50s, who was working on her will, etc, and discovered that she was no longer "alive" as far as Soc Sec was concerned. She got it rectified, and it didn't have a negative impact on her (she's still comparatively young and working). But it's decidedly odd about how all these citizens are suddenly dead as far as Soc Sec is concerned. And yes, it takes some effort to get back on the database of the living. For those who are really elderly, this could be a very difficult thing to do.

Wonder why this is happening .

Susan C , December 14, 2016 at 9:00 am

It boggles my mind why any one would ever want to gut social security. Companies already push people out at 55 and then you have a good 8 to 12 years of somehow managing until social security comes to your rescue. Younger people do think social security will not be in place when they are in their 60s which makes them angry. And who can ultimately rely on the stock market etc. to give them the money they will need when older – shivers. Is the economy that sound? Plus many people cannot manage to work so long due to health reasons which do start creeping up on people in their late 50s or the work they do is too labor intensive for them to imagine keeping at it until 69 or even 67. Bodies give out at some point. That is reality. Everyone wants to work until 70 but the companies don't want older workers – they want young, fresh, vital. If anything, social security should start at 60.

BecauseTradition , December 14, 2016 at 9:22 am

"These who pant after the very dust of the earth on the head of the helpless
also turn aside the way of the humble; "
Amos 2:7

ChiGal in Carolina , December 14, 2016 at 10:17 am

Love me some of those Old T prophets. Widows and orphans, man, widows and orphans

Pat , December 14, 2016 at 9:27 am

Two reasons come to my mind, a desire to reduce or eliminate the employer half of payroll taxes AND the pool of money that the financial industry thinks should be theirs to rape and pillage. But I'm sure there are others.

Steve H. , December 14, 2016 at 9:39 am

Recent posts and comments have noted both more billionaires and a rapid concentration of wealth amongst them. But it's mo' po', too, what Turchin calls 'popular immiseration'. To decrease the effects of 'interelite competition' the wealthiest cannot just bestow unto their favorites, they must tend to the rich on the downslope. Those are the ones with resources to engage in attrition. So there is a long history of shoving the costs onto those who can't fight back, and the unlanded are easier to slap down.

A personal case: Pearl was a delightful very elderly lady a few doors down. Her house was in trust until she died, and she had a daughter and a grandaughter living with her. When she died, one of her (all over-55) children had medical debt needing paid and so he vetoed keeping the house. It sold, the land was lost to the family, and daughter and grandaughter were homeless.

That interelite competition was apparent in the election. Our choice of two New York billionaires was a choice over which aspect of the FIRE sector would dominate, Finance or Real Estate. But those differences seem to get averaged out below a scale of 10^8 or so dollars.

craazyboy , December 14, 2016 at 12:08 pm

"Everyone wants to work until 70"

Not me. I decided I hate work at the young age of 49.

neo-realist , December 14, 2016 at 3:50 pm

Re Companies that push people out at 55 and don't want older workers and prefer younger ones, this leaves a lot of people in that 55-70 age bracket in a difficult (and in some cases, a terrible) situation if they're not in the minority of those who have a secure gig until they retire (usually people that I know that have government gigs w/ pensions.) The Presidency nor the Congress have no solution for older workers who get pushed out and face discrimination due to their age when they seek employment. They would prefer to not hear about it and if they're sleeping in cars or in tents under bridges, that's their problem.

Punxsutawney , December 14, 2016 at 9:30 am

What the GOP is doing is planning "Theft", pure and simple.

The next 4 years will likely see the greatest wealth transfer of all times. To the top of course.

tegnost , December 14, 2016 at 11:10 am

continuing what's been going on for the past 8 years, ever heard of quantitative easing, the ACA, or chained CPI? Foam the runway with HAMP, maybe, or endless war as the only jobs guarantee available. Sorry, but trump is just more of the same, only a little more forthright. You should be used to it by now.

Punxsutawney , December 14, 2016 at 2:55 pm

No argument here. Put the Dems in control and they will find all kinds of excuses for doing the same thing, all bight more subtlety. Clinton was going to privatize Social Security and Obama proposed chained CPI. Not to mention the effects of TPP.

Adam Eran , December 14, 2016 at 9:55 am

Another columnist whose "answers" are predicated on the assumption that taxes provision government programs. Just one question: Where do tax payers get the dollars to pay taxes with if government doesn't spend them out into the economy first?

If that's too much thinking: Where was all this "we're out of money" talk when the Fed, according to its own audit, pushed $16 – $29 trillion out the door to save the financial sector from its own frauds? Yet government routinely denies it makes the money when the orders-of-magnitude demands of safety net programs appear. Taxes make the money valuable; they do not, and obviously cannot, provision government.

As long as this isn't common knowledge, we're all condemned to austerity. Even public policy makers sympathetic to workers (e.g. Dilma Rousseff) are in peril if they adopt the "inevitable austerity" routine.

Jerry , December 14, 2016 at 1:31 pm

Unfortunate that I had to scroll this far down to find the first person with a correct understanding of government finance. I've explained MMT point blank to people multiple times and they still cannot grasp it. Until people start caring and get a general understanding of how this thing works we are in a lot of trouble. I am hoping that Trump will be godawful enough to bring about such a conviction for revolution to the average American

As the Henry Ford saying goes (oft-quoted by Ellen Brown):

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

John Hemington , December 14, 2016 at 4:38 pm

Exactly right and if the powers that be were really concerned about funding SS from those who will receive it all they have to do is raise the income cap to cover total income for everyone - not just middle income workers. Problem solved and no need to worry about the fact that the government can't run out of dollars.

Denis Drew , December 14, 2016 at 10:13 am

I have my own weird tack on SS retirement.

I see the Trust Fund as having been accumulated over the decades by my generation - by paying higher FICA tax to purchase fed bonds with. TF running out now supposed to be the big to do? Wasn't it supposed to run out? Aren't we supposed to use what we saved?

I like to say: have an SS retirement shortfall today? Do it all over again: hike FICA, lower income tax and accumulate bonds. Mmm.

But, just yesterday I had a brainstorm. If Repubs want to cut benefits so FICA shortfall doesn't have to made up by income tax cashing bonds (covering about 25% of outgo just before our bonds run out, then, Repubs want to steal our savings that we forgave immediate gratification to accumulate all those long years.

Always suspected income tax payers who are hit for as much as 39% would balk at cashing the bonds when the time came - but on the basis of the usual world run for the haves idea. Never thought of it in terms of outright theft - before yesterday.

PS. Really shouldn't use up all bonds. Right now there are about four years of full replacement in the TF. Legal solvency is defined as one year - needed to cover temporary shortfall while Congress moves to fill in - happened couple of times.

Jim Haygood , December 14, 2016 at 12:34 pm

" Wasn't it supposed to run out? "

No. Defined benefit plans are supposed to be funded so that the assets earn enough to pay promised benefits. If the assets run out, the plan is not only mismanaged, it's bankrupt.

Seriously, if your checking account were emptied by a hacker, would you ask "Wasn't it supposed to run out?" You are a crime victim.

thoughtful person , December 14, 2016 at 10:37 am

Educate, Agitate, Organize, yup, expanding on cry shop's comment above, it's more than breitbart and Fox these days. The mainstream media may be (usually) more polite and more subtle, but they will not report the basic info accurately like Yves and Lambert do here. Our Revolution is a good start. There need to be alternative sources of information such that education can happen. That is why the "fake news" attacks on alternative media are such a big deal. The founders of the US understood the importance of information too, one reason the postal service was established with low rates for all periodicals. "Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives", wrote Madison. We really are sheep without knowledge. Some like it that way .

RUKidding , December 14, 2016 at 10:42 am

Donald Trump, at his rallies, consistently lied to his fervent fans that he was going to save Soc Sec & Medicare. What a laugh.

I've been blogging and telling people throughout the election process that Trump made a very public DEAL with Paul Ryan that he, Trump, was totally behind cutting and gutting SS & Medicare. That is the main (possibly only) reason why Ryan gave Trump his very tepid "endorsement." But this was very public knowledge and not hidden.

But of course, Trump lies constantly, so his fans were mainly enthralled with what a bully he is and believed what they wanted to believe. Made up fantasies. Some of his fans are waking up to the fact that they've been screwed over royally. Of course the M$M will happily oblige by somehow finding a way to blame it all on Obama, Clinton, the Democrats, whatever (not that the Dems aren't equally happy to cut and gut SS & Medicare, as well) and the proles will buy it.

Home and hosed. Case closed. We're screwed.

Gaylord , December 14, 2016 at 11:21 am

Republicans should offer Kevorkian "escape kits" free for the asking.

RUKidding , December 14, 2016 at 12:02 pm

Although various states have now passed laws to legalize what's called "assisted suicide," there's still a lot of resistance to it, esp from those of various religious persuasions. Also assisted death in these cases is only available for those already in the latter stages of terminal illnesses, and generally extreme poverty doesn't fall under that definition. So sucks to be you.

I guess dying from hunger and exposure, due to extreme poverty, is our just deserts. No rest for the wicked. When you die, you have to die as painfully and slowly as possible just to impress upon you how worthless and awful you truly are. The punishments will continue until morale improves.

Katharine , December 14, 2016 at 11:35 am

This was posted hours ago. How many readers have taken the time to email their congressmen? Please do! You don't have to be lengthy or learned. You can simply state a couple of talking points you all know and intimate that tampering with benefits is not going to be accepted. This is definitely one of those "if you're not with us you're against us" issues, and the sooner your elected representatives understand you mean that the better.

Jim Haygood , December 14, 2016 at 12:30 pm

"I think a 0.4% increase (combined), about two dollars per week for each the worker and the employer, should solve the problem in ten years, but I haven't done the numbers on that myself. "

WHUT? Why are space cadets like this even allowed on the internet?

Trying to patch Soc Sec's $10 trillion hole with an 0.4% FICA tax hike is like trying to empty the Atlantic Ocean with a teaspoon.

Net present value, Dale - I'm afraid you cut class that day. Now it's too late.

Benedict@Large , December 14, 2016 at 12:36 pm

Mark my words.

The attempt by the right to "fix" Social Security is nothing more than an attempt to make the trust fund disappear, and to mark all the obligations that fund was supposed to have met null and void.

If this sounds like they are trying to steal the trust fund, that is not the case. They have already stolen it. Now they just have to fix the accounting to say they didn't, which they will do by setting the system to never need to cash a bond from the trust fund.

Tin foil hat, you say? Fine, but do me a favor. Whenever a bill is introduced to "fix" Social Security, do the accounting for how it will play out. The trust fund will no longer be needed?

oh , December 14, 2016 at 4:55 pm

Yup, that's the R's plan and people will be sleeping when they play this con.

Ranger Rick , December 14, 2016 at 1:00 pm

Something about this strikes me as a hilarious farce of unintended consequences. People worried about "government debt" and demanding its reduction are getting exactly what they wished for.

Waldenpond , December 14, 2016 at 1:54 pm

I'm not quite sure of your meaning here. It sounds like you are mocking people for not being able to get out from under a propagandist educational/media system and a corrupt government. Then again, it also seems to be gloating and that people deserve to be immiserated.

Nate , December 14, 2016 at 3:38 pm

Exactly!

herkie1 , December 14, 2016 at 1:49 pm

This is called a "technical adjustment." They can pretend that the CPI is too generous and know that most people won't understand the scam.

I am a 100% disabled veteran and several years back they tied our COLA to the SS COLA.

The result is that since mid 2013 in this region we have lost about 40% of our purchasing power. Our standards of living have dropped by that much.

Of course there is NO INFLATION, the letters I have been getting actually claimed that because of this DISINFALTIONARY economic environment . That is no inflation so no raise this year.

Now, I am going to be 59 this spring, I worked at a lot of things between 1973 and 2005 when a judge ruled in my favor regarding my disability and awarded me SSD. But, because I spent so many years fighting SS and did not have the quarters of income recent enough my SSD amounts to $1,013 per month.

Now for all the republicans out there who think SS is too generous, I would ask you to stick your filthy little brains, or rather pull them out of your exhaust holes. You can claim it is too generous when you have spent a lifetime paying in and then someone tells you that 12 grand a year is too generous.

MY RENT IS MORE THAN THAT and this place s a hovel in the sticks. The only way I can have a roof over my head for less is to live in my vehicle.

Fortunately I also have a bit in VA disability and between the two I thought of myself as middle class if just barely only 36 months ago, now I would consider myself in dire poverty at 20k a year, anything less and we are talking eating at the mission and sleeping in shelters. Vehicle? Right. The fact that they refuse to acknowledge inflation and use quite literally half a dozen tricks to disappear it from the headlines does NOT mean it does not exist. If you can eat gasoline and flat screen TV's you are certainly doing great, otherwise you are experiencing something never known in the USA, structural downward mobility for 90% of us.

And it is these facts that drove the angry and the stupid to vote for Trump, they were not the majority of voters, but between them and antiquated laws giving voters in small states far more power than in urban areas (where people actually live) that Orange Hitler dude got in, and so did the GOP majority of fascists who have as a holy mission class warfare and getting rid of diversity of any kind, racial, sexual, or gender.

They are going to gut every bit of progress since Teddy Roosevelt. They are going to bring back segregation, this time though via school vouchers. They are not going to FORCE non white non middle class kids into slum condition schools, so they will plausibly claim HEY it is NOT segregation and those parents have an equal right to move their kids to private schools also. No, instead these kids will be abandoned in schools that the government will slash funding to as white upper and middle class people are partially paid the tuition to send their kids to private schools which are exempt from federal discrimination laws. I am NOT holding my breath for this, I have a one way ticket to Australia for the first week of January.

THAT is going to be the story of all government for a while, social security is just one of MANY functions of government they are going to kill off. If you think people were angry in 2016 just you wait till 2020.

It is already so bad that unless the GOP grows a conscience and a heart in the next 2-4 years the USA will break up the way the Soviet Union did. The nation now has what so many married couples cite in divorce proceedings, IRRECONCILABLE differences.

And the worst of it is that no matter if you like it or hate it the USA is the rock of stability that has keep civilization working since the end of WWII. You break up the USA and bingo there is no uni in the unipolar geopolitical world. What we will have is chaos and war and humanity will fail. USA FAIL=Humanity FAIL.

PrairieRose , December 14, 2016 at 9:43 pm

Thank you. Thank you. Thank you. For your plainspoken honesty. This should be copied and posted everywhere, starting with senators and representatives.

Nate , December 14, 2016 at 3:27 pm

Don't you love when your vote gets what you desired? No empathy. Big shoutout to U.S. congress.

Brooklinite , December 14, 2016 at 4:59 pm

They should have an option for an opt out of social security, medicare/Medicaid, Affordable Health Care. Not having that kind of freedom to me is not worth it. I am not buying any other excuses such as I am not shrewd to invest my money. Taking money is the easy part. Getting back is always laborious if you are lucky to get.

no to opting out , December 14, 2016 at 6:44 pm

right. many people opt out of "mandantory" auto insurance by just not
getting it. it's been estimated that in FL at different times as many as
one third of the drivers on the road are not insured. and really, if they
get injured, they get treated in an emergency room until they are stabilized
(the law) and if they were sued for damages, what could be recovered?

but, let's remember, while they are on their "ride" they are "free." Yep.
a lot of people think like that.

marblex , December 14, 2016 at 5:27 pm

Social Security, let's lay it to rest once and for all Social security has nothing to do with the deficit. Social Security is totally funded by the payroll tax leviedon employer and employee. If you reduce the outgo of Social Security, that money would not go into the general fund or reduce the deficit. It would go into to the Social Security Trust Fund. So Social Security has nothing to do with balancing a budget or lowering the deficit.

Ronald Reagan (first Reagan-Mondale debate 1984)

Quill , December 14, 2016 at 5:51 pm

You misunderstand the article from the beginning. When she says:

"A 65 year-old at the top of the scale, a $118,500 average earner, "

She means someone who has earned $118,500 on average over his/her career , placing him/her at the top of the scale.

I'm not sure why you are criticizing the writer of this article.

walter jahnke , December 14, 2016 at 6:14 pm

would someone explain why the greenspan changes , which were supposed to keep social security solvent, did not, I've googled the history and the only answers seem to be that the trust had trillions in surplus that were used to pay off other obligations, , which I do know that the funds were used to lower the deficits in previous years, but wouldn't the surplus still be there? Explanation please by someone knowledgeable about the history and why the problems now

Oregoncharles , December 14, 2016 at 6:45 pm

"Well, which is he, "at the top of the scale" or an "average earner"?"

Oops. Even I understand that one. It means he earned an AVERAGE of $118,500, the maximum that SS taxes.

Next question: what kind of idiot actually introduces a bill to cut Social Security? One who plans on a lucrative retirement from politics, that's what kind.

Altandmain , December 14, 2016 at 8:28 pm

Sadly the Democrats will just go along with it.

Maybe the left wing (represented by Sanders) might put up a fight, but they don't have the power to stop this.

The US is rapidly becoming a feudal society.

aab , December 14, 2016 at 8:39 pm

Protesting the proposed policies of President who owns real properties of value in media-drenched major cities that require the labor of lower income workers on a daily basis might be more effective than protesting a President whose wealth is almost entirely stored in secret, offshore bank accounts.

Let's hope, anyway.

David , December 14, 2016 at 9:44 pm

"The trouble with Sneed's article is that she does not appear to know what she is talking about. She just wrote down what some "experts" told her with no idea what the words mean."
You missed the question, is it the writer or the policy of the site?

[Oct 24, 2016] Chris Wallace, Supply, Demand, and the Government Budget Deficit

Notable quotes:
"... Second, it is important to note that the size of the projected shortfall in the Medicare Part A program (the portion funded by its own tax) has fallen sharply in the Obama years. The shortfall for the 75-year planning horizon was projected at 3.53 percentage points of payroll in 2009, the first year of the Obama presidency. It has now fallen by 80 percent to just 0.73 percent of payroll. This reduction is due to a sharp slowdown in the projected growth of health care costs. Some of this predates the Affordable Care Act (ACA), but some of the slowdown is undoubtedly attributable to the impact of the ACA. ..."
"... On Chris Wallace's question, we know now from Hillary Clinton's Wall Street speeches that her plan on debt and entitlements is to support the elitist Bowles-Simpson project, the centerpiece of which was raising the age for Medicare and Social Security. Who do you think Hillary is lying to about benefits - everyday Americans like you (who she deplores) or her Wall Street backers? ..."
"... Japan has been doing this deficit spending thing for 20+ years and borrowed an enormous amount of money. It has not solved anything. Growth continues to be elusive. Progressive economists keep whistling by the graveyard. And the conservatives just want to cut taxes. Both groups look like medieval doctors who prescribe bloodletting no matter what the illness is. Oh, the dismal science! ..."
"... She proudly proclaimed that her programs would not add to the national debt implying no increase in deficit spending. She ridiculed Trump because his tax plan would add significantly to the deficit and national debt. Clearly she wants to portray an image of fiscal responsibility and Wallace's question allowed her to go down that path. ..."
Oct 24, 2016 | cepr.net
At the debate last night, moderator Chris Wallace challenged both candidates on the question of cutting Social Security and Medicare. The implication is that the country is threatened by the prospect of out of control government deficits. The question was misguided on several grounds.

First, as a matter of law the Social Security program can only spend money that is in the trust fund. This means that, unless Congress changes the law, the program can never be a cause of runaway deficits.

Second, it is important to note that the size of the projected shortfall in the Medicare Part A program (the portion funded by its own tax) has fallen sharply in the Obama years. The shortfall for the 75-year planning horizon was projected at 3.53 percentage points of payroll in 2009, the first year of the Obama presidency. It has now fallen by 80 percent to just 0.73 percent of payroll. This reduction is due to a sharp slowdown in the projected growth of health care costs. Some of this predates the Affordable Care Act (ACA), but some of the slowdown is undoubtedly attributable to the impact of the ACA.

Anyhow, the implication of Wallace's question, that these programs are somehow out of control and require some near term fix, is not supported by the data. We will have to make changes to maintain full funding for Social Security, but there is no urgency to this issue.

On the more general point of deficits, the country's problem since the crash in 2008 has been deficits that are too small, not too large. The main factor holding back the economy has been a lack of demand, not a lack of supply. Deficits create more demand, either directly through government spending or indirectly through increased consumption. If we had larger deficits in recent years we would have seen more GDP, more jobs, and, due to a tighter labor market, higher wages.

The problem of too small deficits is not just a short-term issue. A smaller economy means less investment in new plant and equipment and research. This reduces the economy's capacity in the future. In the same vein, high rates of unemployment cause people to permanently drop out of the labor force, reducing our future labor supply if these people become unemployable. (Having unemployed parents is also very bad news for the kids who will have worse life prospects.)

The Congressional Budget Office now puts potential GDP at about 10 percent lower for 2016 than its projection from 2008, before the recession. Much of this drop is due the decision to run smaller deficits and prevent the economy from reaching its potential level of output. We can think of this loss of potential output as a "austerity tax." It currently is at close to $2 trillion a year or more than $6,000 for every person in the country.

It is unfortunate that Wallace chose to devote valuable debate time to a non-problem while ignoring the huge problem of needless unemployment and lost output due to government deficits that are too small.

WDG • 4 days ago
On Chris Wallace's question, we know now from Hillary Clinton's Wall Street speeches that her plan on debt and entitlements is to support the elitist Bowles-Simpson project, the centerpiece of which was raising the age for Medicare and Social Security. Who do you think Hillary is lying to about benefits - everyday Americans like you (who she deplores) or her Wall Street backers?

pieceofcake 4 days ago

and the nerve of this Wallace dude and the nerve of all these other... so called journalist on this show?

Wallace even didn't notice - the whole time!! - that it was Alec Baldwin -(and not Trump) - who answered his silly questions - and then the nerve of the so called 'media' to praise Wallace - that he didn't notice that Alec Baldwin answered his questions.

... ... ...

NN 4 days ago
I am perfectly fine with running deficits to get out of a recession and compensate for temporary shortfall in private demand. Isn't this the original idea behind deficit spending? But we are 7 years out of a recession.

Japan has been doing this deficit spending thing for 20+ years and borrowed an enormous amount of money. It has not solved anything. Growth continues to be elusive. Progressive economists keep whistling by the graveyard. And the conservatives just want to cut taxes. Both groups look like medieval doctors who prescribe bloodletting no matter what the illness is. Oh, the dismal science!

Paul NN 4 days ago
The Japanese yen is severely overvalued and therefore Japan's exports no longer can sustain GDP growth as they did in the past. Combined with Japan's anemic consumer demand, there is nothing but government spending to spur growth. If Japan now cut its deficit spending, its economy would collapse.
michael garneau carolindenver 2 days ago
My point is that American health care is profit driven. The private health insurer companies drive up the costs in all sectors of health care - whether that be for a simple phlebotomy test or a urinary catheter or...., or for a visit to a cardiologist after initial treatment for angina in an emergency dep't.

Health care should be considered a basic human right in any country and not one that is affected by the amount a person can pay - or the quality of private insurance a person can afford. I worked in the field for 33 years before retiring and what I saw was, in many cases, very sad and unfortunate. Those who had money went on with their lives and those who did not often simply died. That is no way to manage any society.

carolindenver michael garneau a day ago
Dear Michael,I am in TOTALl agreement with you but, as a very satisfied Kaiser Permanente member, I am a little defensive about maligning the term "HMO" which, I believe, is a beacon of hope for "Best Practices" in our current profit driven health delivery mess. I am a retired RN who watched first hand as the system became ruled by consolidation and greed. I remember in the 1980s being told that consolidation would bring cost down. What a joke that was. So I am working for single payer, Medicare for all. Carol
stewarjt 4 days ago
"It is unfortunate that Wallace chose to devote valuable debate time to a
non-problem while ignoring the huge problem of needless unemployment
and lost output due to government deficits that are too small." -D. Baker

That's Wallace's job and he does it expertly.

JaaaaaCeeeee stewarjt 4 days ago
Well, not so much expertly as doggedly, with enthusiasm, and without letting anything like arithmetic or reality interfere.
Francisco Flores 4 days ago
We should have a Full Employment Fiscal Policy coupled with a Federal Job Guaranty would put an end to this discussion. Funding the entitlements are not an issue - although the law may need to be revised - as the government can issue its currency without a problem - inflation being the constraint. (The increase in demand for apartments, cable subscriptions, and shuffleboards are unlikely to trigger uncontrolled inflation.)
AlanInAZ • 4 days ago
Dean thinks the debt is not a problem but the majority of voters Clinton was trying to reach probably do think it is a problem. She proudly proclaimed that her programs would not add to the national debt implying no increase in deficit spending. She ridiculed Trump because his tax plan would add significantly to the deficit and national debt. Clearly she wants to portray an image of fiscal responsibility and Wallace's question allowed her to go down that path.
AlanInAZ NP 4 days ago
I did not say that she did not propose to increase spending - just that she would not increase the debt because everything is "paid for". If everything is paid for by tax increases then there is no near term stimulus to the overall economy. There may be long term benefits if the projects are worthwhile but that will take years to surface. She also declined to defend the benefits of fiscal stimulus after the financial crisis. People hear what they want to hear from these debates.
NP AlanInAZ 4 days ago
I think you are wrong about the near term benefits of taxing wealthy people and then using that money for public spending. The propensity of the wealthy for spending is low and therefore if you take some of their money and spend it it will be stimulative.
AlanInAZ NP 3 days ago
I am aware of this ptc argument but find it weak. I know plenty of "wealthy" couples who save very little. Anyhow, even if there is some merit to the argument why not borrow now at almost zero cost and ensure the maximum stimulus.

Another factor - public spending may not find its way into the lowest income levels of our society. Infrastructure projects, for example, will enrich contractors and materials industries as much or more than the individual workers. Also, they take a long time to get started as there really is no such thing as shovel ready. Couple the protracted startup with higher taxes and you get very little near term benefit.

Francisco Flores AlanInAZ 3 days ago
This whole discussion is of course mute since running deficits does not crowd out investing. And increasing the debt has no negative implication other then the political effects. The government can print money and spend money. If it runs deficits it can keep interest rates low by buying securities.
jumpinjezebel 4 days ago
We need to stimulate DEMAND Now to get the economy revved up and the money flowing. Best way is the change Social Security such that it doesn't kick in until the earner has made $10,000 (i.e.) and account for that by lifting the cap accordingly such that 90% of all earned income is taxed: just as it used to be when Reagan/?? fixed it. Just think what all that money would do in the economy. It would not be used to by back stock or inflate golden parachutes. It would be immediately spent. It would be DEMAND.

[Oct 24, 2016] The Peter Peterson-Washington Post deficit hawk gang keep trying to scare us into cutting Social Security and Medicare

Oct 24, 2016 | economistsview.typepad.com

anne : October 23, 2016 at 02:04 PM , 2016 at 02:04 PM

http://cepr.net/blogs/beat-the-press/the-173-trillion-austerity-tax-in-the-infinite-horizon

October 23, 2016

The $173 Trillion Austerity Tax in the Infinite Horizon
By Lara Merling and Dean Baker

The Peter Peterson-Washington Post deficit hawk gang keep trying * to scare us into cutting Social Security and Medicare. If we don't cut these programs now, then at some point in the future we might have to cut these program or RAISE TAXES.

There are many good reasons not to take the advice of the deficit hawks, but the most immediate one is that our economy is suffering from a deficit that is too small, not too large. The point is straightforward, the economy needs more demand, which we could get from larger budget deficits. More demand would lead to more output and employment. It would also cause firms to invest more, which would make us richer in the future.

The flip side in this story is that because we have not been investing as much as we would in a fully employed economy, our potential level of output is lower today than if we had remained near full employment since the downturn in 2008. The Congressional Budget Office estimates that potential GDP in 2016 is down by 10.5 percent (almost $2.0 trillion) from the level it had projected for 2016 back in 2008, before the downturn.

This is real money, over $6,200 per person. But if we want to have a little fun, we can use a tactic developed by the deficit hawks. We can calculate the cost of austerity over the infinite horizon. This is a simple story. We just assume that we will never get back the potential GDP lost as a result of the weak growth of the last eight years. Carrying this the lost 10.5 percent of GDP out to the infinite future and using a 2.9 percent real discount rate gives us $172.94 trillion in lost output. This is the size of the austerity tax for all future time. It comes to more than $500,000 for every person in the country.

By comparison, we can look at the projected Social Security shortfall for the infinite horizon. According to the most recent Social Security Trustees Report, ** this comes to $32.1 trillion. (Almost two thirds of this occurs after the 75-year projection period.) Undoubtedly many deficit hawks hope that people would be scared by this number. But compared to the austerity tax imposed by the deficit hawks, it doesn't look like a big deal.

* http://www.nytimes.com/2016/10/22/opinion/ignoring-the-debt-problem.html

** https://www.ssa.gov/OACT/TR/2016/VI_F_infinite.html#1000194

[Oct 23, 2016] How 401(k) Plans Stack the Deck to Get Chump Investors to Sign Up for Doggy Sponsor Funds

Notable quotes:
"... When I signed up for a 401k at my previous job, I wanted to invest in the S&P index fund, as it was the lowest cost option. Given that Putnam used their own fund, it charged 0.35% at a time when Vanguard was at 0.07% and Fidelity at 0.10%. ..."
"... Rule of 72 says that at 7% return for ten years would be $20,000 not $136K. ..."
"... Washington has proven itself incapable of managing its money (our taxes) prudently and efficiently because of our corrupt representatives putting their electoral and personal interests first. The 401K experiment has failed. Very few individuals will be able to rely on them for retirement security, and of those most hail from the higher income brackets. They do virtually nothing for retirement security for the vast, vast majority of the country. ..."
"... Social Security is a proven, cost effective, and reliable deliverer of retirement income for our entire population. 401K's will never come close, and in fact aren't worth shit to most people. But that is not what matters in Washington. ..."
"... The Plan administrator has a fiduciary obligation to manage the options. The administrator can put pressure to make non-Sponsor funds available. With a total company 401k of only about $5mm, I was able to pressure our 401K plan Sponsor to provide access to lower cost equivalent portfolios for investment options such as S&P 500, Russell 2000 and a long-term bond yield (via Vanguard and Fidelity). ..."
"... Difficult to reconcile this with the Department of Labor's new fiduciary rule, which reportedly requires financial advisers to place the interests of clients with retirement-saving accounts ahead of their own. I have read that it will be implemented sometime next year, assuming there are no additional delays. (hat tip Barry Ritholtz) ..."
Oct 23, 2016 | www.nakedcapitalism.com
Cocomaan October 21, 2016 at 6:56 am

Thanks for this analysis. I have a 403b through my institution of higher Ed, specifically Tiaa. Their funds are kind of lousy (compared, say, to a vanguard index) and there's little choice in which funds seem to be available from one institution to another.

The idea that workers will somehow sit down and process the numbers surrounding badly performing funds, and then redistribute, is a fantasy. Who has the financial literacy to do that? Like healthcare,it's another area of personal finance where people are expected to take on time consuming and complex administrative duties.

Mandatory 401s sounds just great. Can't wait. "You give me your money, you tell me where to put it among crappy options, wait forty years, and you may or may not ever see it again, based on the quality of your choices. Pleasure doing business with you."

Larry October 21, 2016 at 7:18 am

I love the last line, because it applies to almost everything in our society today: far more scrutiny and oversight. Thanks to Naked Capitalism for turning up the scrutiny.

Mark John October 21, 2016 at 7:59 am

We are going to have a fight on our hands if and when HRC gets elected. The fact that our politicians have gotten away with weakening New Deal programs that actually worked well is all the evidence I need to believe they are not finished with their attack.

Scott October 21, 2016 at 9:06 am

When I signed up for a 401k at my previous job, I wanted to invest in the S&P index fund, as it was the lowest cost option. Given that Putnam used their own fund, it charged 0.35% at a time when Vanguard was at 0.07% and Fidelity at 0.10%.

James October 21, 2016 at 10:29 am

If you put $10k into the fund at 35 bps, you'd have $136k at the end of 10 years (assuming 7% gross return). if you got it at 7 bps, you'd have $137k. Now, if you'd bought a loaded A share American Fund with a 5.75% sales load and a 65 bps expense ratio, you'd have $126k.

The principle of low fees is important, but you're effectively there with the 35 bps fund.

Rule of 72 October 22, 2016 at 1:12 pm

Rule of 72 says that at 7% return for ten years would be $20,000 not $136K.

griffen October 22, 2016 at 6:49 pm

that is 10k per annum as contribution. mathing on saturday can be hardi know

JW October 21, 2016 at 4:47 pm

exactly. then, what's the 401k management fee on top of that?

KYrocky October 21, 2016 at 10:03 am

"…investors might be vigilant enough to recognize that their interests are not being well served…"

Come on. Really. I would wager that the percentage of people knowledgeable and sophisticated enough to do so at well under 0.1% of the population. The entire system of 401 retirement plans has been constructed for the purpose of fleecing undisclosed fees from us suckers forced into these plans.

Washington has proven itself incapable of managing its money (our taxes) prudently and efficiently because of our corrupt representatives putting their electoral and personal interests first. The 401K experiment has failed. Very few individuals will be able to rely on them for retirement security, and of those most hail from the higher income brackets. They do virtually nothing for retirement security for the vast, vast majority of the country.

Social Security is a proven, cost effective, and reliable deliverer of retirement income for our entire population. 401K's will never come close, and in fact aren't worth shit to most people. But that is not what matters in Washington.

cdub October 21, 2016 at 10:56 am

I see this as akin to a Board of Driectors governance issue.

The Plan administrator has a fiduciary obligation to manage the options. The administrator can put pressure to make non-Sponsor funds available. With a total company 401k of only about $5mm, I was able to pressure our 401K plan Sponsor to provide access to lower cost equivalent portfolios for investment options such as S&P 500, Russell 2000 and a long-term bond yield (via Vanguard and Fidelity).

All it required was performing the minimums of being a 401k plan administrator. Quarterly monitoring of fund performance versus peers via a service like Morningstar (took 4 hours to prebuild screens that displayed QonQ, YonY and 3Yon3Y), pressing the Sponsor for alternatives and then refusing the steak dinner to discuss with the Sponsor. I mean for crying out loud this is really simple. And of course if your plan administrator isn't doing this minimum I'm sure they have fiduciary insurance so there are alternatives.

Of course many people aren't willing to ask/press these questions of their employer/HR. I've seen plans administered exceptionally well (utility with a union for about 1/3 of employees and small family energy firm) and poorly (some larger energy companies). Why somebody doesn't provides this administrator function as an outsource is beyond me. The real liability can be quite high and pushing off to a 3rd party who does just that would seem worth the $.

P Fitzsimon October 21, 2016 at 10:58 am

My 401K was administered by Fidelity and I believe there were no restrictions whatsoever. I could invest in any Fidelity fund or actually any fund through a brokerage account. If you didn't use a Fidelity brokerage account offered by the plan as an option your choices were restricted.

enzica October 21, 2016 at 12:12 pm

I think you meant 'dodgy', not 'doggy'.

Vatch October 21, 2016 at 2:12 pm

Yes, thank you. I was going to comment on that, but you're way ahead of me.

Doggy funds belong in the Antidote du jour.

Yves Smith Post author October 21, 2016 at 5:52 pm

No, I mean "doggy" as in the performance is bad. "That fund is a dog".

"Dodgy" means the ethics are questionable.

Mattie October 22, 2016 at 7:42 am

They are often dodgy too. Great-west/Empower does a real bait and switch on the options offered for certain 401A funds were there is deeply buried disclosure about proprietary versions charging much higher fees, than the term sheet prominently displayed as "this is what you're buying if you select this fund". This is a real racket

Arizona Slim October 21, 2016 at 5:01 pm

I'm of the mind that people should be investors because they *want* to, not because they *have* to. Even then, investing is not easy.

Can't help agreeing with Joe Nocera, who said that investing is a talent that most people will never have.

oceaniris October 22, 2016 at 1:15 pm

Yves, article and analysis insightful, thanks again. "Doggy" in title makes sense, but "dodgy" may apply as well to Fidelity specifically, read on. Stumbled on to Reuters write up by Tim McLaughlin about Fidelity this month and began a search for a new money management firm with a "fiduciary" bone in it's body: http://www.reuters.com/article/us-usa-fidelity-family-specialreport-idUSKCN1251BG .
Though the article indicates Fidelity's behavior is not "illegal nor unethical" – Yale University law professor John Morley said Fidelity runs the risk of losing investors by competing with the funds that serve them.

"What they're doing is not illegal, not even unethical," Morley said. "But it's entirely appropriate for mutual fund investors to take their money elsewhere because Fidelity has made a decision to take away some of their potential returns."

Many of us are trapped in the DC funds our employers establish for us. As cdub referenced, pressuring plan administrators is one way to change options or broaden offerings – but one needs to understand what pressure to apply.

Morely said it best and I will move on…..
.

Chauncey Gardiner October 22, 2016 at 6:35 pm

Difficult to reconcile this with the Department of Labor's new fiduciary rule, which reportedly requires financial advisers to place the interests of clients with retirement-saving accounts ahead of their own. I have read that it will be implemented sometime next year, assuming there are no additional delays. (hat tip Barry Ritholtz)

[Oct 21, 2016] Clinton Promises to Increase Social Security Tax

www.strategic-culture.org

So: Hillary Clinton has already said that she will raise Social Security taxes on people who make less than $118,500 per year, but Donald Trump has not indicated whether he will impose Social Security taxes on income above $118,500 per year.

Other proposals that have been pushed in order to "replenish the Social Security Trust Fund" - or to achieve the long-term stability of the Social Security system - mainly focus on three approaches:

One is privatizing Social Security, as Wall Street wants, and which proposal is based on private gambles that the assets that are purchased by the Wall Street firm for the individual investor will continually increase in value, never plunge, and never be reduced by annual charges to pay Wall Street's fees for management and for transactions, throughout the worker's career until retirement.

Another approach is gradually reducing the inflation-adjuster for benefits, the inflation-adjusted value of the benefits that Social Security recipients will be receiving. President Obama had been trying to get congressional Republicans to agree with him to do that (which some call "the boiling-frog approach" because it's applied so gradually), but they continued to hold out for privatizing Social Security, and thus nothing was done.

And the third option is to increase the retirement-age, as Obama also wanted to do (and which is really just another form of "boiling-frog approach"), but also couldn't get congressional Republicans to accept that. (Trump's comment to "Not increase the age and to leave it as it is" is a clear repudiation by him of this approach. And his promise to not increase taxes would, if taken seriously, also prohibit him from endorsing Hillary Clinton's approach.)

Investigative historian Eric Zuesse is the author, most recently, of They're Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST'S VENTRILOQUISTS: The Event that Created Christianity.

[Oct 20, 2016] Blackstone Groups Tony James, likely to be Clintons Sec of Treasury, advocates a hedgfund enriching scheme involving MANDATORY government savings plan on all Amercans

Notable quotes:
"... Mr. James recommended a proposal by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School in New York, to create a retirement savings plan for everyone based on 3% annual salary contributions shared equally among employees and employers. The federal government would guarantee a 2% return, through a modest insurance premium on such accounts . "With corporate profits at an all-time high, this should be a manageable burden," he said, adding that the approach "is going to require us to look beyond the next election cycle." ..."
www.zerohedge.com

Cheapie -> css1971 Oct 19, 2016 9:20 AM

Blackstone Group's Tony James, likely to be Clinton's Sec of Treasury, advocates a hedgfund enriching scheme involving MANDATORY government savings plan on all Amercans.

Tony James head of the crooked Blackstone Group, a giant hedge fund connected to many state pension funds, is likely to be Clinton's Treasury Sec. Hedge funds have donated 125 million to Crooked Hillary, 20k to Trump. This is thievery on the grand, epic biblical scale with the usual bs about "helping" people.

"We absolutely have to start now," Mr. James said at a Center for American Progress conference in Washington on Wednesday. " It has to be mandated . Nothing short of a mandate will provide future generations a secure retirement."

Mr. James recommended a proposal by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School in New York, to create a retirement savings plan for everyone based on 3% annual salary contributions shared equally among employees and employers. The federal government would guarantee a 2% return, through a modest insurance premium on such accounts . "With corporate profits at an all-time high, this should be a manageable burden," he said, adding that the approach "is going to require us to look beyond the next election cycle."

Mr. James also called for redirecting $120 billion in annual retirement tax deductions to give every worker a $600 annual tax credit to save for retirement.

small search brings up deluge of corruption, payoffs etc.

  • http://www.reuters.com/article/us-blackstone-lawsuit-idUSBRE97S0NA20130829
  • http://blogs.wsj.com/corruption-currents/tag/blackstone-group/
  • http://www.businessinsider.com/sec-probes-banks-buyout-shops-over-dealings-with-sovereign-funds-2011-1
  • http://www.ibtimes.com/political-capital/hillary-clinton-denounces-corporate-crime-while-accepting-cash-blackstone-firm
  • http://www.economicpopulist.org/content/one-thousand-names-fraud
  • https://www.ft.com/content/0cee0c66-1e3e-11e4-bb68-00144feabdc0
  • http://nypost.com/2014/08/14/seaworld-shares-dive-but-blackstone-on-a-perfect-wave/
  • https://libertyblitzkrieg.com/2014/05/05/leaked-documents-show-how-blackstone-fleeces-taxpayers-via-public-pension-funds/
  • https://pando.com/2014/05/05/leaked-docs-obtained-by-pando-show-how-a-wall-street-giant-is-guaranteed-huge-fees-from-taxpayers-on-risky-pension-investments/
  • [Sep 27, 2016] Contrary to What AP Tells You, Social Security Is NOT a Main Driver of the Countrys Long-term Budget Problem

    Sep 27, 2016 | economistsview.typepad.com

    anne : Tuesday, September 27, 2016 at 05:05 AM

    http://cepr.net/blogs/beat-the-press/contrary-to-what-ap-tells-you-social-security-is-not-a-main-driver-of-the-country-s-long-term-budget-problem

    September 27, 2016

    Contrary to What AP Tells You, Social Security Is NOT a Main Driver of the Country's Long-term Budget Problem

    The New York Times ran a short Associated Press piece * on Social Security and "why it matters." The piece wrongly told readers that Social Security is "a main driver of the government's long-term budget problems." This is not true. Under the law, Social Security can only spend money that is in its trust fund. If the trust fund is depleted then full benefits cannot be paid. The law would have to be changed to allow Social Security to spend money other than the funds designated for the program and in that way contribute to the deficit.

    The piece also plays the "really big number" game, telling readers:

    "the program faces huge shortfalls that get bigger and bigger each year.In 2034, the program faces a $500 billion shortfall, according to the Social Security Administration. In just five years, the shortfalls add up to more than $3 trillion.

    "Over the next 75 years, the shortfalls add up to a staggering $139 trillion. But why worry? When that number is adjusted for inflation, it comes to only $40 trillion in 2016 dollars - a little more than twice the national debt."

    Since this is talking about shortfalls projected to be incurred over a long period of time, it would be helpful to express the shortfall relative to the economy over this period of time, not debt at a point in time. This is not hard to do, since there is a table ** right in the Social Security trustees report that reports the projected shortfall as being equal to 0.95 percent of GDP over the 75-year forecasting horizon. By comparison, the costs of the war in Iraq and Afghanistan came to around 1.6 percent of GDP at their peaks in the last decade.

    The piece also gets the reason for the projected shortfall wrong. It tells readers:

    "In short, because Americans aren't having as many babies as they used to. That leaves relatively fewer workers to pay into the system. Immigration has helped Social Security's finances, but not enough to fix the long-term problems.

    "In 1960, there were 5.1 workers for each person getting benefits. Today, there are about 2.8 workers for each beneficiary. That ratio will drop to 2.1 workers by 2040."

    Actually the drop in the birth rate and the declining ratio of workers to beneficiaries had long been predicted. The reason that the program's finances look worse than when the Greenspan commission put in place the last major changes in 1983 is the slowdown in wage growth and the upward redistribution of wage income so that a larger share of wage income now goes untaxed.

    In 1983, only 10 percent of wage income was above the payroll tax cap. Today it is close to 18 percent. This upward redistribution explains more than 40 percent *** of projected shortfall over the next 75 years.

    It is also worth noting that the loss in wage income for most workers to upward redistribution swamps the size of any tax increases that could be needed to maintain full funding for the program. While AP wants to get people very worried over possible tax increases in future years, it would rather they ignore the policies (e.g. trade, Federal Reserve policy, Wall Street policy, patent policy) that have taken money out of the pockets of ordinary workers and put it in the hands of the rich.

    * http://www.nytimes.com/aponline/2016/09/27/business/ap-us-campaign-2016-why-it-matters-social-security.html

    ** https://www.ssa.gov/OACT/TR/2016/VI_G2_OASDHI_GDP.html#200732

    *** http://www.cepr.net/index.php/blogs/cepr-blog/the-impact-of-the-upward-redistribution-of-wage-income-on-social-security-solvency

    -- Dean Baker

    Reply Tuesday, September 27, 2016 at 05:05 AM Foreign Kidnappers said in reply to anne... , Tuesday, September 27, 2016 at 05:21 AM

    fewer workers to pay into the system. Immigration has helped Social Security's finances, but not enough to fix the long-term
    "
    ~~dB~

    Fewer workers who on balance draw smaller pay-check-s within a World of rising prices. Can you see the long trend of inflation? Do you see how the price of a t-bond has risen steady on during the past 35 years? As the bond price rises the yield falls. Do you see how much?

    This is a long term unstoppable inflation that raises the price of all ships. All nursing homes and all ships!

    Holy
    ship --

    Paine -> anne... , Tuesday, September 27, 2016 at 07:23 AM
    Dean in high gear
    Remove the taxable compensation exclusions and caps
    Julio -> anne... , Tuesday, September 27, 2016 at 01:39 PM
    That's 139 Trillion with a capital "T", and that rhymes with "P", and that stands for pool!

    And don't look at guys like me to save Social Security. My unfunded liability for kids shoes alone is over $20,000, and that's assuming they leave home at 18.

    anne : , Tuesday, September 27, 2016 at 05:08 AM
    http://cepr.net/publications/op-eds-columns/time-to-treat-bank-ceos-like-adults

    September 26, 2016

    Time to Treat Bank CEOs Like Adults
    By Dean Baker

    The country's major banks are like trouble-making adolescents. They constantly get involved in some new and unimagined form of mischief. Back in the housing bubble years it was the pushing, packaging and selling of fraudulent mortgages. Just a few years later we had JP Morgan, the country's largest bank, incurring billions in losses from the gambling debts of its "London Whale" subsidiary. And now we have the story of Wells Fargo, which fired 5,300 workers for selling phony accounts to the bank's customers.

    It is important to understand what is involved in this latest incident at Wells Fargo. The bank didn't just discover last month that these employees had been ripping off its customers. These firings date back to 2011. The company has known for years that low-level employees were ripping off customers by assigning them accounts -- and charging for them -- which they did not ask for. And this was not an isolated incident, 5,300 workers is a lot of people even for a huge bank like Wells Fargo.

    When so many workers break the rules, this suggests a problem with the system, not bad behavior by a rogue employee. And, it is not hard to find the problem with the system. The bank gave these low level employees stringent quotas for account sales. In order to make these quotas, bank employees routinely made up phony accounts. This practice went on for five years.

    As it became aware of widespread abuses, it's hard to understand why the bank would not change its quota system for employees. One possibility is that they actually encouraged this behavior, since the new accounts (even phony accounts) would be seen as good news on Wall Street and drive up the bank's stock price.

    Certainly Wells Fargo CEO John Stumpf, as a major share and options holder, stood to gain from propping up the stock price, as pointed out by reporter David Dayan. In keeping with this explanation, Carrie Tolsted, the executive most immediately responsible for overseeing account sales, announced her resignation and took away $125 million in compensation. This is equal to the annual pay of roughly 5,000 starting bank tellers at Wells Fargo. That is not ordinarily the way employees are treated when they seriously mess up on the job.

    Regardless of the exact motives, the real question is what will be the consequences for Stumpf and other top executives. Thus far, he has been forced to stand before a Senate committee and look contrite for four hours. Stumpf stands to make $19 million this year in compensation. That's almost $5 million for each hour of contrition. Millions of trouble-making high school students must be very jealous.

    There is little reason for most of us to worry about Stumpf contrition, or lack thereof. His bank broke the law repeatedly on a large scale. And, he was aware of these violations, yet he nonetheless left in place the incentive structure that caused them. In the adult world this should mean being held accountable.

    This is not a question of being vindictive towards Stumpf, it's a matter of getting the incentives right. If the only price for large-scale law breaking by the top executives of the big banks is a few hours of public shaming, but the rewards are tens of millions or even hundreds of millions in compensation, then we will continue to see bankers disregard the law, as they did at Wells Fargo and they did on a larger scale during the run-up of housing bubble.

    There is another aspect to the Wells Fargo scandal that is worth considering. Insofar as the bank was booking revenue on accounts that didn't exist, it was also ripping off the banks' shareholders. The shareholders' interests are supposed to be protected by the bank's board of directors.

    It doesn't seem the shareholders got much help there....

    anne -> anne... , Tuesday, September 27, 2016 at 06:09 AM
    http://www.nytimes.com/2016/09/27/business/dealbook/wells-fargo-workers-claim-retaliation-for-playing-by-the-rules.html

    September 26, 2016

    Wells Fargo Workers Claim Retaliation for Playing by the Rules
    By STACY COWLEY

    In two lawsuits seeking class-action status, workers say they were fired or demoted for acting ethically and falling short of unrealistic sales goals.

    Paine -> anne... , Tuesday, September 27, 2016 at 07:31 AM
    Really important
    pgl -> anne... , Tuesday, September 27, 2016 at 08:19 AM
    Rehire the staff. Fire the CEO.
    EMichael -> anne... , Tuesday, September 27, 2016 at 09:06 AM
    This isn't going to be popular in here, and I do not even like saying it, but the timing of these lawsuits suggest to me ambulance chasing.

    Unless someone can tell me how it is possible for these employees to accept this treatment for years and years until the CFPB fines Wells Fargo.

    pgl -> EMichael... , Tuesday, September 27, 2016 at 09:18 AM
    Cellino & Barnes? I hope these plaintiffs have been attorneys than that. But yea - having a government agency make your case is a good idea as I'm sure top Wells Fargo management has hired some nasty defense attorneys.
    EMichael -> pgl... , Tuesday, September 27, 2016 at 09:26 AM
    Not my point.

    California has some of the strongest whistle blower protections in the country.

    I find it remarkable that(and I have tried but failed to find any evidence) not one of these mistreated employees filed a lawsuit years ago. The firings started in 2011. Are you telling me these employees sat around for 5 years without a single one of them taking action?

    The other part that bothers me is this bonus level goal. Wells Fargo is not the only company in the world that sets their bonus levels at points that are almost impossible to obtain.

    I do not see why that is an issue at all.


    pgl -> EMichael... , Tuesday, September 27, 2016 at 09:46 AM
    Not talking whistle blower protections. Firms like Cellino and Barnes only take cases where they know they can win. Then again - I am talking about a dirt bag law firm. Why bring a case when the odds are stacked against you? But I think what you are pointing out is they is a new sheriff in town with respect to gathering the facts - which of course is always key in winning any law suit.
    pgl -> EMichael... , Tuesday, September 27, 2016 at 09:47 AM
    "not one of these mistreated employees filed a lawsuit years ago".

    A lot of women who have been raped don't bother to prosecute the creep thinking they can't win anyway. This may have been the thinking of these employees until now.

    EMichael -> pgl... , Tuesday, September 27, 2016 at 10:04 AM
    0 for 5300 is mind boggling.

    I am not saying the law firm is incompetent, I am saying it seems to me they are taking a case where WF might not want to deal with more bad pr and settle.

    The only people, from what I have seen of this case, that have a chance to win on the merits are those who claimed they called the ethics department at Wells and were fired for that action.

    Julio -> EMichael... , Tuesday, September 27, 2016 at 11:19 AM
    Yes, the lawyers are circling like vultures.
    But it just shows that lawyers evaluate cases before taking them on, and that the cases' prospects depend on public opinion.

    In addition, it is much easier for people to feel empowered, talk to lawyers, and fight back if they don't feel isolated and vulnerable to retaliation.

    cm -> anne... , Tuesday, September 27, 2016 at 09:35 AM
    "the executive most immediately responsible for overseeing account sales, announced her resignation and took away $125 million in compensation. ... That is not ordinarily the way employees are treated when they seriously mess up on the job."

    Based on (public) evidence available to me, I have to inform you that this *is* ordinarily the way how the higher executive ranks are treated when the have to leave because of a serious blunder. In many cases, the termination package is written into their contract, with exceptions mostly for criminal malfeasance, breach of contract, and that type of thing, or if the management/board deems it is better for everybody else to "convince" the undesired executive to leave without a big splash, then they will sweeten the deal.

    As I have seen in tech, in many companies the rank-and-file are treated to similar arrangements, only the amounts are several orders of magnitude lower. But it is not very common for somebody to be outright fired without severance. There are commonly provisions like a few weeks of salary continuation per year of service, or offering a small sum to get a quick exit instead of a drawn out and arduous process of managing somebody out and "documenting" everything.

    EMichael -> anne... , Tuesday, September 27, 2016 at 10:52 AM
    Here's the part that bothers me about this.(and once again I will mention that I feel almost dirty defending bank execs).

    " large-scale law breaking by the top executives of the big banks".

    I don't get this at all. It seems that setting huge bonus numbers is somehow large scale law breaking.

    But let's look at the real numbers is some perspective here(which is usually Baker's thing).

    The idea seems to be that Stumpf came up with this idea to open accounts that people did not know they had. Those accounts would both generate revenue and allow him to talk about the growth of accounts in the bank.

    I have seen nothing that shows how many accounts were opened illegally(I would like to see that) and nothing to show how many legal accounts were opened during this time frame. With that info you could put this into perspective how Stumpf and other high level execs gained from this action.

    That being said I know one thing. People who had accounts opened illegally were returned the fees that they paid. That total is $5 million. Not a lot of revenue but it kind of makes sense. You cannot charge people a lot of fees with products they do not even know they have. there is no way in the world that anyone can think there was going to be a lot of money made on accounts that were, to all intents and purposes, dead.

    Meanwhile, in the time period that this case covers, Wells Fargo had profits of almost $100 billion. To think the CEO is going to worry about such an insignificant amount of revenue by "planning" an illegal action is absurd.

    I am all in in the bank CEOs committing fraud during the bubble, there was a huge amount of profit to be made. But to think this thing came from the top, or even five or six levels down, is silly. There is no reason.

    This was the case of front line people committing fraud to make money. It was also the case of their managers to encourage and/or allow that fraud to make money.

    Wells certainly deserves the punishment for allowing this fraud to happen, but thinking it originated in the executive offices makes no sense from an standpoint.

    Paine -> EMichael... , Tuesday, September 27, 2016 at 11:38 AM
    It takes courage to defend top management
    Of a oligop bank
    Peter K. -> Paine ... , Tuesday, September 27, 2016 at 01:01 PM
    EMichael hates lefites. He gets off on baiting them (us).
    paine -> Peter K.... , -1
    Let us enjoy the attention

    [Mar 04, 2016] Naïve Siegelism

    www.nakedcapitalism.com

    Jim Haygood , March 3, 2016 at 9:55 am

    'a retirement plan ultimately depends on the future earning power of the economy'

    That's why all modern pension plans hold some equities.

    An individual's cost to own one diversified equity fund and one diversified bond fund is about 0.1% per year. Whereas the expected benefit (compared to SocSec's all Treasury portfolio) is about 3.0% annually.

    The seminal research pointing to an equity premium was done in the U.S. in the early 1960s, resulting in Nobel prizes for several participants. A half century on, their work has had zero effect on the politically petrified SocSec system - 20% funded, headed for zero in 2033.

    Jim Haygood , March 3, 2016 at 11:55 am

    Total bond market fund, 0.07% annual expense ratio (not a reco; just one example):

    https://personal.vanguard.com/us/funds/snapshot?FundId=0928&FundIntExt=INT

    Large cap index fund, 0.05% expense ratio (again not a reco, just an example):

    https://personal.vanguard.com/us/funds/snapshot?FundId=0968&FundIntExt=INT

    Equity premium of 6% gives 3% net benefit (vs. 100% Treasuries) in a 50/50 mix with bonds:

    "The equity premium, which is defined as equity returns less bond returns, has been about 6% on average for the past century."

    http://www.investopedia.com/terms/e/epp.asp#ixzz41rIVV14V

    Seminal research - Fisher/Lorie paper of 1964, establishing the equity premium and founding CRSP which serves as the database for nearly all U.S. equities research:

    http://www.crsp.com/50/images/rates%20of%20return%20paper.pdf

    Nobel Prizes 1990 - Harry Markowitz, Merton Miller, William Sharpe - for Modern Portfolio Theory, which implies in conjunction with the equity premium that the optimal risk-reward portfolio should include equities:

    http://www.britannica.com/topic/Winners-of-the-Nobel-Prize-for-Economics-1856936

    Zero effect: "Since the beginning of the Social Security program [in 1935], all securities held by the trust funds have been issued by the Federal Government."

    https://www.ssa.gov/oact/progdata/investheld.html

    Headed for zero: "The dollar level of the theoretical combined trust fund reserves declines beginning in 2020 until reserves become depleted in 2034." - SocSec Trustees Report 2015, page 3.

    https://www.ssa.gov/oact/tr/2015/tr2015.pdf

    (The 2033 depletion date was from last year's trustees report; sorry.)

    likbez , March 3, 2016 at 6:39 pm
    This all is "water under the bridge." Called Naïve Siegelism

    http://softpanorama.biz/Skeptics/Financial_skeptic/Protecting_your_401K/Protecting_401K_from_yourself/naive_siegelism.shtml

    Can you spell "secular stagnation" ? And can you explain to us what returns are expected for stocks in the "secular stagnation" regime in comparison with bonds?

    And what will you do if S&P500 drops to 660 like it did in 2008. And stays at this level for a couple of years like oil prices recently did.

    BTW LTM was also founded by Nobel price winners: (https://en.wikipedia.org/wiki/Long-Term_Capital_Management ):

    LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".[3]

    [Jan 10, 2016] Comprehensive financial planners now do a lot of the work that family attorneys did in generations past

    www.nakedcapitalism.com

    Jim in SC , January 9, 2016 at 8:57 pm

    I think that comprehensive financial planners now do a lot of the work that family attorneys did in generations past. This is partly because the sort of person who goes to law school now is much more intellectual -- and thus often a little more introverted and socially inept–than in years past. Watergate caused that, I believe. All of a sudden everybody was interested in the mechanism of the law. Fifty years ago a right-of-way agreement from the local utility was three sentences. Now it's five pages single spaced, in some English derived technical gibberish.

    Anyway, you really need the professional when somebody dies. That professional is far more likely to be the financial planner than the lawyer these days, in part because the financial planner is paid by assets under management, rather than hundreds of dollars per hour, so the financial planner would be paid anyway. I think it is rare to see attorneys designated as executors of estates these days. They charge six percent by statute, and that's too much for many people's blood. God forbid that one should be appointed to manage a trust with multiple beneficiaries. They'll stretch it out thirty years.

    [Dec 24, 2015] In 2012, Greek pension funds, which were obliged under Greek law to own government bonds were hit by debt write-down and lost about 10 billion euros or roughly 60 percent of their reserves

    econbrowser.com
    Jeffrey J. Brown

    In reading the following NYT article about the Greek Crisis, with an emphasis on pensions and pensioners, I recalled Professor Hamilton's post on the US Social Security system. To borrow Warren Buffet's phrase about finding out who is skinny dipping when the tide goes out, I wonder if the tide has just receded faster for Greece than for the US, in terms of over promised and under-funded Social Security and pension plans, especially in regard to vastly underfunded state and local government pension plans. And of course, federal government owns both the asset and the liability for the Social Security Trust Fund

    http://www.nytimes.com/2015/06/09/world/europe/greece-pensions-debt-negotiations-alexis-tsipras.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0

    Greece's social security system was troubled even before the crisis, already divided into more than 130 funds and offering a crazy quilt of early-retirement options that were a monument to past political patronage.

    In 2012, the pension funds, which were obliged under Greek law to own government bonds*, were hit by a huge debt write-down as those bonds plummeted in value. As a result they lost about 10 billion euros, or $11.1 billion - roughly 60 percent of their reserves.

    Greece's creditors, seeking to make the Greek labor market more competitive, insisted that the government reduce the amount companies and workers must contribute toward pensions. And they insisted that Greece reduce its minimum wage so that those who do contribute have smaller outlays.

    At the same time, the pension system was becoming an even bigger component of the social safety net, absorbing thousands. People like Ms. Meliou retired early, either because of the sale of state-owned companies, because they feared their salaries would be cut and thus their pensions would be smaller, or simply because their businesses failed. Few are living comfortably, and many support unemployed children.

    *Remind you of another system?

    [Dec 24, 2015] An Aging Society Is No Problem When Wages Rise

    Notable quotes:
    "... Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied. ..."
    "... Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich. ..."
    "... Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings. ..."
    economistsview.typepad.com

    Dean Baker:

    An Aging Society Is No Problem When Wages Rise: Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.
    While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.
    We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)
    The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.
    For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.

    RC AKA Darryl, Ron said...

    Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied.

    DrDick -> Darryl, Ron...

    "they will need to raise the payroll tax cap on Social Security"

    Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich.

    Bud Meyers -> DrDick...

    Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings.

    mulp

    "We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised."

    Illogical!

    If wages of younger workers were maintaining the same gains over their previous generation peers, and in fact, gained even more due to reduced supply of workers relative to steady demand for labor as the large boomer cohort leaves the labor force to the smaller subsequent generation.

    Instead, conservative free lunch economicntheory, itself grossly illogical, has led to cuts in wages as a matter of policy based on the idea that workers are not consumers, so gdp can grow faster if workers are paid less, leading to a larger supply of consumers with pockets of money being created by the tinker bell of wealth.

    While changing demographics might require higher payroll taxes, say younger generations having more kids than the boomer generation and being stay at home parents than boomers were, in reality, the younger generations are moving further along the trend line of working more, just like the boomers.

    Incomes are falling leading to reduced gdp growth because that is driven by labor incomes which are labor costs, and lower gdp means lower wage income means lower tax revenue with a fixed tax rate.

    Social Security has structural problems simply because conservatives have sold Americans a bill of goods, promising something for nothing.

    TANSTAAFL

    As a leading edge boomer, I've had the best of both good and bad policy. Great big government benefits when young to give me a great start in life, followed by bad policy tax hikes for me paid for by screwing the generation of children I did not have, and now 68, getting the great big government Social Security benefits Reagan signed into law in 1983, doubly great because, my big government start in life lasted to 2001 and made me very rich from simply working and living like my parents who were shaped by the depression. And Republicans can not cut my benefits because I'm hidden in the biggest block of the Republican base who almost all depend on Social Security.

    [Nov 24, 2015] James Poterba Interview

    economistsview.typepad.com

    James Poterba is interviewed by the Richmond Fed:

    ... ... ... EF: More recently, one of your areas of research has been retirement finance and the investment decisions of workers thinking about their retirement. In recent decades, we've seen a tremendous shift in the private sector from defined benefit retirement programs to defined contribution programs. Was this mainly a response by firms to the tightening of the regulatory environment for defined benefit plans, to changing demand from workers, or to something else?

    Poterba: I think it's a bit of everything. A number of factors came together to create an environment in which firms were more comfortable offering defined contribution plans than defined benefit plans. One factor was that when firms began offering defined benefit plans, in World War II and the years following it, the U.S. economy and its population were growing rapidly. The size of the benefit recipient population from these plans relative to the workforce was small. It was also a time when life expectancy for people who were aged 65 was several years less than it is today. Over time, the financial executives at firms came to a greater recognition of the true cost of defined benefit plans.

    I also think the fiduciary responsibilities and the financial burdens that were placed on firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms to take more responsibility for the retirement plans they were offering their workers and to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans were not well-funded, leaving retirees with virtually no pension income.

    But ERISA and the growing recognition of the costs of defined benefit plans are probably not the full story. The U.S. labor market has become more dynamic over time, or at least workers think it has, and that has led to fewer workers being well-suited to defined benefit plans. These plans worked very well for workers who had a long career at a single firm. Today, workers may overestimate the degree of dynamism in the labor market. But if they believe it is dynamic, they may place great value on a portable retirement structure that enables them to move from firm to firm and to take their retirement assets with them.

    Most workers who are at large firms, firms that have 500 employees or more, have access to defined contribution plans. Unfortunately, we still don't have great coverage at smaller firms, below, say, 50 employees. For workers who will spend a long career at a small firm, the absence of these employer-based plans can make it harder to save for retirement. A key policy priority is pushing the coverage of defined contribution plans further down the firm size distribution. That's hard, because smaller firms are less likely to have the infrastructure in place in their HR departments or to have the spare resources to be able to learn how to establish a defined contribution plan and how to administer it. They are probably also more reluctant to take on the fiduciary burdens and responsibilities that come with offering these plans.

    Another concern, within the defined contribution system, is the significant amount of leakage. Money that was originally contributed for retirement may be pulled out before the worker reaches retirement age.

    EF: What is causing that?

    Poterba: Say you've worked for 10 years at a firm that offers a 401(k) plan and you've been contributing all the way along. You decide to leave that firm. In some cases, the firm you are leaving may encourage you to take the money out of their retirement plan because they may not want to have you around as a legacy participant in their plan. Sometimes, the worker may choose to move the funds from the prior 401(k) plan to a retirement plan at their new employer, or to an IRA. Those moves keep the funds in the retirement system. But sometimes, the worker just spends the money. When an individual leaves a job, they may experience a spell of unemployment, or they may have health issues. There may be very good reasons for tapping into the 401(k) accumulation. Using the 401(k) system as a source of emergency cash, sort of as the ATM for these crises, diminishes what gets accumulated for retirement.

    Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings. So while there may be a "very good reason" for this from an individual's perspective, from a larger social perspective this is a problem connected to our unwillingness to provide adequate social insurance for those who are the unlucky losers to the dynamism inherent in capitalism that propels us forward. Those who benefit so much from the dynamism could and should do more to help those who pay the costs.

    pgl:

    "I also think the fiduciary responsibilities and the financial burdens that were placed on firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms to take more responsibility for the retirement plans they were offering their workers and to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans were not well-funded, leaving retirees with virtually no pension income."

    Gee we corporations liked pushing the responsibility of provided retirement benefits onto others and now that government regulations made that more difficult for us to do - we don't want to take any responsibility whatsoever!

    Which is exactly why Mark's closing here is so correct.

    likbez said in reply to pgl:

    "Gee we corporations liked pushing the responsibility of provided retirement benefits onto others and now that government regulations made that more difficult for us to do - we don't want to take any responsibility whatsoever!"

    Not only that. 401K opens huge possibilities of shadow deals between financial firms/mutual funds and providers of 401K plans. They can agree on a bad set of funds (for example with high annual costs or with bad diversification -- heavily tilted toward stocks) in exchange of discounted services in other areas.

    This is actually how such deals are done by all major corporations. Providers of 401 mutual funds in this case typically perform other services for the corporation. Some like Wall-Mart are especially cruel to their workers in this respect and fleece them mercilessly.

    Also the amount of contributions from the company is usually much less then in defined benefit plan and all risks are transferred to employees.

    The other negative side effect was tremendous growth of mutual fund industry which increased the "Financialization of the economy" -- hallmark of the neoliberal social system (aka casino capitalism).

    This industry which has developed over the decades between 1980 and 2000 created preconditions for the situation, in which financial leverage tended to override capital (equity), and financial markets dominate the traditional industrial economy and agriculture.

    For example such behemoths as Vanguard, Fidelity, Pimco, etc are direct result of the switch to 401K plans. They would never exists in such enormous size without them.

    They by the virtue of being the largest shareholders play very negative role in corporate governance (if we use this neoliberal term). For example both Vanguard and Fidelity are indirectly responsible for 2008 crisis as the major voting shareholders of Wall Street "Masters of the Universe".

    Such mutual funds providers are creating a new situation on the market with their enormous mutual funds and amount of funds under management.

    Indirectly they facilitate sophisticated parasitic forms of trading which can exist only in high volume environment.

    Tom aka Rusty said in reply to pgl:

    Between 1974 and 1990 almost every small business and professional group DB plan I was aware of was closed or frozen, including HR-10s. Most of the rest faded away over time.

    The ERISA administrative costs and financing risks were too much for these smaller sized firms, and the 401(k) came along (started in Rev. Act 1978, regulated more thoroughly in 84 and 86 tax acts).

    A reform directed at the likes of General Motors didn't work well for the little guys. And General Motors continued playing games anyway.

    And the 401(k) has not filled the void.

    pgl said in reply to Tom aka Rusty:

    "The ERISA administrative costs and financing risks were too much for these smaller sized firms".

    Oh Lord - Rusty wants to excuse all sorts of nefarious corporate behavior as it is just too hard to play by the rules. How tiresome.

    mulp said in reply to pgl:

    Rusty believes in free lunch economics. Eliminate all labor costs so profits are 100% of revenue and gdp will explode as wealth creation drives production and the surge in supply will create consumers with drills of money due to the effect of other people's wealth.

    Workers are a deadweight cost to an economy because workers such money into a blackhole from which the money never reappears.

    Consumers are never workers and workers are never consumers.

    Wealth comes from profits, not labor.
    Labor destroys wealth.

    That sums up free lunch economics. The free in free markets means wealth and profit should be free by labor being free.

    pgl said in reply to Tom aka Rusty:

    I wonder if Rusty has ever seen "Pensions: The Broken Promise" (NBC September 12, 1972) detailed the consequences of poorly funded pension plans and onerous vesting requirements. This Congress to hold a public hearings on pension issues and public support for pension reform grew significantly.

    Or does Rusty remember Studebaker which closed up in the 1960's with pension plan was so poorly funded that Studebaker could not afford to provide all employees with their pensions. 3600 did receive full benefits but 4000 workers aged 40–59 who had ten years with Studebaker received lump sum payments valued at roughly 15% of the actuarial value of their pension benefits, and the remaining 2,900 workers received no pensions.

    But Rusty thinks compliance with ERISA is just too complicated.

    djb said in reply to pgl:

    I mean seriously , pension after pension just disappeared when the firms declared bankruptcy and suddenly the money is no where to be found

    there is nothing about that in this article

    Mr. Poterba has no credibility with me, based on this interview

    defined contribution, in part, was supposed to make it so this couldn't happen

    pgl said in reply to djb:

    I agree that Poterba could have spent more time on this issue but he is not the bad guy here. The bad guy are the fools who say government intervention has no place (hello Rusty). Defined contributions is a different means for paying for retirement but as Mark Thoma has noted since the beginning of this blog, it does not cover certain risks. Which is why we need to defend the Social Security program.

    ilsm:

    " The size of the benefit recipient population from these plans relative to the workforce was small."

    Malthusian excuse for productivity gains going to the pentagon and other payors of the .1%.

    "Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings."

    The system works for the duped, the exploiters and the plunderers, no one else.

    tom:

    During the Obamacare debate, there was talk about a public option. Why not a public option for 401K plans, that would take the burden of administering such planes away from small firms? And if we are going to get so hot under the collar about 'choice', why not give employees two choices for public option, a defined contribution public option, and a defined benefit public option?

    Sandwichman:

    "...the dynamism inherent in capitalism that propels us forward..."

    Although it is said that it doesn't matter how fast you are going if you don't know which direction you are headed. Forward? To what end?

    Sandwichman said in reply to Sandwichman:
    Offing "The Agenda" Before the Agenda Offs Us

    http://econospeak.blogspot.ca/2015/11/offing-agenda-before-agenda-offs-us.html

    Dean Baker writes:

    "The time has long since passed when we should be arguing about whether global warming is happening or whether the consequences will be serious. The question is what we are prepared to do about it."

    And the answer is… "set targets"?

    As long as adopting shorter work weeks and years to achieve full employment is off the agenda, doing something meaningful about climate change is also off the agenda. Shorter hours is not a panacea for full employment or slowing man-made climate change. But excluding shorter hours from the policy mix is the opposite of a panacea - guaranteed toxic.

    It is no mistake that shorter hours are off the agenda. It is not happenstance or serendipity. The best way to describe the thinking behind the exclusion is a kind of rentiers' marxism-in-reverse. Marx's model of capitalism predicts an "increasing organic composition" of capital. In the absence of capital devaluing crises, such an increase makes labor increasingly scarce relative to capital.

    Shorter hours would make labor even scarcer relative to capital. Price of labor goes up, returns to capital go down. Can't let that happen. This is America, where "free enterprise" rules and the rich buy the public policy regime - and whatever economic policy rationale justifies it - that suits them.

    So achieving full employment and mitigating climate change are off the respectable economists' agenda. The question is what are we prepared to do about that?

    anne said in reply to Sandwichman...

    http://www.cepr.net/documents/Getting-Back-to-Full-Employment_20131118.pdf

    November, 2013

    Getting Back to Full Employment
    A Better Bargain for Working People
    By Dean Baker and Jared Bernstein

    anne said in reply to Sandwichman...

    "...the dynamism inherent in capitalism that propels us forward..."

    Although it is said that it doesn't matter how fast you are going if you don't know which direction you are headed. Forward? To what end?

    [ A remarkably meaningless cliche. ]

    [Nov 22, 2015] Coping IRA Withdrawal Rules Advice IQ

    www.adviceiq.com

    Types of accounts where RMDs apply. While your invested money sat in your qualified retirement accounts, the IRS deferred any taxes due until a later date. That date arrives when you hit age 70 ½.

    RMDs affect many types of accounts, including traditional IRAs, simplified employee pension (SEP) and savings incentive match plan for employees (SIMPLE) IRAs and employer retirement accounts such as 401(k)s and 403(b)s.

    Once you reach the trigger age for RMDs, the IRS requires that you start taking RMDs and begins collecting taxes previously deferred. Taxes come due on amounts only as they are distributed to you and not while you keep them invested.

    For the year you first reach 70½, you must take a minimum distribution either that year or no later than April of the following year. Every year after, you also must take the required minimum distribution by Dec. 31 of each tax year.

    Beware deadline penalties. Not only does the IRS want to tax revenue from your retirement accounts, if you fail to meet the deadline for distribution the taxman sticks on an additional and whopping 50% penalty.

    Figuring out what you owe. IRS publication number 590 explains how to calculate the actual amount you must take as an annual distribution and additional information on how RMDs apply to each type of retirement account you might own.

    Generally, calculate RMD for each account by dividing the prior Dec. 31 balance of that IRA or retirement plan account by a life expectancy factor. Use the:

    These great resources help you avoid the price of getting these calculations wrong – a price high enough that I recommend you consider help with the calculation and with getting the proper amount withdrawn from your accounts before the IRS deadline.

    I especially warn those tracking more than one tax-deferred retirement account. If you still have years or even decades before RMDs apply to you, your parents or loved ones 70½ or older need this reminder, too.

    Taxes are a part of life. Penalties you avoid.

    [Nov 22, 2015] Fixing a broken retirement system

    Notable quotes:
    "... Only consider retaining old plans if you have an exceptional deal, like 3% or higher guaranteed interest in the current low interest-rate world. ..."
    www.usatoday.com

    The state of Americans' retirement preparation is shocking. Why is this, and what can people do about it?

    PBS ran its Frontline documentary The Retirement Gamble a few years ago, and it's still pertinent. It's hard to watch this program without a sense of horror at the way our retirement plan system is rigged to rip off Americans struggling to save for their later years after working.

    Here are the key points in The Retirement Gamble. Read them and think about what you can do to shore up your retirement plan:

    Potential Versus Real Wealth

    So what can you do? Here are some strategies:

    Coping: IRA Withdrawal Rules

    [Oct 13, 2015] Dont Tell My Mother Im In Finance (She Thinks I Work In A Brothel)

    "... The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns. ..."
    "... "The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors." ..."
    "... The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be. ..."
    May 13, 2008 | www.zerohedge.com

    In medicine, they have something called the Hippocratic Oath. It requires physicians to swear to uphold certain ethical standards. In modern fund management, there is no Hippocratic Oath. Whereas doctors are expected to "First, do no harm", in modern fund management, iatrogenic illnesses hold sway. An iatrogenic illness is one that is caused by the physician himself.

    Fund management doctors seem to be doing the best they can to kill their own patients. Science has a word for this, too. It's called parasite. There is a solution to all this insanity.

    ... ... ...

    There is a solution to all this insanity.

    The chief investment officer of the Yale Endowment, David Swensen, has written an excellent book entitled 'Unconventional Success'.

    The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns.

    Swensen pulls few punches.

    The fund management industry involves the

    "interaction between sophisticated, profit-seeking providers of financial services [Keynes would have called them rentiers] and naïve, return-seeking consumers of investment products.

    "The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors."

    The nature of ownership is crucial. To Swensen, the more mouths standing between you and your money that need to be fed, the poorer the ultimate investment return outcome is likely to be.

    In a rational world, investors would be well advised to favour smaller, entrepreneurial boutiques, or private partnerships, over larger, publicly listed full service investment operations – especially subsidiaries of banks or insurance companies – with all kinds of intermediary layers craving their share of your pie.

    The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be.

    This past week, and the conjunction of the Bill Gross lawsuit and the Investment Association's Daniel Godfrey debacle, is likely to go down as one of the biggest fund management public relations disasters in history.

    Before buying any fund, ask yourself some questions:

    Most fund management firms fall into the latter category. Favour the former.

    How to distinguish between the asset managers and the asset gatherers? Try to find managers like the celebrated investor Jean-Marie Eveillard, who once remarked:

    "I would rather lose half of my shareholders than half of my shareholders' money."

    The managed fund marketplace is clearly much larger than it should be. It is oversupplied, and there is insufficient genuine talent and integrity to support the grotesque number of spurious, me-too funds out there all chasing a finite pot of capital.

    After a disastrous week in the spotlight, asset management companies might wish to start cutting their fund ranges before the regulators force them to. >

    Muddy1
    Working in a brothel? Working in finance?

    It's the same thing. You take people's money and then they get screwed.

    [Aug 27, 2015] Is your financial planner getting rich at your expense

    "..."Some advisers use 'fee-only' for marketing purposes instead of as a pledge to their clients," "
    A recent decision in a lengthy legal case involving two certified financial planners was hailed as a victory for consumers.

    A husband and wife, Jeffrey and Kimberly Camarda of Fleming Island, Fla., had been marketing themselves as "fee-only" financial planners, a term for those who charge clients a fixed rate for their services and don't earn commissions or bonuses when recommending financial products. But that wasn't true, according to the Certified Financial Planner Board of Standards, which filed a disciplinary action against the pair. It claimed that the Camardas were selling insurance products from which they earned commissions without disclosing that potential conflict of interest, a violation of CFP Board rules. Then the couple sued the board, saying they were unfairly disciplined. But in July, a judge dismissed their lawsuit.

    "Some advisers use 'fee-only' for marketing purposes instead of as a pledge to their clients," says Eleanor Blayney, a consumer advocate on the board. There's no way to tell just how many financial advisers misrepresent how they're compensated, she adds. What's clear is how much working with the wrong kind of adviser can cost you. A study from the White House by the Council of Economic Advisers, published in February, estimated that financial advisers who have conflicts of interest cause $17 billion in losses every year to Americans, many of them in working and middle-class families. And that's just for those who are using IRAs to save for retirement.

    Read more about how to manage your financial planning in your 40s, your 50s and your 60s.

    Part of the problem is that there's no governmental regulatory body that polices all financial planners. Investment advisers and brokers who sell bonds, stocks, and other financial products must be registered with the Securities and Exchange Commission or in some cases with state regulators. There's no such oversight for financial planners, who help clients with retirement planning, estate planning, saving for college, and other matters.

    The CFP Board, however, will investigate complaints it receives or violations the organization uncovers itself. It can suspend or revoke the use of the certified financial planner designation, but it can't stop financial planners from giving advice.

    The best line of defense against unscrupulous planners is to educate yourself. That can be confusing at first, because there are more than 150 designations for financial planners. But many of the titles are dubious; they can be earned after just a few hours of study and an open-book test. Adding to the confusion is that many suspect designations sound similar to legitimate ones.

    [Jun 22, 2015] 10 secrets to get more from Social Security

    Larry Kotlikoff, professor of economics at Boston University, says maximizing your benefits can be simplified into three basic rules: Delay your Social Security benefits, take spousal/survivor/mother and father/child benefits, and make sure one of these two rules doesn't undermine the other. The best choice when it comes to when to cash in on your Social Security ultimately comes down to personal circumstances, but waiting to collect higher benefits through the delayed retirement credit can be a huge advantage.

    These guidelines are a good starting point, but a lot of the finer details can be confusing, especially when it comes to spousal benefits. Since the most complex rules can be the most lucrative, it's worth some investigation. The problem is most Americans are unaware of the finer points of Social Security and don't know where to turn for help. Social security offices are dwindling and phone wait times are getting longer, so the smartest course of action is to arm yourself with information as early as possible. Even the Social Security Administration (SSA) is known for spreading misinformation, so double-check and triple-check your information before making a big decision about your retirement.

    MORE: 5 signs you rely too much on Social Security for retirement

    On PBS NewsHour's Making Sen$e, Kotlikoff compiled a list of 34 social security secrets people should know, as well as some additional rules in a follow-up article. His findings are particularly useful if you're looking for explanations of the many highly nuanced rules for collecting spousal benefits. Bear in mind his list was compiled back in 2012, but Kotlikoff continues to report on Social Security and work to demystify the finer details. You can even write in and ask him a question regarding your situation.

    Spousal benefits are the most overlooked Social Security benefits, according to Kotlikoff, and $10 billion in spousal benefits go unclaimed in America every year. In what can be called loopholes for married couples, Americans can collect more in Social Security by employing strategies like "file and suspend," in which one partner suspends retirement benefits so the other can collect spousal benefits. Later, the couple can cash in on the delayed retirement credit.

    Taxpayers are essentially walking away from money they are entitled to if they don't take advantage of all the Social Security rules that could help them. Here are ten more little-known Social Security rules that could help you maximize your benefits, sourced from Kotlikoff's list as well as others.

    1. You can suspend your benefits temporarily and see rewards later

    Once you are at or over full retirement age, you can suspend further Social Security benefits and then restart them later. The "start-stop-start" strategy refers to starting your benefits prior to full retirement age, stopping them at full retirement age, and starting them up again at age 70 when they will be 32% larger due to the delayed retirement credit.

    2. You can withdraw and repay Social Security, then collect more later

    As long as you repay all the benefits you received, you can withdraw your Social Security claim and then reapply at a later date (when you will get higher benefits based on your age). The SSA used to allow claim withdrawals at any time, but after it became more common, the rules were changed. Now you can only withdraw your claim within 12 months of receiving benefits, and you can only withdraw a claim once in your lifetime.

    3. In some states, you can collect unemployment and Social Security at the same time

    Americans can be both unemployed and retired in certain states. If you collect checks from both agencies, you just have to report the income of both. Receiving unemployment benefits won't affect your Social Security payments, but in some states, collecting Social Security can reduce your unemployment checks.

    4. You can shop around for the best deal

    You can go to several Social Security offices and receive different benefit estimates. This is because Social Security staff have differing interpretations of the rules, although there is only one that is correct. But just as you may be able to shop around for the best estimate, make sure a social security office isn't erroneously denying you a legal benefit, such as the right to file and suspend.

    5. Delaying your divorce can lead to more benefits

    If you're divorced but were married for at least 10 years, you can collect spousal benefits. So if you're getting divorced after about 9 and a half years, it would be wise to delay your divorce, since it will mean a payout for both you and your ex. You have to wait to collect until your ex is 62, but if you aren't 62 yet you can still get benefits at a reduced rate.

    MORE: The retirement crisis: This plan may be a solution

    6. Survivors can file and suspend before full retirement age

    A widow/widower can begin benefits based on his or her own earnings record and later switch to survivors benefits or, conversely, begin with survivors benefits and later switch to their own benefits-even if the surviving spouse is filing before full retirement age. With spousal benefits, on the other hand, you cannot file and suspend before full retirement age.

    7. There's no advantage to delaying spousal/survivor benefits after full retirement age

    It does not benefit you to delay collecting either your spousal or survivor benefits past your full retirement age. Your own retirement benefits will grow if you delay, but there's no reason to wait so long to collect spousal or survivor benefits.

    8. In some cases, you won't be penalized for working

    If you take retirement, spousal, or widow/widower benefits early and lose some or all of them as a result of Social Security's earnings test, don't worry too much. The SSA will actually give you credit for the money they've docked in the form of permanently higher benefits once you reach full retirement age. Be advised, however, that in the case of mother and father benefits, if you earn too much money, you lose the docked money for good.

    [May 11, 2015] Avoid Fraud

    May 11, 2015 | FINRA.org

    Even if you have never been subjected to an investment fraudster's sales pitch, you probably know someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go "where the money is"-and that means targeting older Americans who are nearing or already in retirement.

    Financial fraudsters tend to go after people who are college-educated, optimistic and self-reliant. They also target those with higher incomes and financial knowledge, and have had a recent health or financial change. If you believe you've been defrauded or treated unfairly by a securities professional or firm, file a complaint. If you suspect that someone you know has been taken in by a scam, send a tip.

    To entice you to invest, fraudsters use high pressure and a number of "tricks of the trade." Here are some common tactics:

    Protect yourself with these strategies:

    FINRA offers an array of information and resources to help you outsmart investment fraud.

    1. Red Flags of Fraud
      Knowing the important warning signs of financial fraud puts you in charge.
    2. Ask and Check
      Ask the right questions and verify the answers before you work with an investment professional or buy an investment product.
    3. How Social Pressure Cost One Family $30,000
      It's often hard to resist an investment tip from someone in your social circle. Before handing over any money, you need to check out the investment and the person selling it.
    4. Spot a Scam in 6 Steps
      Financial fraudsters use sophisticated and effective tactics to get people to part with their money. Here are six steps you can take to help you spot an investment scam.
    5. Investor Alerts
      Don't be taken in by these frauds and scams. Learn how to protect yourself and your money.

    More

    [Nov 23, 2013] Kevin Drum and the Retirement Crisis Eye on the Ball Beat the Press

    Parasitic rent-seeking (aka legalized theft) of financial oligarchy is an important problem that if behind the drive to squeeze Social Security. They want to privatize it. Just look how efficiently Merrill Lynch manages Wal-Mart workers 402K plans.

    Kevin Drum poses a reasonable question about the existence of a retirement crisis in a recent blogpost. He notes that retirement income projections from the Social Security Administration's MINT model show income for older households rising from 1971 to the present, while incomes for those in the age 35 to 44 were nearly stagnant. The model also shows income for older households continuing to rise over the next three decades. Kevin's conclusion is that we are wrong to spend a lot of time worrying about retirees, and would be wrong to consider increasing Social Security taxes on the working population to maintain scheduled benefits for Social Security recipients.

    While the story of rising income for retirees is correct, there are several points to keep in mind. First, the main reason that income for the over 65 group has risen is that the real value of Social Security benefits has risen. Social Security benefits are tied to average wages, not median wages. This is important. Most of the upward redistribution of the last three decades has been to higher end wage earners like doctors, Wall Street types, and CEOs, not to profits. Since the average wage includes these high end earners, benefits will rise through time, pushing up retiree incomes. For the median household over age 65 Social Security benefits are more than 70 percent of their income, so the story of rising income is largely a story of rising Social Security benefits.

    However even with this increase in Social Security benefits, replacement rates at age 67 are projected to fall relative to lifetime wages (on a wage-adjusted basis) from 98 percent for the World War II babies to 89 percent for early baby boomers, 86 percent for later baby boomers and 84 percent for GenXers. There are several reasons for this drop. The most important is the rise in the normal retirement age from 65 for people who turned 62 before 2002 to 67 for people who turn 62 after 2022. This amounts to roughly a 12 percent cut in scheduled benefits. The other reason for the drop is the decline in non-Social Security income. This is primarily due to the fact that defined benefit pensions are rapidly disappearing and defined contribution pensions are not coming close to filling the gap.

    It is also important that the over age 65 population on average has a considerably longer life expectancy today and in the future than was the case in 1971. In 1971 someone turning age 65 could expect to live roughly 16 years, today their life expectancy would be over 20 years. This is a good thing of course, but it means that when we use the same age cutoff today as we did 40 plus years ago we are looking at a population that is much healthier, and therefore also more likely to be working, and further from death. If we adjusted our view to focus on the population that was within 16 years of hitting the end of their age 65 life expectancy, the story would not be as positive.

    The data from the MINT model may also be somewhat misleading because it includes owner equivalent rent (OER) as income. While not having to pay rent is clearly an important savings to an older couple or individual that has paid off their mortgage, it can give an inaccurate picture of their income. There are many older couples or single individuals that live in large houses in which they raised their families. The imputed rent on such a house can be quite large relative to their income as retirees. (Imputed rent is almost one quarter of total consumer expenditures even though only two-thirds of families are homeowners.) There are undoubtedly many retirees who live in homes that would rent for an amount that is larger than their cash income, which will be primarily their Social Security check.

    In principle it might be desirable for such people to move to smaller less expensive homes or apartments, but this is often not easy to do. Government policy that hugely subsidizes homeownership and denigrates renting is also not helpful in this respect.

    The other part of the income picture overlooked is that almost all middle income retirees will be paying for Medicare Part B, the premium for which is taking up a large and growing share of their cash income. That premium has risen from roughly $250 a year (in 2013 dollars) to more than $1,200 a year at present. This difference would be equal to almost 5 percent of the income (excluding OER) of the typical senior. That means that if we took a measure of income that subtracted Medicare premiums (not co-pays and deductibles) it would show a considerably smaller increase than the MINT data. The higher costs faced by seniors for health care and other expenditures is the reason that the Census Bureau's supplemental poverty measures shows a much higher poverty rate than the official measure.

    Finally, there is the need to focus on the question of how well seniors are doing. Seniors income has been rising relative to the income of the typical working household because the typical working household is seeing their income redistributed to the Wall Street crew, CEOs, doctors and other members of the one percent. However, even with the relative gains for seniors their income is still well below that of the working age population. The median person income for people over age 65 was $20,380 in 2012 compared to a median person income of $36,800 for someone between the ages of 35 to 44. Now we can point to the fact that incomes have been rising considerably faster for the over 65 group, but this would be like saying that we should be annoyed because women's wages have been rising more rapidly than men's wages. Women still earn much less for their work and seniors still get by on much less money than the working age population.

    The bottom line is that it takes some pretty strange glasses to see the senior population as doing well either now or in the near future based on current economic conditions. We can argue about whether young people or old people have a tougher time, but it's clear that the division between winners and losers is not aged based, but rather class based.

    [Nov 18, 2013] Yahoo! Personal Finance

    "... limit it [your company stock --NNB] to ~10 percent of your portfolio."

    Under a law passed last year, you can even sell shares that your employer contributed to your account, as long as you've been there for three years.

    Being too conservative

    Plowing too much money into low-risk choices like stable value, bond and money funds may seem safe since it protects your 401(k) from market setbacks.

    But it's dangerous in the long run because your savings won't grow enough to provide you with an adequate income in retirement.

    A better approach: Create a blend of stocks and bonds that provides a cushion against price drops but also gives you a shot at the gains you'll need to amass a sizable nest egg.

    For help setting the appropriate mix for your age, check our Asset Allocator tool.

    Doin' the smorgasbord thing

    In an attempt to diversify, some people spread their money evenly across all the options on their 401(k) menu.

    That doesn't produce a well-rounded portfolio any more than scarfing every item at a buffet assures a balanced meal. You might wind up with too big a helping of growth or bonds, depending on your plan's options.

    What to do? First plug your choices into the Instant X-Ray tool at morningstar.com to see how your portfolio breaks down by the major asset classes - large and small stocks, bonds and foreign shares.

    You can then compare your current mix to the blend our Asset Allocator recommends and, if necessary, rejigger your choices to get your 401(k) on track.

    Avoiding these errors won't guarantee you a giant nest egg. But you will be making the most of every penny you set aside. And in the long run, that will pay off.

    [Sep 6, 2013] You're not a kid. Stop investing like one by Dan Kadlec

    You're not a kid. Stop investing like one. Your age demands that you become more risk-averse.

    September 6, 2013 Yahoo!/Money Magazine

    How do you know when you've crossed the invisible line and you're not young anymore? Maybe it's the first time you look at Billboard's top 20 list and don't recognize a single name. Or when your kids start staying out later at night than you can keep your eyes open.

    Or maybe it hits you when you realize that if the stock market falls 30 percent, as it does from time to time, you'll lose the equivalent of a year's pay, not a week's, and you don't want to have to work forever to make the money back.

    In the last case at least, there's a silver lining. It means you've managed to put away a substantial sum, reaping the benefits of 30 or so years of steady saving and compounding returns.

    But that's a once-in-a-lifetime deal. You will never get those 30 years back. If you're a boomer, in other words, the math has started to work against you: Whether you're 49 or 56 or 60, odds are you have more to lose than ever and less time than ever to recover if something goes wrong.

    So your age demands that you become more risk-averse. And with the market coming off record highs, the housing market taking forever to find a bottom and a host of other troubling financial signals, you've got reason to worry about stock prices tumbling.

    Yet with many good years still in front of you, getting out of the market isn't an option either. You need your savings to keep growing to outpace inflation and reach your goals.

    How are you supposed to do all of these contradictory things at once?

    Get some perspective

    Although it may not feel like it, you probably have time to ride out a decline. Consider the bear market that started in 2000, one of the worst ever. Standard & Poor's 500 dropped 49% over nearly three years, and the index took more than seven years to fully recover.

    Do you have seven years before you'll start drawing down your savings? Plus, you're not going to withdraw the whole shebang on Day One but rather over 20 to 30 years or more.

    Keep this in mind too: Drops of that magnitude occur only about every 30 years. Declines of 20% to 30% are more typical, and on average the S&P 500 gets back to even 3.5 years after a pullback begins, says Sam Stovall, chief investment strategist at S&P.

    In every market drop of less than 15% since 1970 (there have been many), the index has fully recovered within a year.

    Do a gut check

    That doesn't mean you shouldn't take action to minimize your losses in a pullback, especially if you reach for the Tums every time you listen to the financial news.

    "If you're worrying because you can't accept a market drop, now - before there's another big one - is a great time to adjust your asset allocation," says Steven Sheldon, president of SMS Capital Management in Houston.

    To assess your age-appropriate tolerance for risk, ask a few simple questions. How much longer do I want to work? Has my health declined? Do I have any large expenses fast approaching, like college tuition or elder care for a parent?

    These will give you an idea of how much money you'll need fairly soon and how securely it should be tucked away.

    Pick an asset mix that suits you - the sooner you need the money, the less you should hold in stocks - then rebalance once a year to maintain that blend.

    For help, check out the Asset Allocator tool. A conservative recommended mix for someone who doesn't need current income and will retire in about 10 years: 40% large stocks, 15% small stocks, 15% foreign stocks, 25% bonds and 5% cash.

    Minimize the downside

    You want to spread your money among the broad asset classes of stocks, bonds and cash, obviously, but you should also diversify within them. Your stocks or stock funds, for instance, should include foreign shares and a mix of small, medium and large companies, especially big companies that pay a dividend and have consistently grown earnings.

    Your bonds should be Treasuries and high-grade corporates. An inflation hedge like gold or Treasury Inflation-Protected Securities (TIPS) wouldn't hurt either.

    How effective is broad diversification? Consider the Vanguard Wellington fund, which takes such an approach. In the last bear market - one of the worst ever - this fund actually rose 2.4%. It has lagged the S&P 500 since then but by only a small amount.

    Then too, in the seven or so years that the large-cap S&P 500 was falling and clawing back to even, foreign stocks rose 30%, small stocks doubled and real estate investment trusts more than doubled.

    The amazing truth: Folks who had properly spread their bets back in 2000 didn't feel much of a pinch at all.

    Don't sell after prices fall

    When today's bull market finally ends - and it will - don't give in to temptation and sell. It's not easy to stand firm. But selling after a drop almost always backfires.

    In fact, if your nerves can stand it, buy more shares while prices are down. Although making a big bet on a market bottom is reckless, a regimen of investing the same dollar amount every paycheck, month or quarter lets you actually benefit from dips, corrections and bear markets.

    This discipline can't work quick magic on large losses, but it virtually guarantees that you'll bounce back faster. So instead of worrying about the next bear market, get ready for it and sleep well - at least until the kids get home and wake you.

    [Sep 06, 2013] Paul Krugman This Age of Bubbles

    Economist's View

    bakho said in reply to derangedlemur...

    Good point. Inequality gives BigF more rope to hang itself. The same is true for 401Ks. Rather than the money controlled by professional investors, the money is control by the rubes who are easily suckered.

    There are plenty of good investments that need to be made. Unfortunately, BigF is not in position to reap the return on investment. There are many investments that BigG could make and have no problem reaping the returns. BigG needs to take more money from BigF and make the important domestic investments.

    This is another example of market failure.

    Dan Kervick said...

    Yes, financial deregulation seems to be a huge part of it. But along with that perhaps there has been a kind of moral deregulation? A change in the understanding and mores of millions of people with respect to financial investment?

    What I mean is that everybody seems to have the idea these days that they are are entitled to some big financial score and that earning big yields from one's financial investments is the normal state of affairs. So it's not just the banksters. There is a whole bunch of dumb greedy money out there all the time, hunting the next big score. Look at all the online trading, the proliferation of personal finance magazines. I don't remember much of that kind of thing from when I was a kid.

    Maybe insecurity is contributing as well (some coming from inequality). Perhaps people in an earlier generation had come to think that if you just did your job and were reasonably prudent, and saved extra money in some safe place, America would deliver a pretty decent life to you and a comfortable retirement.

    Now America is a hustle, and so its hustle or be hustled.

    Darryl FKA Ron said in reply to Dan Kervick...

    "What I mean is that everybody seems to have the idea these days that they are are entitled to some big financial score and that earning big yields from one's financial investments is the normal state of affairs."

    [OK, the only way that "everybody" could get even near a majority is if you count Lotto as one of those "financial investments." Otherwise, "everybody" in the financial markets search for yield amounts to less than 10% of everybody.

    At any rate, what you are describing is the Pavlovian effect of present incentives which favor speculation over productive investment in financial markets. It is not just the greed, but the dopamine injection from speculating and occasionally winning. So, the difference between the securities and derivatives players and the Lotto players is mostly that the odds are better for many of the former to win as much or more than they lose.]

    Lafayette said in reply to Dan Kervick...

    Perhaps people in an earlier generation had come to think that if you just did your job and were reasonably prudent, and saved extra money in some safe place, America would deliver a pretty decent life to you and a comfortable retirement.}

    One might add also that never has life been so replete with opportunity or alternatives -- both of which can be highly confusing.

    Also, we are genuflecting at the altar of Mammon unlike we have, perhaps, ever in the history of the US. Being rich was always something "nice to be", but who (born before 1980) really believed it was indeed a real possibility.

    Now, it is indeed possible. The TV is full of people who won enormous lottery fortunes. The magazines are full of "self-made millionaire" stories as well. Some people, with a college education and ten years experience in Silicon Valley, are indeed very, very rich.

    Ditto Hollywood.

    These super-rich have become "role models" for a great many young-adult Americans.

    The country, in terms of the Americans who occupy it, has never been so rich for some and yet so poor for others. The disparity is alarmingly large.

    And we can thank, I never tire of saying, Reckless Ronnie Reagan for it. His lowering of the higher-income tax-rates in the 1980s made it possible to get very rich, very quickly.

    For some. The others are just gawking in awesome wonder ...

    Can this highly disparate Income Inequality go on forever? (Yes, it can.) But should it?

    We are nowhere near an answer, and far too many are hooked on "Making A Quick Megabuck". Or two, or three, or four, or a hundred ...

    [Aug 29, 2013] Why Work After Retirement?

    "If I work after I retire from my corporate job, it will be doing something different that would allow me to try something new."
    Yahoo! News

    Why would anyone want to work after retirement?

    ... ... ...

    Retirement can be a difficult transition for many of us. Instead of an abrupt transition to full retirement, why not work a little bit and ease into it? Staying active by working part time after retiring from a long career can help your finances and help you adjust to a less structured retiree lifestyle.

    Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.

    Beth

    I"m almost 55. I'm looking forward to retirement, and have financially planned for it.

    If I work after I retire from my corporate job, it will be doing something different that would allow me to try something new. Im an accountant, and could see doing something like selling jewelry, working at Barnes & Nobel, or teaching knitting classes.

    virginia

    Most people retire so they can travel, do hobbies and spend time with grandkids and friends but all of that gets old after awhile. Many who retire from their jobs wish they still had work to do of some sort just to stay active, bring in some extra money and feel worthwhile again. If not for anything else, put some structure in one's life.

    Let Tyrants Fear

    Bull(s)(h)(i)(t) article, they want you to work till you drop, plain and simple. Now people that can not plan their budgets, money, and always in debt, they will have to get their act together, if they want to retire.

    John

    If you're working after retirement, you're not retired.

    Norm

    Most people work part time jobs when they retire because the 401k that replaced company pensions, are not a viable solution to the large majority of Americans. You will see retiremnt drop over the next 10 years.

    Retirement is just an after thought where 401k's are concerned. 401k's real purpose is to fuel the stock market. Every friday billions of dollars are payroll deducted from almost everyone's check. It sure keeps the bankers humming along, and if everyone would stop investing that money...

    .America as a country would be devasted. That is why they wanted to get their greedy little fingers on your social security. The typical american worker gets only the crumbs off the 401k's and then you get a guy like George Bush whom absolutely killed the economy, and took those crumbs away.

    If your looking to retire on 401k's, you better be investing some serious jack and hope that your pile doesn't run out before you die. Good luck with that.

    WHOFKGCARES

    "You need to have a purpose" we work so we can enjoy life - retirement is a pleasure not a worry...

    luannesrackissmallerthanmine

    It is a paradox for the elites. They need everyone to be financailly overwhelmed so they have to work until the day they die so that no one has free time on their hands to get angry at the growing inequality and injustice of the system.

    However, since illegal aliens, outsourcing and technology are eliminating the need for thousands and millions of jobs, the traditional model of working for a living is no longer viable. Furthermore, the young are increasingly the group being unemployed....and we all know what large numbers of young unemployed looks like....(Arab Srping.)

    Now, with retirement age people completely unprepared due to the dismantling of pension plans and unions, there is a perfect storm on the way.

    I would say that Capitalism has run it's course and the predictable revolts, riots and revolutions are right around the corner if the rich elites don't start giving back.

    GaryM

    If you still need money you made the wrong decision to retire in the first place. Retired 12 years and loving it.

    [Aug 11, 2013] The Problem with 401(k) Plans by James Kwak

    August 9, 2013 | The Baseline Scenario
    13 Comments

    By James Kwak

    Apparently my former professor Ian Ayres has made a lot of people upset, at least judging by the Wall Street Journal article about him (and co-author Quinn Curtis) and indignant responses like this one from various interested parties. What Ayres and Curtis did was point out the losses that investors in 401(k) plans incur because of high fees charged at the plan level and high fees charged by individual mutual funds in those plans. The people who should be upset are the employees who are forced to invest in those plans (or lose out on the tax benefits associated with 401(k) plans.)

    In their paper, Ayres and Curtis estimate the total losses caused by limited investment menus (small), fees (large), and poor investment choices (large). Those fees include both the high expense ratios and transaction costs charged by actively managed mutual funds and the plan-level administrative fees charged by 401(k) plans.

    What really annoyed people in the 401(k)) industry (that is, the mutual fund companies that administer the plans and the consultants who advise companies on plans) was Ayres and Curtis's charge that many plans are violating their fiduciary duties to plan participants by forcing them to pay these fees. Various parties connected with a plan (e.g., the named fiduciary, the administrator, the investment adviser) have fiduciary duties, which include duties of prudence (doing a reasonably diligent job) and loyalty (putting the participants' interests first). Overpaying for investment management and administrative services would seem to constitute a breach of these duties.

    The response of the industry has been one of righteous indignation and blanket assertion. For example, Drinker Biddle huffs, "In our experience, most plans are well-managed." 401(k) plans provide different "services," so different plan-level fees are appropriate; and high fund fees are OK because "it is commonly accepted that the use of actively managed funds is prudent."

    Just because lots of rent-seekers say so doesn't make it so. Investment management is pretty close to a commodity business. Even if markets for illiquid assets aren't that efficient, and even if publicly traded securities markets are a little inefficient around the edges (and I have no problem with rich people putting their excess cash into hedge funds trying to exploit those inefficiencies), paying money to gamble on fund managers is not something that companies should be encouraging their employees to do. There's no good reason not to just provide a lineup of cheap, big index funds with low costs and low tracking error.

    Plan administration is a commodity business, too. I've been in 401(k) or 403(b) plans at four companies (one of which changed administrators partway through), my wife has been in plans with two different administrators, and apart from fund choice I don't recall any differences between them (and I'm pretty attentive to these things).

    So yes, most plan sponsors and administrators are violating their fiduciary duties, as I argued in a paper (summary here). Not that they should stay up nights, at least for now. The courts have for the most part endorsed current behavior, probably "reasoning" that if everyone's doing it, it must be OK. But anything Ayres and Curtis can do to draw attention to the problem of high fund fees and plan fees will help move us closer to the day when workers don't have to pay for their companies' poor choices.

    1. @ AndyfromTucson
      PEOPLE STILL HAVE A CHOICE.
      Although your employer (and especially the "planner" who gets the use of that money, often an insurance company such as Met Life) will try to talk you out of it, I believe that you can transfer part of the money (the vast majority of it over time) to a Roth IRA or traditional IRA (depending on your age and individual tax situation). If you make 1 transfer (rollover) per year (which I believe is the current limit) you can still take advantage of the employer matching in your 401k and yet transfer the majority of your money where you have more choices how to invest and lower fees (say for example at a discount brokerage such as Fidelity or TD Waterhouse)

      Best way might be to consult an CPA or a CFP (Certified Financial Planner) before you make any moves. Here is one good link for info on transfers or the better word is "conversions":
      http://www.goodfinancialcents.com/can-you-roth-ira-rollover-rules-from-401k/

      Also a "heads up" post on how exactly a lot of these schemes work, and that's exactly what many 401k's are, SCHEMES:
      http://grahambrokethemold.blogspot.com/2010/02/is-401k-really-good-for-you-or-just.html

      A 50 minute documentary that explains very well how the fund companies (including ETFs) fleece and/or bilk people with fees:
      http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

    [Jul 30, 2013] When a Simpler 401(k) Is Just Dumb

    Employers have long hoped that simpler 401(k) plans would entice more workers to save. But for more-savvy investors, that may not be good news.

    Many companies have pruned the number of investment options in their plans to keep workers from feeling overwhelmed by too much choice. General Motors Corp. and Delphi Corp., for instance, recently cut these options by nearly half. Meanwhile, other companies have loaded up their plans with a slew of target-date funds -- one-stop shopping for retirement savers -- while shrinking the variety of other funds.

    But simple isn't always better. In paring choices, companies may be reducing workers' ability to diversify their assets, leaving them exposed to the downdrafts that sometimes roil stocks and bonds simultaneously.

    [Jul 03, 2013] How to Tell if You Have a Lousy 401(k) Plan

    Yahoo! Finance

    Investing in a 401(k) plan allows you to defer paying income tax on the money you save for retirement, helps automate your decision to save for retirement by having the money withheld from your paycheck and often allows workers to get valuable employer contributions. However, investing in a 401(k) plan isn't always worth it, especially if your plan has high fees, poor investment choices and no employer contributions. Here's how to tell if your employer is providing a subpar 401(k) plan:

    No immediate eligibility. Ideally, you should start saving in a 401(k) plan with your first paycheck, but many employers won't let you. Only 54 percent of 401(k) plans offer immediate eligibility, according to a recent Vanguard analysis of 2,000 401(k) plans with 3 million participants. And 16 percent of 401(k) plans require workers to be with the company for an entire year before they are able to put their money in the plan. "It's sort of a legacy of when record keeping was more manual," says Jean Young, a senior research analyst for the Vanguard Center for Retirement Research. "You want to make sure that somebody is going to be with your organization before you enroll them."

    [Read: 10 Trendy 401(k) Plan Perks.]

    No employer contributions. Most Vanguard 401(k) plans (91 percent) offer an employer contribution. The best 401(k) plans immediately provide employer contributions to workers, but the majority of 401(k) plans impose a waiting period before new employees are eligible for a match or other company contributions. Many 401(k) plans require between one and six months (27 percent) or even an entire year of service (28 percent) before employees become eligible for a 401(k) match.

    A very small match. The maximum possible match employees can get is a median of 3 percent of pay among all Vanguard 401(k) plans. The bottom quarter (24 percent) of 401(k) plans offer a maximum possible employer match of less than 3 percent. The top 15 percent of plans provide employer matches worth 6 percent or more of pay.

    A match that is difficult to take advantage of. Employer contributions vary considerably by employer, with Vanguard alone administering 401(k)s with more than 200 different match formulas. Almost half (48 percent) of 401(k) plans require employees to contribute 6 percent of their pay to the 401(k) plan to capture the maximum possible 401(k) match. Other employers require workers to save between 3 and 5 percent of pay (37 percent) or at least 7 percent (11 percent) to get the entire match offered.

    The exact match formula plays a role in how easy it is for employees to actually take advantage of company 401(k) contributions. The most common 401(k) match is 50 cents for each dollar contributed up to 6 percent of pay, and 24 percent of 401(k) plans use this match formula. Another 14 percent of 401(k) plans offer a multi-tier match formula such as $1 for each dollar saved on the first 3 percent of pay and 50 cents for every dollar contributed on the next 2 percent of pay. And 7 percent of plans cap the maximum amount of employer contributions workers can get.

    Match formulas have the biggest impact on workers who can only afford to save a small amount. Consider a worker who is able to save 3 percent of her salary in a 401(k) plan. If her employer matches 50 cents for each dollar contributed up to 6 percent of pay, she would get 1.5 percent of her pay as a 401(k) match instead of the maximum possible match of 3 percent. If her employer instead matched dollar for dollar the first 3 percent of pay, she would be able to take advantage of the entire match offered with the same maximum potential cost to her company.

    [Read: 10 Things You Should Know About Your 401(k) Plan.]

    No nonmatching contributions. Some employers contribute to a 401(k) plan on behalf of employees without them having to save anything on their own, contributing a median of 4.2 percent of pay. The most generous 401(k) plans (16 percent) provide employer contributions worth 10 percent or more of worker salaries.

    Long vesting schedule. Employees who leave a job before they are vested in the 401(k) plan could forfeit some or all of their employer's contributions. Only 44 percent of 401(k) plans offer immediate vesting, which means you will get to keep all of your employer's contributions whenever you leave the company. Some 401(k)s have cliff vesting schedules in which you don't get to keep any of your employer's 401(k) contributions until you have been employed by the company for a specific number of years. "If you are likely to change jobs a lot because of the nature of your career, and the company has a generous match but that is subject to a three- or five-year cliff vesting schedule, it's not likely to benefit you," says David Loeper, author of "Stop the Retirement Rip-off: How to Avoid Hidden Fees and Keep More of Your Money." Other employers have graded vesting schedules in which you get to keep a gradually increasing proportion of your employer's contributions based on your years of service - typically getting to keep the entire 401(k) match only after five or six years of service. "The employer doesn't want to invest in the employee and then have the employee up and take off," says Christopher Carosa, a retirement plan consultant and chief contributing editor of FiduciaryNews.com. "From the employee's standpoint, it's better to have immediate vesting."

    Poor investment choices. The average Vanguard 401(k) plan offered 27 investment options in 2012, up from 16 in 2003, many of which were recently added target-date funds. "If you have more than 20 options it's probably not going to be a user-friendly plan," Carosa says. "It's going to put too much of the burden of deciding what to invest in on the employee." However, almost half of Vanguard 401(k) plans now offer at least four low-cost index funds that invest in U.S. equities, international equities, bonds and cash, up from a quarter in 2004. "The index core is going to have the lowest cost typically, and costs have been demonstrated to be very important in terms of predicting future outcomes," Young says.

    [Read: 10 Secrets of Successful Retirement Savers.]

    High fees. Most 401(k) plans charge a variety of fees ranging from record-keeping costs to expense ratios on each investment option. You want to make sure that the expenses aren't excessively high. "An easy to remember rule of thumb is to look and see who is selling the fund to the plan. If the fund is being sold by a broker or an insurance company that is working in a non-fiduciary capacity there is a good chance that you will have these excess fees," Carosa says. "You want to make sure that none of the options in the plan have 12b-1 fees or revenue sharing."

    401(k) plans are now required to give all investors information explaining the fees associated with each investment option in the plan, due to new U.S. Department of Labor rules. Make sure you look at these quarterly and annual 401(k) statements, and keep costs in mind when making investment decisions. "The fee is 100 percent certain; the return is not guaranteed," Loeper says. He recommends aiming to pay no more than 75 basis points for most investments, and less than 20 basis points for index funds. "If you are paying more than three-quarters of a point," he says, "somebody is making excess profits or is gambling with your money."

    [Apr 01, 2013] $600M scheme incubated in NC town By MITCH WEISS

    Lack of retirement funds force you to believe in scams. Beware this trap " free cheese is available only in a mousetrap". Same for investments that bring dramatically more then safe "inflation plus 2%" return available from TIPs. Actually there is something troubling about the level of gullibility and groupthink demonstrated in the article below: "And so were more and more people in Lexington, including doctors, lawyers and accountants..."
    Yahoo/Associated Press

    In this Feb. 28, 2013 photo, Sarah Chavez, center, sits with her son Bidal, right, and daughter Sarahi, front, at her home in Lexington, N.C. Desperate to raise money for their …more 6-year-old daughter's cancer treatments last summer, friends told Jose and Sarah Chavez of a way to quickly turn their meager savings into a small fortune. But what the Chavez family and many others didn't know was that state and federal regulators for months had received complaints that ZeekRewards was a scam.

    LEXINGTON, N.C. (AP) - In the hardware store on South Main Street, the owner pulled Caron Myers aside to tell her about the best thing to happen in years to this once-thriving furniture and textile town.

    Did she hear about the online company ZeekRewards? For a small investment, she could make a fortune. He had invested. So had his grandsons. And so were more and more people in Lexington, including doctors, lawyers and accountants.

    Skeptical at first, Myers drove a few blocks to the company's one-story, red-brick office and spotted a line of people circling the building. She was sold, and plunked down several thousand dollars. But months later, Myers, like hundreds of thousands of others, discovered the truth: ZeekRewards was a scam.

    "I was duped," Meyer said. "We trusted this man. The community is still in shock."

    Authorities say owner Paul Burks was the mastermind of a $600 million Ponzi scheme - one of the biggest in U.S. history - that attracted 1 million investors, including nearly 50,000 in North Carolina. Many were recruited by friends and family in Lexington, a quintessential small town where neighbors look out for each other.

    But what investors didn't know was that regulators had received nearly a dozen complaints about ZeekRewards and the related site Zeekler.com, but failed to take action for months, leaving the company free to recruit tens of thousands of new victims.

    The Securities and Exchange Commission, which closed the operation Aug. 17, said Burks was selling securities without a license. The Ponzi scheme was using money from new investors to pay the earlier ones.

    Burks has agreed to pay a $4 million penalty and cooperate with a federal court-appointed receiver trying to recover hundreds of millions of dollars.

    Investigators say Burks, a former nursing home magician, siphoned millions for his personal use. But he has not been charged.

    In his first public comments, Burks told The Associated Press he couldn't discuss details because of lawsuits by victims trying to recoup money.

    "Everything will come out in time," said Burks, 66, standing in the doorway of his home.

    Asked if he had anything to say to victims, he shook his head.

    "I never told anyone to invest more money than they could afford," Burks snapped. "I didn't tell them to do that. Never."

    He said if they lost money, "it's their fault. Not mine. Don't blame me."

    But Cal Cunningham, a former prosecutor representing investors in a lawsuit, slammed Burks - and regulators for taking so long to act.

    "It's why we need a full hearing on what happened in a court of law - whether that be our civil case or a criminal proceeding. A lot of people were hurt," he said.

    ____

    Burks started Zeekler in early 2010 as an online penny auction site. His business experience included nearly four decades in multilevel marketing programs - such as Amway - including failed attempts to launch similar businesses of his own.

    In penny auctions, consumers compete to pay pennies on the dollar for name brand products such as iPads. Each bid costs as much as $1, so participating can become expensive and the sites can earn nice profits when multiple users bid against each other.

    In January 2011, he incorporated aspects of multilevel marketing into the business when he launched ZeekRewards. The program offered a share of the penny auction's profits to people who invested money, promoted the company on other websites and recruited other participants. Under a complicated formula, investors were issued "profit points" that grew every day.

    Investments were capped at $10,000, but people could invest on behalf of their spouses, children or other relatives. Some mortgaged homes to raise their investment.

    At first, ZeekRewards complied when investors sought to cash out. And that became the best ad of all: happy investors with their checks in Facebook photos.

    People who didn't trust the mail traveled long distances to drop off checks at the cramped office building where security guards allowed only seven inside at a time. Employees collected money and wrote out receipts at the office cluttered with dozens of plastic mail bins stuffed with check-filled envelopes. To withdraw money, investors filed an online request - or called - and then had to wait for a check.

    By the end of 2011, it seemed like everybody in Lexington was talking about ZeekRewards. Many saw it as a way to make extra cash to pay bills or help family.

    "No one was in it to get rich," said Mary Bell, a 75-year-old seamstress from Lexington who scraped together money to invest.

    Sarah Chavez wanted extra money for her daughter's frequent hospital visits for leukemia. Her husband worked in a factory, and they invested $7,000.

    "It's hard to believe in something like that. But everyone told us it was a sure thing," she said.

    Burks mostly kept to himself, and few locals knew anything about the quiet, balding man with thick glasses.

    In the 1980s and early 1990s, the Shreveport, La., native toured nursing homes in the South as a magician with country singer David Houston. Burks moved to Lexington in the early 1990s because his wife was from the area. In 2000, Burks ran for the state House as a Libertarian, but he collected only 330 votes. Then he became a local celebrity. Most afternoons, he ate lunch at the same downtown restaurant with an entourage of managers. Conference calls with investors were posted on YouTube. He produced glossy brochures touting the company.

    "In addition to the mind-blowing savings, you can create more wealth than you have ever thought possible with ZeekRewards' geometrically progressive matric compensation plan," the brochure said.

    Burks also hired some of the industry's top attorneys and analysts to promote his company.

    The publicity paid off. When the Association of Network Marketing Professionals held its annual convention in March 2012, it called ZeekRewards the model of legal compliance.

    ___

    But behind the scenes, there were troubling signs, according to documents, company emails and consumer complaints reviewed by the AP.

    In early June, the state of Montana gave ZeekRewards the boot. Montana requires multilevel marketing companies to register. But ZeekRewards didn't submit any paperwork - even after warnings, said Luke Hamilton, a spokesman for the attorney general's office.

    "We started getting a lot of complaints," he said.

    In August, a North Carolina employees' credit union warned customers not to invest in ZeekRewards because it was a "fraudulent company."

    But regulators received complaints long before then.

    In a Nov. 23, 2011, complaint filed with the North Carolina Attorney General's office, Wayne Tidderington of Florida called ZeekRewards an "illegal" Ponzi scheme. He said a relative had invested $8,000 and the company guaranteed a return of 125 percent every 90 days.

    The attorney general's office can ask a judge to shut down a business because of deceptive trade practices. But it forwarded Tidderington's complaint to the secretary of state's office because it looked like it might involve securities. The secretary of state's office, however, declined to take action because it didn't believe it had the jurisdiction, spokeswoman Liz Proctor said.

    The complaint died.

    "I put it all together," Tidderington told the AP. "I gave them the roadmap. I said, 'Here's a snake. Here's the gun. Here's the bullets. Shoot the snake.' But they ignored me."

    Over the next seven months, the attorney general's office received nearly a dozen more complaints.

    But it wasn't until July 6 that it issued an order giving Burks until the end of the month to turn over all Zeek-related documents. He missed that deadline.

    Kevin Anderson, senior deputy attorney general for consumer protection, insisted his agency correctly handled the case, saying his office receives thousands of complaints a year.

    "We have to have more concrete evidence than a couple of consumer complaints before we go to court," he said.

    The SEC received similar complaints during the same period, but the agency didn't begin its investigation until the summer.

    SEC spokeswoman Christine D'Amico declined to comment on the investigation, except to say the agency took action "as soon as we believed we had sufficient evidence to obtain an emergency court order to halt the fraud."

    ___

    Months later, people in Lexington are wondering what's next.

    Kenneth Bell, the court-appointed receiver, said ZeekRewards may have taken in $800 million. So far, he's recovered $312 million. Hundreds of millions were paid out to investors. Just how much is missing? He doesn't know.

    Myers said the community is still recovering - but the wounds are deep. People are wondering why investigators didn't act more quickly and why no one, including Burks, has been charged.

    "There are thousands and thousands of victims who might not have lost a penny had the government intervened more quickly," she said.

    [Feb 26, 2013] Not-So-Golden Years: Over 75, Crushed by Debt

    Feb 26, 2013 | Yahoo! Finance

    "In general, the good news is that people ages 75 and older are much less likely to have debt, and generally carry far less debt, than other older Americans. But Craig Copeland, a senior research associate with EBRI and the report's author, said it was still troubling to see that the trend for that group was toward increasing, rather than decreasing, debt burdens."

    "But in general, she said the really troubling finding she's seeing is that younger Americans appear to be taking on more debt than previous generations, and paying it off at slower rates.

    That could mean that today's young people have even bigger problems than their parents and grandparents when they reach age 75 and older."

    ..But I see BennyBoy today says that continued ZIRP has few risks, in his opinion, like asset bubbles or inflation. Of course a lack of assets among the elderly or the young might not be considered a bubble...hmmmmmm...

    ...Could Bernanke be economic antimatter? An anti-bubble?

    [Feb 20, 2013] Jaffe: Retirement savers face own 'fiscal cliff'

    WSJ.com

    Americans had good reason to be disgusted by politicians arguing over the so-called fiscal cliff. But do they recognize such behavior in themselves?

    Retirement is your own fiscal cliff. I mean ... it you one of those is going to ... retire by age sixty five ... but you're not saving and pushed into retirement and you standard of living dramatically drops.

    You are pushed into the situation when you need as much as you can. Maximize you match, use Roth IRA (which gives you tremendous flexibility).

    And working several extra years might be not under you control. Health issues or job market can decided against it.

    [Feb 02, 2013] Social Security The Cheapest Annuity in Town by Alicia Munnell

    This is probably the only reasonable way to buy annuity; otherwise you can emulate annuity by putting the savings in Roth account and investing in mixture of Tips and junks bonds portfolio.

    Yahoo! Finance

    Yahoo/SmartMoney

    The Center for Retirement Research at Boston College has just released a new study that shows that the best way for people to turn their 401(k) balances into a stream of income is to "buy" an annuity from Social Security. Many people don't recognize that Social Security is in the annuity business, but it is and it has the cheapest product in town.

    As more people approach retirement with 401(k) plans as their only supplement to Social Security, they face the challenge of how best to use their accumulated 401(k) assets to support themselves once they stop working. They could invest in safe assets and try to live off the interest, but the value of the assets would erode as prices rise and interest income would fluctuate as nominal interest rates rise and fall. They could invest in a portfolio of stocks and bonds and draw out some percent each month, but to avoid outliving their assets that draw is now about 3 percent. They could take some of their money to an insurance company and buy an annuity, but commercial annuities tend to be expensive because they are designed for people with above-average life expectancy and involve considerable marketing costs.

    [Related: What's a Realistic Retirement Age?]

    A much better alternative is for the household to "buy" an annuity from Social Security. They can make this "purchase" by using their savings to pay current expenses and delaying claiming to get a higher monthly benefit at an older age. The savings used is the "price" and the increase in monthly benefits is the annuity it "buys."

    For example, consider a retiree who could claim $12,000 a year at age 65 and $12,860 at age 66 – $860 more. If he delays claiming for a year and uses $12,860 from savings to pay the bills that year, $12,860 is the price of the extra $860 annuity income.[1] The annuity rate – the additional annuity income as a percent of the purchase price – would be 6.7 percent ($860/$12,860). Remember that Social Security benefits are indexed for inflation, so the retiree is buying a real annuity. Vanguard – a wonderful company – also sells real annuities but it pays much lower rates.

    The reason that Social Security annuities are a better deal than those in the private market is that Social Security can offer a product that is actuarially fair – they are based on the life expectancy of the average person (not those people whose parents lived into their 90s) and Social Security doesn't have to worry about marketing costs or profits. Moreover, in this period of very low rates, Social Security is an especially good deal because the increase in benefits is not based on current rates but rather is a basic feature of the system. So buying an annuity from Social Security, especially in today's low interest rate environment, is the best deal in town.

    So read the study and tell your friends with some 401(k) assets to use them to delay claiming their Social Security benefit.

    Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to "Encore.

    [Feb 02, 2013] Social Security The Cheapest Annuity in Town by Alicia Munnell

    This is probably the only reasonable way to buy annuity; otherwise you can emulate annuity by putting the savings in Roth account and investing in mixture of Tips and junks bonds portfolio.
    Yahoo! Finance/SmartMoney
    The Center for Retirement Research at Boston College has just released a new study that shows that the best way for people to turn their 401(k) balances into a stream of income is to "buy" an annuity from Social Security. Many people don't recognize that Social Security is in the annuity business, but it is and it has the cheapest product in town.

    As more people approach retirement with 401(k) plans as their only supplement to Social Security, they face the challenge of how best to use their accumulated 401(k) assets to support themselves once they stop working. They could invest in safe assets and try to live off the interest, but the value of the assets would erode as prices rise and interest income would fluctuate as nominal interest rates rise and fall. They could invest in a portfolio of stocks and bonds and draw out some percent each month, but to avoid outliving their assets that draw is now about 3 percent. They could take some of their money to an insurance company and buy an annuity, but commercial annuities tend to be expensive because they are designed for people with above-average life expectancy and involve considerable marketing costs.

    A much better alternative is for the household to "buy" an annuity from Social Security. They can make this "purchase" by using their savings to pay current expenses and delaying claiming to get a higher monthly benefit at an older age. The savings used is the "price" and the increase in monthly benefits is the annuity it "buys."

    For example, consider a retiree who could claim $12,000 a year at age 65 and $12,860 at age 66 – $860 more. If he delays claiming for a year and uses $12,860 from savings to pay the bills that year, $12,860 is the price of the extra $860 annuity income.[1] The annuity rate – the additional annuity income as a percent of the purchase price – would be 6.7 percent ($860/$12,860). Remember that Social Security benefits are indexed for inflation, so the retiree is buying a real annuity. Vanguard – a wonderful company – also sells real annuities but it pays much lower rates.

    The reason that Social Security annuities are a better deal than those in the private market is that Social Security can offer a product that is actuarially fair – they are based on the life expectancy of the average person (not those people whose parents lived into their 90s) and Social Security doesn't have to worry about marketing costs or profits. Moreover, in this period of very low rates, Social Security is an especially good deal because the increase in benefits is not based on current rates but rather is a basic feature of the system. So buying an annuity from Social Security, especially in today's low interest rate environment, is the best deal in town.

    So read the study and tell your friends with some 401(k) assets to use them to delay claiming their Social Security benefit.

    Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to "Encore.

    [Related: What's a Realistic Retirement Age?]

    [Jan 29, 2013] $6.6 Trillion Retirement Saving Shortfall Shows Failure of 401(k)'s

    Jan 27, 2013 | Angry Bear
    Roanman
    Social Security has taken 12.4% of your taxable income since 1990, about 8% since 1980. Don't be conned into thinking that you only pay 6.4% and your employer matches as that second 6.4% is money he would pay you were he not required to pay that part of your wage directly to the government.

    Think of it this way, your employer doesn't care who he has to pay your wages to, he cares about the total number. You, The Federal Government, some garnishment from a successful claimant against you ..... in terms of the total it's all the same to him.

    If you are able do a little arithmetic and guess at what you'd be worth had you simply put a little effort into your life and learned to chase some yield for your 8- 12.4%, it might start to dan on you the extent to which you got done. Government bond funds payed a ton in the 80's, tech stocks roared in the 90's (not much yield however), royalty trusts paid double digit yields in the first decade of this century. But you got your 'guaranteed' retirement with a COLA.

    Now from the FAQ as SSA.gov

    How is a COLA calculated?

    The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.

    A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA.

    And now, and my apologies as this next read requires a little effort on your part, a link to the primer at shadow government statistics.

    http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement

    The following comment will offer up a taste from the above link.

    The Way the Politicians Wanted It

    In the early-1990s, political Washington moved to change the nature of the CPI. The contention was that the CPI overstated inflation (it did not allow substitution of less-expensive hamburger for more-expensive steak). Both sides of the aisle and the financial media touted the benefits of a "more-accurate" CPI, one that would allow the substitution of goods and services.

    The plan was to reduce cost of living adjustments for government payments to Social Security recipients, etc. The cuts in reported inflation were an effort to reduce the federal deficit without anyone in Congress having to do the politically impossible: to vote against Social Security. The changes afoot were publicized, albeit under the cover of academic theories. Few in the public paid any attention.

    Sam Zuckerman of the San Francisco Examiner, noted "In the 1990s, for example, Republicans wanted to make changes in calculating inflation along the lines recommended by a special commission, including more use of quality adjustments. By lowering the official inflation rate, such changes promised to reduce the annual cost-of-living adjustments for Social Security and other federal programs.

    "[Katherine] Abraham, the Clinton bureau [of Labor Statistics] commissioner, remembers sitting in Republican House Speaker Newt Gingrich's office:

    " 'He said to me, If you could see your way clear to doing these things, we might have more money for BLS programs.' " [v]

    Federal Reserve Chairman Alan Greenspan and Michael Boskin, the chairman of the Council of Economic Advisors, were very clear as to how changing or "correcting" the CPI calculations would help to reduce the deficit. As described at the time by Robert Hershey of the New York Times, "Speaker Newt Gingrich, Republican of Georgia, suggested this week that fixing the [CPI] index, with its implications for lower spending [Social Security, etc.] and higher revenue [tax bracket adjustments], would provide maneuvering room for budget negotiators …" [vi]

    "Alan Greenspan, chairman of the Federal Reserve, is among the other Government officials who have spoken optimistically about financial benefits of a more accurate [CPI] index …" [vii]

    "[E]conomists believe one of the most important [CPI upside biases] is when consumers shift their buying patterns in response to changing prices, substituting one product for another. The [CPI] index is based on a fixed market basket of goods and services. But, for example, if the price on an item like steak gets too expensive, consumers may switch to hamburger." [viii]

    The Boskin Commission Report, December 4, 1996, actually used steak and chicken for its substitution example. The examples used in arguing for changing the CPI clearly were tied to prices rising and resulting consumer demand shifting to a lower-quality product. Simply put, that was the destruction of the cost-of-maintaining-a-constant-standard-of-living issue and was the primary consideration of those seeking to change the CPI, although other issues would come into play. The drive here was as to get a lower inflation reading, irrespective of whether the data were "more-accurate."

    So you get it in the teeth thrice, 12.4% of your income is removed from you wallet in exchange for a promise of a retirement income with the implication that it will provide for a moderately comfortable retirement, whatever that means. Then the amount of the payout is methodically reduced by manipulation of the adjustment for inflation which is the very vehicle that provides for your comfort within your comfortable retirement, whatever that means. Finally you stupidly bite and fail to provide any savings for your retirement out of what income you have left thinking that your government actually gives a rat's ass about you.

    You got used. The day you retire, you are of little use as you now draw on government accounts rather than pay in. Your death will be viewed by your government as a good thing. Hurry up and die. Disease, malnutrition death panels ..... it's all the same to your Uncle Sam.

    As an aside while it was Ol' Newt promoting the idea in a meeting, it was Clinton who signed on for the changes.

    coberly:

    Roanman

    you could leave off the snotty remarks. i was one of those shouting against the Boskin commission.

    the 12% you pay for FICA is what gets the 2% or better real return on your "investment." But it is not so obvious to me that the boss would pay "his" share if the bad old government didn't force him to.

    No doubt someone as smart and good smelling as you could negotiate for a 6% raise if the boss didn't have to pay FICA. But i don't think the eighty percent of us who are too stupid to know anything about investing would even get the 6% called "the workers share" if the bad old government didn't force the boss to pay FICA.

    It has something to do with the "power" of the parties at the bargaining table.

    As for your take on "the government," you know it's who we vote for. I've been trying to get people to make it clear they won't vote for anyone who cuts their SS... even in the name of a "more accurate" CPI.

    Why don't you join the country and work on making it work.

    Jack:

    Roanman, I happen to be one who appreciates your rehashing the bullshit that passes for elected representative activities in this country. Note that I use the phrase "elected representative" because your use of the word government is too amorphous and fails to draw the relationship between those whom we vote for and those who then screw the electorate in favor of their financial backers.

    Given that you are so insightful regarding the inadequacies of the Social Security system as a back stop retirement vehicle for the masses I was wondering if you might fill us all in on the investment vehicle that you have discovered that guarantees a good return and safe haven for that 12.4% in extra take home pay that we are going to receive once the bad old SS system is finally put to the grave?

    Oh, and while you're at it please explain how it is that you are so certain of the employer's 6.2% reaching our pockets? I do admire a person with such a strong sense of certainty about so many uncertain and unpredictable phenomenon. I await with baited breath your explanation.

    PJR:

    The BLS response to the Boskin Commission can be found here: http://www.bls.gov/pir/journal/gj10.pdf BLS professionals rejected the idea of replacing the CPI-U with the Chained-CPI--the "chicken for steak" problem. But they did make some changes to their methodology, with the net result of a slight decline in CPI-U estimates. Did the BLS go too far and begin underestimating inflation? Tough question and I'm not convinced by what John Williams says (and he should more carefully note which Boskin recommendations were rejected). Based on the BLS report in the above link, I think BLS professionals are reasonable and intelligent analysts who are trying to do a good job and beat back This tricky retirement funds problems that the CPI-U overstates inflation and claims that it understate inflation -- and they usually vary depending on the political motivation.

    [Oct 17, 2012] Baccala investors testify about losses in alleged Ponzi scheme By PAUL PAYNE

    Many elderly investors have lost a combined $20 million
    October 12, 2012 | THE PRESS DEMOCRAT

    The first of many elderly investors who claim to have lost a combined $20 million in what Sonoma County prosecutors are calling a vast Ponzi scheme testified Friday they gambled their life savings on word-of-mouth recommendations and the promise of 12 percent returns.

    Some, like Hyam Liebling, 86, of Oakmont in Santa Rosa, testified they plunked down their money with Aldo Baccala, 71, of Petaluma, despite being unclear about who he was and how the money was secured.

    "I just trusted the guy," said Liebling, who walked to the witness stand with the help of a cane. "And I trusted the information I got from a friend who invested in him for many years."

    After a brief meeting with Baccala in 2008, Liebling said he wrote him a check for $30,000, eager to begin collecting generous monthly interest payments. A few weeks later, he shelled out $25,000 more, increasing his total investment to $55,000, he said.

    The money was going into mobile homes owned by Baccala's Petaluma real estate company and later, assisted living centers, he said.

    But in November 2008, Liebling testified the monthly payments stopped. He received a letter from Baccala telling him he'd run out of money.

    Liebling and other investors sued Baccala in civil court but have since received nothing, despite a settlement promising repayment.

    Asked about the impact on his life, the elderly man said, "Well, we're retired."

    Liebling was the first to testify in a preliminary hearing expected to continue next week. Prosecutors said there are 55 victims, many of them elderly, who were cheated out of their money.

    [Jul 01, 2012] A Big Joke...

    ...in honor of yet another hopium-fueled stock market rally (via Capitalists@Work):

    Once upon a time, in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

    The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them.

    The man bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort.

    The man then announced that he would now pay $20 for each one. This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.

    The man increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey, much less catch one.

    The man now announced that he would buy monkeys for $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

    While the man was away the assistant told the villagers, "Look at all these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each."

    The villagers rounded up all their savings and bought all the monkeys.

    They never saw the man nor his assistant again, and once again there were monkeys everywhere.

    Now you have a better understanding of how the stock market works.

    [Jun 05, 2012] The Curtain Opens on 401(k) Fees - By GRETCHEN MORGENSON

    Yahoo/New York Times

    IF recent stock market gyrations have taken a bite out of your 401(k), get ready for more discomfort. You're about to learn how much you're paying just to maintain that account.

    New Labor Department rules will require fuller disclosure about the fees charged on 401(k)'s. Fees, of course, can be an enormous drain on retirement savings - but they are often obscured, giving many Americans the impression that the accounts are somehow cost-free.

    A survey published last February by AARP, for example, found that 71 percent of those polled believed that they did not pay fees on their 401(k)'s. Six percent said they did not know whether fees were levied.

    So the coming disclosures, scheduled to show up on third-quarter statements this fall, may come as a shock. Still, it's better to know than to be in the dark.

    There are an estimated 483,000 individual retirement account plans, covering 72 million participants, the Labor Department says. These accounts hold roughly $3 trillion in assets. Greater transparency couldn't be more important.

    The new rules are intended to ensure that the fees in 401(k) plans are reasonable. The Labor Department says it hopes that the disclosures will help investors compare various investment offerings and see how costs eat away at account balances.

    Two main fees are extracted from 401(k) plans: investment management fees and administrative costs. Under the new rules, companies administering 401(k)'s - often mutual fund concerns - must provide employers who sponsor the plans with details of all fees associated with running the accounts. For example, fees for general plan administrative services, like legal work, accounting and recordkeeping, will have to be disclosed.

    Plan sponsors are supposed to use this information to analyze whether the fees in their plans are too high. But they won't have to pass along all of this data to participants. Instead, the sponsors will be required to calculate expense ratios for the investments offered in a plan, showing participants the charges per $1,000 invested.

    According to a Deloitte/Investment Company Institute study released last November, the median 401(k) expense ratio was 0.78 percent. But the range of ratios is wide, the report noted: from 0.28 percent to 1.38 percent.

    Expense ratios on 401(k) plans are supposed to be lower than those on investments offered to individuals. That's because the combined assets in many retirement plans should be large enough to qualify for lower-cost institutional funds. In general, the greater the assets held in a plan, the lower the fees.

    Brent L. Glading, founder of the Glading Group, a consulting firm that analyzes 401(k)'s, says he welcomes the disclosure requirements but fears that the new rules will confuse plan participants. Employers will have to work much harder to educate participants about costs and benefits of various fund offerings, he says.

    Unfortunately, he adds, employers are not up to the task. "The disclosure is going to make index funds look better in some cases, and that's fine," he says. "But you will find many active managers with fees that are justifiable because their performance outperforms the index. It is clearly going to be the responsibility of the plan sponsor to help participants understand what it all means, and I am not sure they are prepared for it."

    If plan sponsors are to help their employees use the disclosures to make better investment choices, they have a lot of boning up to do. A study issued by the Government Accountability Office in April found that half of the 1,000 sponsors surveyed either did not know if they or their participants paid investment management fees or believed, incorrectly, that such fees were waived by service providers.

    Investment management fees are a rather large cost to be unsure about. According to the Deloitte/I.C.I. study, these fees make up 84 percent of total 401(k) expenses.

    Such ignorance might be understandable for sponsors of small plans, but large plan overseers can also be clueless. According to the G.A.O. study, 31 percent of large plan sponsors didn't know whether they or their participants paid investment management fees.

    The report also said 29 percent of plan sponsors did not know if their plans paid for trustee, legal or audit services.

    If plan sponsors don't even know that fees are levied, they are surely not putting any effort into aggressively managing the costs that their employees are paying in their 401(k)'s. The G.A.O. study confirms that.

    While almost half the plans surveyed by the G.A.O. reported that they did not know if they or their participants paid transaction costs, 95 percent of those said they had not even asked their service providers for information regarding these costs.

    When sponsors do receive an accounting of various costs, they rarely use it to push for lower fees, the G.A.O. found. For example, the Labor Department requires sponsors to identify individuals receiving at least $5,000 in compensation for services rendered to a 401(k) plan. But the G.A.O. noted that 89 percent of the sponsors surveyed said they did not use the information to compare fees with those charged by other companies. And 83 percent said they didn't use the data to negotiate lower fees from current providers.

    "The reality is, most of the fiduciaries of these plans don't want to do what they are supposed to do," Mr. Glading said. "They say, 'It doesn't save money for the company, so why do I care?' There has to be a groundswell from the employees."

    PERHAPS that will be the main benefit of the new disclosures. It may just be that when workers begin to see how investment fees and administrative costs are ravaging their retirement savings, they'll start prodding the managers overseeing these plans to behave like the fiduciaries they are.

    The fact is, fund companies and other providers of 401(k)s are getting rich off these plans. And in this zero-sum game, future retirees are definitely the poorer for it.

    [Jun 05, 2012] The Curtain Opens on 401(k) Fees - By GRETCHEN MORGENSON

    Yahoo/New York Times

    IF recent stock market gyrations have taken a bite out of your 401(k), get ready for more discomfort. You're about to learn how much you're paying just to maintain that account.

    New Labor Department rules will require fuller disclosure about the fees charged on 401(k)'s. Fees, of course, can be an enormous drain on retirement savings - but they are often obscured, giving many Americans the impression that the accounts are somehow cost-free.

    A survey published last February by AARP, for example, found that 71 percent of those polled believed that they did not pay fees on their 401(k)'s. Six percent said they did not know whether fees were levied.

    So the coming disclosures, scheduled to show up on third-quarter statements this fall, may come as a shock. Still, it's better to know than to be in the dark.

    There are an estimated 483,000 individual retirement account plans, covering 72 million participants, the Labor Department says. These accounts hold roughly $3 trillion in assets. Greater transparency couldn't be more important.

    The new rules are intended to ensure that the fees in 401(k) plans are reasonable. The Labor Department says it hopes that the disclosures will help investors compare various investment offerings and see how costs eat away at account balances.

    Two main fees are extracted from 401(k) plans: investment management fees and administrative costs.

    Under the new rules, companies administering 401(k)'s - often mutual fund concerns - must provide employers who sponsor the plans with details of all fees associated with running the accounts. For example, fees for general plan administrative services, like legal work, accounting and recordkeeping, will have to be disclosed.

    Plan sponsors are supposed to use this information to analyze whether the fees in their plans are too high. But they won't have to pass along all of this data to participants. Instead, the sponsors will be required to calculate expense ratios for the investments offered in a plan, showing participants the charges per $1,000 invested.

    According to a Deloitte/Investment Company Institute study released last November, the median 401(k) expense ratio was 0.78 percent. But the range of ratios is wide, the report noted: from 0.28 percent to 1.38 percent.

    Expense ratios on 401(k) plans are supposed to be lower than those on investments offered to individuals. That's because the combined assets in many retirement plans should be large enough to qualify for lower-cost institutional funds. In general, the greater the assets held in a plan, the lower the fees.

    Brent L. Glading, founder of the Glading Group, a consulting firm that analyzes 401(k)'s, says he welcomes the disclosure requirements but fears that the new rules will confuse plan participants. Employers will have to work much harder to educate participants about costs and benefits of various fund offerings, he says.

    Unfortunately, he adds, employers are not up to the task. "The disclosure is going to make index funds look better in some cases, and that's fine," he says. "But you will find many active managers with fees that are justifiable because their performance outperforms the index. It is clearly going to be the responsibility of the plan sponsor to help participants understand what it all means, and I am not sure they are prepared for it."

    If plan sponsors are to help their employees use the disclosures to make better investment choices, they have a lot of boning up to do. A study issued by the Government Accountability Office in April found that half of the 1,000 sponsors surveyed either did not know if they or their participants paid investment management fees or believed, incorrectly, that such fees were waived by service providers.

    Investment management fees are a rather large cost to be unsure about. According to the Deloitte/I.C.I. study, these fees make up 84 percent of total 401(k) expenses.

    Such ignorance might be understandable for sponsors of small plans, but large plan overseers can also be clueless. According to the G.A.O. study, 31 percent of large plan sponsors didn't know whether they or their participants paid investment management fees.

    The report also said 29 percent of plan sponsors did not know if their plans paid for trustee, legal or audit services.

    If plan sponsors don't even know that fees are levied, they are surely not putting any effort into aggressively managing the costs that their employees are paying in their 401(k)'s. The G.A.O. study confirms that.

    While almost half the plans surveyed by the G.A.O. reported that they did not know if they or their participants paid transaction costs, 95 percent of those said they had not even asked their service providers for information regarding these costs.

    When sponsors do receive an accounting of various costs, they rarely use it to push for lower fees, the G.A.O. found. For example, the Labor Department requires sponsors to identify individuals receiving at least $5,000 in compensation for services rendered to a 401(k) plan. But the G.A.O. noted that 89 percent of the sponsors surveyed said they did not use the information to compare fees with those charged by other companies. And 83 percent said they didn't use the data to negotiate lower fees from current providers.

    "The reality is, most of the fiduciaries of these plans don't want to do what they are supposed to do," Mr. Glading said. "They say, 'It doesn't save money for the company, so why do I care?' There has to be a groundswell from the employees."

    PERHAPS that will be the main benefit of the new disclosures. It may just be that when workers begin to see how investment fees and administrative costs are ravaging their retirement savings, they'll start prodding the managers overseeing these plans to behave like the fiduciaries they are.

    The fact is, fund companies and other providers of 401(k)s are getting rich off these plans. And in this zero-sum game, future retirees are definitely the poorer for it.

    [Jun 05, 2012] Social Security The Cheapest Annuity in Town - Yahoo! Finance by Alicia Munnell

    Yahoo/SmartMoney

    The Center for Retirement Research at Boston College has just released a new study that shows that the best way for people to turn their 401(k) balances into a stream of income is to "buy" an annuity from Social Security. Many people don't recognize that Social Security is in the annuity business, but it is and it has the cheapest product in town.

    As more people approach retirement with 401(k) plans as their only supplement to Social Security, they face the challenge of how best to use their accumulated 401(k) assets to support themselves once they stop working. They could invest in safe assets and try to live off the interest, but the value of the assets would erode as prices rise and interest income would fluctuate as nominal interest rates rise and fall. They could invest in a portfolio of stocks and bonds and draw out some percent each month, but to avoid outliving their assets that draw is now about 3 percent. They could take some of their money to an insurance company and buy an annuity, but commercial annuities tend to be expensive because they are designed for people with above-average life expectancy and involve considerable marketing costs.

    [Related: What's a Realistic Retirement Age?]

    A much better alternative is for the household to "buy" an annuity from Social Security. They can make this "purchase" by using their savings to pay current expenses and delaying claiming to get a higher monthly benefit at an older age. The savings used is the "price" and the increase in monthly benefits is the annuity it "buys."

    For example, consider a retiree who could claim $12,000 a year at age 65 and $12,860 at age 66 – $860 more. If he delays claiming for a year and uses $12,860 from savings to pay the bills that year, $12,860 is the price of the extra $860 annuity income.[1] The annuity rate – the additional annuity income as a percent of the purchase price – would be 6.7 percent ($860/$12,860). Remember that Social Security benefits are indexed for inflation, so the retiree is buying a real annuity. Vanguard – a wonderful company – also sells real annuities but it pays much lower rates.

    The reason that Social Security annuities are a better deal than those in the private market is that Social Security can offer a product that is actuarially fair – they are based on the life expectancy of the average person (not those people whose parents lived into their 90s) and Social Security doesn't have to worry about marketing costs or profits. Moreover, in this period of very low rates, Social Security is an especially good deal because the increase in benefits is not based on current rates but rather is a basic feature of the system. So buying an annuity from Social Security, especially in today's low interest rate environment, is the best deal in town.

    So read the study and tell your friends with some 401(k) assets to use them to delay claiming their Social Security benefit.

    Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to "Encore.

    [Jan 01, 2012] Guest Post- 2011 - Catch-22 Year In Review

    ZeroHedge

    The Wall Street mantra of stocks for the long run is beginning to get a little stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P 500 would be 4,000. For this level of accuracy, she is paid millions. Her 2011 prediction of 1,500 only missed by 16%.

    The S&P 500 began the year at 1,258 and hasn't budged. The lowest prediction from the Wall Street shysters at the outset of the year was 1,333, with the majority between 1,400 and 1,500. The same Wall Street clowns are now being quoted in the mainstream media predicting a 10% to 15% increase in stock prices in 2012, despite the fact we are headed back into recession, China's property bubble has burst, and Europe teeters on the brink of dissolution.

    They lie on behalf of their Too Big To Tell the Truth employers by declaring stocks undervalued, when honest analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully report that stocks are overvalued and will provide pitiful returns over the next year and the next decade.

    Economist's View Should Social Security Be Progressive

    Narwhal :

    "High earners already have their SS benefits taxed and that money goes to the SSTF."

    Moderate earners DO have their SS benefits taxed at regular income tax rates: I cannot find any reference saying that it goes into the SSTF.

    I paid tax on my Social Security and I (my wife) am/is NOT a 'High Earner, see below

    Per the IRS: http://www.irs.gov/newsroom/article/0,,id=179091,00.html

    [Are Your Social Security Benefits Taxable?

    IRS Tax Tip 2011-26, February 07, 2011

    The Social Security benefits you received in 2010 may be taxable.... the following seven facts from the IRS will help you determine whether or not your benefits are taxable.

    How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

    Generally, if Social Security benefits were your only income for 2010, your benefits are not taxable and you probably do not need to file a federal income tax return.

    If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status....

    You can do the following quick computation to determine whether some of your benefits may be taxable: • First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income. • Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

    The 2010 base amounts are: • $32,000 for married couples filing jointly. • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year. • $0 for married persons filing separately who lived together during the year.]

    ----------------------------------------------

    The taxable amount of SS payments increases to a maximum of 85% when the modified AGI reaches $34,000($44,000 if married)

    So, the current system already is progressive on the payments side. To make it more regressive would make many of us very angry.

    I do very much agree that the SS contribution cap should be eliminated.

    Arne:

    "the main problem is NOT that people are living longer"

    Sorry, wrong.

    In 30 years lifespan for men (at age 65) increased from 14.0 to 17.5, a 25 percent increase in years and, therefore, a 25 percent increase in costs. Without that increase in retirement years, SS would be over-funded.

    Living longer IS the primary issue.

    (That does not mean you have to increase the NRA, but please get the facts straight.)

    cm:

    You cannot consider only life expectancy at 65, or the minimum benefit eligibility age. In order to collect, you have to make the gate. You are leaving out those who contribute but don't collect. I don't know how much that takes away from your point.

    And I thought the big problem was the wave of boomers? (The boomers at fault for one more thing aside from all the others.)

    [Sep 27, 2011] Our Bankers Vultures, Vampires and Very Dead Zombies by Mick Arran

    Open Salon

    "Dead people are the newest frontier in debt collecting…"

    I am NOT making up this vulture stuff, OK? This is our society as it really is.

    red-headed_vultureThe banks need another bailout and countless homeowners cannot handle their mortgage payments, but one group is paying its bills: the dead.

    Dozens of specially trained agents work on the third floor of DCM Services here, calling up the dear departed's next of kin and kindly asking if they want to settle the balance on a credit card or bank loan, or perhaps make that final utility bill or cellphone payment.

    The people on the other end of the line often have no legal obligation to assume the debt of a spouse, sibling or parent. But they take responsibility for it anyway.

    "I am out of work now, to be honest with you, and money is very tight for us," one man declared on a recent phone call after he was apprised of his late mother-in-law's $280 credit card bill. He promised to pay $15 a month.

    Dead people are the newest frontier in debt collecting, and one of the healthiest parts of the industry. Those who dun the living say that people are so scared and so broke it is difficult to get them to cough up even token payments.

    So completely out-of-control greedy has our amok-running banking industry become that they're going after money they cheerfully and openly admit isn't owed to them by the people they're harassing, mainly, it appears, because they've stripped the living creditors so badly they don't have anything left to "cough up". So why not go after the families of dead creditors? Maybe they've got something left to worth stealing.

    Well, if you can "retaliate" against some country that didn't do anything to you because there's no profit in invading the country actually responsible for attacking you, why can't bankers steal from people who have money but don't owe it to them when the people who do owe it to them are dead? Makes sense to me.

    It can't possibly be legal to harass people who don't owe you anything, can it? Have we come so far, sunk so deeply into the muck? And it doesn't even end there, no no no.

    [Sep 17, 2011] Middle-Class Death Watch

    As poverty spreads, foreclosures rise and the American dream crumbles, 28 percent of Americans fall out of the middle-class.

    [Sep 17, 2011] The theft of the American pension

    "The retirees didn't understand this was being done to them. They just assumed, "Oh well, this company is affected like everyone else by the economy." They didn't see the role the companies played [in deceiving their employees]. The federal courts found Cigna documents that made it clear that the HR executives were discussing how, if the cutting of employees' benefits was handled right, there wouldn't be an employee backlash because the people wouldn't understand what was happening."
    Salon.com

    A striking example was Lucent, which inherited about 100,000 retirees when it was spun off from AT&T. From the beginning, Lucent kept saying, "We are crippled by these retirees," but the truth is, they also received more than enough actual money from AT&T to pay every dime of benefits for all the current and future retirees. Bit by bit, they cannibalized these benefits. They eliminated a death benefit, which is a very simple thing that says, if you work for us for 25 or 30 years, and you die, your widow will get $50,000 dollars or whatever per year. Lucent said they couldn't afford that. So they took it away and saved $400 million that had been set aside physically in the pension plan for these folks. At the same time, they awarded more than $400 million in bonuses to executives.

    I kept on thinking about the market crash of 2008, where bankers were partly saved from public outrage because the public really didn't understand how the system worked. I remember thinking, "This is so complicated that I can't even really get angry about it, because I don't know how it all breaks down."

    The retirees didn't understand this was being done to them. They just assumed, "Oh well, this company is affected like everyone else by the economy." They didn't see the role the companies played [in deceiving their employees]. The federal courts found Cigna documents that made it clear that the HR executives were discussing how, if the cutting of employees' benefits was handled right, there wouldn't be an employee backlash because the people wouldn't understand what was happening. And it's a pattern that has existed at a number of other companies.

    It may seem odd to you that a person wouldn't know their pension is being cut, from, for example, $20,000 a year to $15,000 or $10,000. But companies have various ways of masking it. One way is to pay people a lump sum when they leave, saying, "Here's a lump sum so you don't need to wait until you're 65 to get a payment." Almost everyone who was attracted to that assumed it was the equivalent amount to a pension because they didn't know about the time value of money and discount rates and so forth.

    Bernanke "Let Them Buy Cake" Reveals Pathological Blindness

    naked capitalism

    kievite

    MyLessThanPrimeBeef did math wrong:

    If you make $50,000/yr before retirement and wish to have 60% of that after retirement, how much do you have to save in order to earn that much in your 0.5% bank account?

    Let's see, $50,000 x 0.6 = $30,000 @ 0.5% interest: $30,000/0.005 = $6,000,000.

    This is a blatant error as principal is untouched. In order to retire at 66 with $30K per year income and 0.5% interest and assuming 30 years payout period (or life expectancy 96 years), you need $840K. Assuming one start contributing at 25, monthly contributions and interest 0.5% you need to contribute $1500 per month to get this sum at 66.

    Bruce

    So you would need to contribute $18,000/yr or 36% of pre-tax income? That pretty much proves Yves's point – people who can save are realizing they need to increase their savings levels.

    Its even worse in higher income brackets as people realize that existing savings no longer provide any compounding, much less compounding over inflation. If inflation is running a 3-5%, and all in tax rate is 35%, additional savings on top of existing savings are required at a 5-8% rate just to keep the existing savings purchasing power from being eroded. Just think if you had $100,000 saved for college tuition already for an 8 year old. You know you will need almost double that just to keep up with tuition increases, and you won't get it from "the market", so you just have to spend less – but there is no real increase in "savings" by doing so.

    This is the real trap that Bernanke has set himself, as it's an exponential function on saving for future expenses – the number starts to grow faster than anyone's capacity to save no matter how frugal they become. But it won't stop them from trying……

    kievite
    Bruce:

    So you would need to contribute $18,000/yr or 36% of pre-tax income? That pretty much proves Yves's point – people who can save are realizing they need to increase their savings levels.

    Everything is wrong in this example :-). Adult male life expectancy in the USA is 84 I think. So if you are a male you can contribute twice less :-). If you are afraid of inflation use TIPS. They have decent return over the years. Of course if you want to play stock market you probably will be fleeced.

    BenE
    Yup, I did the calculation for myself just recently.

    The generation x/y, the 20 to 40 year olds, are squeezed severely by high house prices and stock prices. Since they can no longer rely on high capital gains to fund their retirement, they would in theory need their stocks at a p/e where they can rely on good dividends instead.

    Take my situation. I am a 30 year old engineer and my wife is a doctor. We live in Canada.

    Problem 1: Low interest rates.

    These might be good for propping up the banks but we are trying to save up for retirement here and lately, are lucky if I we get positive real returns on our investments. If you try online retirement savings calculator they all have default values of around 3% inflation and 8% expected returns. With these numbers, the calculator tells us we need to save about 12% of our income to get 50% of it for a good part of our retirement. We would need to save about $1000 a month on a combined $100 000 salary to secure a good retirement.

    However if I input a more realistic 4% return on investments, the calculator tells us we need to save 37% of our income, that is $3100 a month.

    result: minus $2100/month from us to the rest of the economy.

    This situations means our generation's families, have something like 25% yearly less income compared to the previous generation to spend outside retirement savings.

    What do you think that does to the GDP numbers? Can spending from boomer retirees compensate for that?

    Problem 2. High house prices.

    We live in an apartment in part because houses are still very expensive. It seems the economic punditry sees high house prices as a good thing. I'm sure it is good for banks who are backing all the inflated mortgages but for those of us that are trying to become home owners, it makes things very difficult. It also means that when we do buy a house, it will be barely affordable and our monthly budget will largely go towards paying back the bank. Now problem 1 partly offsets this as we can get mortgages at lower interest rates but the low rates seems to keep the prices inflated and cancel out all the benefits (at least here in Canada).

    If you're my age, the numbers simply don't add up. Especially if, as some suggest, the stock prices stay high due to them being sold oversees instead of passed on to our generation. In the case of housing, this is happening right now in Vancouver for example, where houses are sold at insane prices to rich Chinese immigrants and we younger locals can only afford leftovers.

    Birch
    Thank you. I'm in the same boat you're in. I think we can safely assume that whatever we save will be worth less when we need it than it is now. Retirement, in the 20th century sense, is probably on it's last legs. Perhaps we will move back to an old-school broad family arrangement, where the working youth take care of the live-in elders – physically and financially – because they know that they will need the same treatment from the next youth when they're old. I don't think this is a bad thing – better than dumping the elders on the garbage heap anyway.

    One thing I can suggest, if you haven't already, many credit unions in Vancouver offer better interest rates on term deposits and such than any of the (five) banks do. You can almost keep up with inflation – but not quite.

    Blissex
    There is another blatant error here:

    "you need $840K. Assuming one start contributing at 25, monthly contributions and interest 0.5% you need to contribute $1500 per month to get this sum at 66."

    The blatant error in the above it is that the saving profile is constant across time, which means that most of the saving is done when the worker is youngest, so that interest can build up for the longest.

    The question here is how easy it is for the average 25yo worker to contribute $18,000/year to their pension account, and to keep contributing that sum every year for the next 40 years, with no periods of unemployment or illness, and the answer is that it is nearly impossible.

    If the contribution profile is such that most contributions to the pension account are made after 40-45, as it happens in the so-called real world, then things are nowhere as easy.

    There is also a composition fallacy here. By necessity someone's financial assets must be someone else's financial debt, and if there are 2 workers per retiree, and the retiree gets $30k per year from a capital of $840 going down to 0 at age 96, that means that each worker *must* have debts $420k down to whatever is left at the death of the retiree (let's say on average" 210k each!).

    In any case if there are 2 workers per retiree spending 30k/y, each of them is therefore contributing via interest or profits $15k/year towards current pensions, which is amazingly similar to the $18k/year required saving rate, which is amazingly similar to the contribution rate, which means that the system is still pay-as-you-go.

    So if there is a low worker-retiree ratio like 2 workers must have gigantic debts and pay a lot of their income to retirees, and the only choice how efficiently that can be done (via low-overhead OASDI or high-margin financial products); and if the worker-retiree ratio is high, there is little problem.

    It is indeed impossible to avoid pay-as-you-go in the aggregate, because retirees accumulate financial assets, not stocks of food and clothes etc., so when they retire someone has to produce that food and clothes etc. that the retirees need to consume with their retirement income, and give them to the retiree.

    There is another composition fallacy in the total numbers.

    So suppose that there are 150m workers, each producing an average of 50k/y and 75m retirees, each consuming an average of 30k/y and each with a capital of 840k.

    Annual GNP is 150m*50k => 7.5 trillions, but retirees will own financial assets of up to 75m*840k => 63 trillions, or let;s say on average 31.5 trillions, which is a ridiculous idea.

    Unless of course there is a gigantic real estate and stock market Ponzi bubble fueled by worker demands for retirement assets, which is one of the real goals of those advocating private retirement accounts.

    Crazy Horse
    I don't know what form of herb you guys are smoking. There won't be any retirement for the ex-middle class Americans who are in the process of being evicted from the only asset they once had. Even those who still live in their underwater residences two or three years from now will have their "savings" eroded by serial joblessness and the price inflation of necessities like food and transportation.

    And how well do you think suburbia is going to work when the dollar is no longer the world reserve currency and we have to exchange real goods for the oil necessary to keep it functioning?

    The only way a middle class American can afford to retire today is to move to a country where the cost of living is in accord with their modest resources. If they in fact have a little savings left, they may be able to find a gringo enclave where they can play bridge with fellow expats and watch the sun set. In my case I'm moving back to the village in the mountains of Columbia where I lived as a Peace Corps volunteer 40 years ago. Little has changed there– farmers still bring their vegetables to market every Sunday on mule back and the eggs and coffee are better than anything available in the USA. One can go for months without hearing English spoken or hearing about the latest financial swindle which is fine with me. $500 per month is a kings ransom. And did I mention that Columbia ranks #36 in the world for health care, ahead of the US in 37th place? Ironic isn't it– forty years after I was sent to a third world country to show them how to live a better life, the life they have, for all its faults, looks better than the imploding catastrophe of the USA.

    tyaresun
    And if anyone in your family falls seriously ill bankruptcy is your only option.
    Yves Smith
    His math is correct, you don't like his assumptions. :-)

    I don't know how many old people you know, but no retiree I know is comfortable with the notion you posit (and retirement planners may push), that of liquidating principal. It is one thing to have that happen, another to plan for that. There are enough "shit happens" scenarios that afflict older people (start with the cost of assisted living or nursing home care) that you can blow through the $30K a year level assumed here in a heartbeat.

    Moreover, expected age of death is a moving target. At any point in time, someone 65 is expected to die older than a 20 year old because some people don't make it to 65. That continues as you reach 70 and 80. So if you planned based on your life expectancy at 25 and actually live to 80, that means you can now expect to outlive the funds you get aside based on your life expectancy at age 20.

    Basically. your logic builds too few buffers in. Assuming you live off interest means you have your principal as a buffer. You may argue that is too conservative. but to each his own planning.

    Pwelder
    It was always the older folks whose spending accounted for a disproportionate share of consumer spending not financed by debt.

    But you can't do financial repression without killing their cash flow. (Not to mention the huge increases in contributions required to fund defined benefit pension programs or the retirement income targets of individuals.)

    So a policymaker like Bernanke who goes for artificially low interest rates aimed at supporting the banks and/or government finances sets up a demand-killing downdraft that his models seem not even to recognize, much less measure. As noted in some comments above, he very likely can't see what he's doing.

    And there in a nutshell is the incoherence of current policy.

    craazyman
    I think the Amy Winehouse retirement will be the most popular. It's almost free. :)
    Birch
    Almost free? Cummon, how much did she 'invest' in booze and drugs to fund her 'retirement plan'.

    It's not a cheap life style. This is a risky plan too, though; I know plenty of rock musicians that bought into this retirement plan, but behold, they're into their forties now and they're still living!

    Woops. Musicians never retire.

    [Jun 09, 2011] 401k Calculator How much income will my 401k provide - MSN Money

    This one is quite simple and more realistic that others

    [Jun 09, 2011] How fear can ruin your retirement - financial planning

    "My overall impression with investment advisers is that their ultimate goal is their own wealth, not mine."
    MSN Money

    Many of the retirees said they needed financial advice. At the same time, they expressed distrust of the financial services industry and a fear of hidden fees and costs.

    One 63-year-old said, "If I trusted an adviser, then I'm always wary because I know that they are out to make money. . . . I don't trust them handling my money."

    Said another respondent, "My overall impression with investment advisers is that their ultimate goal is their own wealth, not mine."

    [Jun 06, 2011] Shedding Light on Excessive 401(k) Fees - By RON LIEBER

    Published: June 3, 2011 NYTimes.com
    You may not realize this, but your 401(k) or other workplace retirement plan is not free.

    Until your new and improved account statement arrives, you can check to see if BrightScope has graded your 401(k) or 403(b) plan. If its total plan cost is among the highest in its peer group, you ought to ask for an explanation. Ditto, if you run one of BrightScope's personal fee reports on the funds you've selected yourself in your retirement plan and find that you're paying well over 1 percent in total costs.

    If you are investing in actively managed mutual funds (perhaps because your employer hasn't seen the light and given you a lineup of low-cost index or exchange-traded funds as an option), keep in mind that those fund companies may be handing some of their investment fees back to your plan's record keeper to pay for administrative costs. Ask about this and inquire whether that's the only reason your employer continues to do business with any high-fee, actively managed funds.

    Try not to get too indignant about this, at least at first. At a small employer in uncertain economic times, having a retirement plan in the first place isn't a given. Let your colleagues in human resources or finance know that they, too, will benefit personally if you can find a way to strip out some costs.

    Injecting a little emotion into the proceedings may help, too, though threats will probably not be constructive, especially given what happened at ABB. (The gunman there left no note, though he had told friends of troubles at work.)

    Again, just a quarter of a percentage point in annual savings now can mean tens of thousands of dollars more come retirement time. Try visualizing it this way, by imagining it as the difference between one vacation each year or two at age 75, or one plane ticket, or several, for the grandchildren to come see you annually. Make sure to remind everyone you talk to of that.

    And if it's confusing or even frightening to confront data like this initially, given its importance? Don't throw up your hands or just cross your fingers, as many of your colleagues will do. Instead, find other like-minded people to help you decipher the numbers and start an improvement movement.

    "I think 10 to 15 percent of people will always get value out of increased disclosure," Mr. Alfred said. "Most of the time, they are the most influential people at the company, and they're the most likely to tell other people about it."

    [May 13, 2011] Subtleties of life expectancy

    "Matt Yglesias and Ezra Klein have suggested that differential life expectancy means that raising the retirement age is a regressive benefit cut."
    May 12, 2011 | The Incidental Economist
    Debate over Alan Simpson's comments on life expectancy continues.

    The last chart from my previous post on this topic showed differences in life expectancy by race. What you'd really like, however, is differences by socioeconomic status. After all, it's far more likely that we can (and perhaps should) base policies on earnings rather than race. Unfortunately, the CDC data I used two days ago didn't have differences by earnings.

    But then I received an email from Paul Van de Water, pointing me to a paper by Hilary Waldren that appeared in Social Security Bulletin in 2007. It's entitled, "Trends in Mortality Differentials and Life Expectancy for Male Social Security–Covered Workers, by Socioeconomic Status." She did the work for me.

    David:

    The comments about an increase in the retirement age being progressive puzzle me. I guess I can kinda see how that could be if you look only at monthly income.

    But as you increase the retirement age, total income over the expected life clearly is less affected for those with longer life expectancies(rich) than for those with shorter (poor). I.e. regressive. Am I missing something?

    [May 11, 2011] Is It Better to Buy or Rent - Interactive Graphic

    NYTimes.com

    Whether renting is better than buying depends on many factors, particularly how fast prices and rents rise and how long you stay in your home. Compare the costs of buying and renting a home in the calculator below.

    Click the advanced settings button to change inputs such as your rate of return on investments, condo/common fees and your tax bracket.

    [May 10, 2011] "Eight Facts about Social Security"

    Repugs represent top 1% and nobody else. This policy shift from "starve the beast" to "starve the lesser people" is what they are about. Nothing more nothing less. I wonder whether 50% voters suffer from Stockholm syndrome, acute dementia or what ? Not the Democrats are much better but still there is some difference here... I guess Ann Rand's ideas, awful as they are, serve the need to insulate wealth from any sense of responsibility to the larger society. We and our families, and our children, are just parasites who need to be dispensed with in the most efficient manner possible...
    Economist's View
    Ezra Klein on Social Security:
    1) Over the next 75 years, Social Security's shortfall is equal to about 0.7 percent of GDP. Source (PDF).
    2) For the average 65-year-old retiring in 2010, Social Security replaced about 40 percent of working-age earnings. That "replacement rate" is scheduled to fall to 31 percent in the coming decades. Source.
    3) Social Security's replacement rate puts it 26th among 30 Organization for Economic Cooperation and Development nations for workers with average earnings. Source.
    4) Without Social Security, 45 percent of seniors would be under the poverty line. With Social Security, 10 percent of seniors are under the poverty line. Source.
    5) People can start receiving Social Security benefits at age 62. But the longer they wait, up until age 70, the larger their checks. Waiting to 66 means checks that are 33 percent larger. Waiting to 70 means checks that are 76 percent larger. But most people start claiming benefits at 62, and 95 percent start by 66. Source.
    6) Raising the retirement age by one year amounts to roughly a 6.66 percent cut in benefits. Source.
    7) In 1935, a white male at age 60 could expect to live to 75. Today, a white male at age 60 can expect to live to 80. Source.
    8) In 1972, a 60-year-old male worker in the bottom half of the income distribution had a life expectancy of 78 years. Today, it's around 80 years. Male workers in the top half of the income distribution, by contrast, have gone from 79 years to 85 years. Source.

    Among his comments, my preferred solution:

    Social Security's 75-year shortfall is manageable. In fact, it'd be almost completely erased by applying the payroll tax to income over $106,000. Source (PDF).

    [May 10, 2011] 5-ways-make-401k-like-pensions

    Yahoo! Finance

    Here are the five best ideas to emerge from Retirement 20/20:

    Focus on income, not accumulation. The 401(k) account statement you receive regularly shows how much you've accumulated, not how that sum translates to income. Retirement 20/20 recommends adding income projections to account statements as a way to get individuals to think more about income.

    Create incentives for income. While most retirement savers prefer taking a lump sum distribution at retirement, tax incentives might convince them to annuitize at least part of the nest egg. Retirement 20/20 recommends preferential tax treatment for annuity income. Another recommendation sketches out a plan to include default annuitization options in DC plans.

    Better risk-hedging. Researchers recommend allowing investors to choose a pre-set portfolio that emphasizes fixed income, particularly Treasury Inflation Protected Securities (TIPS), and much less investment in equity, particularly at retirement. The pre-set portfolio model would permit lower administrative costs and a design that meets target risk goals at retirement. "While this may require that individuals contribute more to achieve the same retirement income, it would also protect them against market crashes," the report notes.

    Go for stability, not guarantees. DC plans that offer income conversion options could make these plans less costly to run by providing something less than an absolute guaranteed benefit -- for example, a benefit with an inflation adjustment feature that can be adjusted over time. Retirement 20/20 suggests another alternative that would have employees work toward a targeted benefit that isn't guaranteed, but structured so that workers who make a certain level of contribution would likely get a defined benefit within 10 percent of the target at retirement.

    Create fewer, bigger plans. Unseen fees charged to investors are one of the biggest variables in 401(k) plan performance -- especially at smaller companies. These include investment product fees, administration and record-keeping fees and other fees for investment advisory services, insurance and auditing. Research by Brightscope.com shows that average 401(k) total plan cost can be as low as 0.20 percent of assets for the largest plans and a whopping five percent for smaller plans.

    Retirement 20/20 suggests regulatory changes that would allow more small employers to band together in larger plans sponsored by an entity other than the actual employer; here, it points to the success of TIAA-CREF, which has a long history of administering highly cost-efficient DC plans for academic and non-profit employers.

    "There's a wonderful opportunity here to drive higher value and better outcomes for plan participants," says Bruce Corcoran, managing director of institutional K-12 markets for TIAA-CREF. "It's more challenging to do with plans [covered under the] Employee Retiree Income Security Act, but it's a bit of an art."

    A Yahoo! User

    I had TIAA-CREF and was extremely unhappy with their rate of returns and expense charges, I had no choice, my employer would not allow me to move money to another brokerage where they have 403B.

    I wonder if a VP or someone in the company get's benefit from choosing lousy 401K / 403B funds and providers; if they do they should go to jail. They are stealing your retirement.

    401K / 403B should be treated like IRA, you should be able to move to another provider where returns and expense ratios are best.

    A Yahoo! User

    Reuters... complicit in conditioning the American public for the "annutizing" of 401k and IRAs.

    No, you won't accept it... you will beg for it. Just wait, feeling good about recovering from the 2008 lows? Wall Street crooks will tank this market to the point no one will want to invest in stocks for a generation. You will beg the government to make your retirement accounts whole... and they'll be ready to offer a conversion from your decimated 401k into treasuries with a nice bonus and "guaranteed" returns.

    A Yahoo! User

    Tiaa-cref has some of the worst returns of any mutual funds I have ever had in the past. And I'm talking about before the market crash we all experienced. I mean the nineties and the time before the current crisis. During these boom times the stock portion of tiaa-cref gave me an average annual return of 2%. It was disgraceful. Any teacher who invests with them is a fool. I was one of the biggest fools.

    Steve Mcmullen

    According to the US Census Bureau:
    1 in 3 Americans has zero net worth.
    Half of all Americans have only $2000 anywhere
    10% of all Americans own 85% of the retirement money out there.

    commentoz:

    401ks did not start as a loophole. CODAs, their precursor plans from the 50s, allowed employees' profit-sharing income (only) to be tax-deferred. But not all companies had CODA plans. Around 1978 the law was extended to include a percent of wage income to be tax-deferred. This allowed virtually any employer to offer these deferred plans since they all pay wages. Of course then the light bulb flashed for employers to dump the DB plan millstone and abdicate all responsibility for employees' post-employment welfare. Or, some powerful companies were lobbying specifically to get the CODA law extended so that they could dump DBs. Either way, employees have been bussed en-masse to the casino, where the house ( IRS, Plan Sponsors, and Employers ) hold the cards.

    Brian

    Just a out right RIP OFF 4 Seniors. They played & paid by the rules all thier life. Now whe they collect SS benifits the tax fun begins. Say they saved and in 401s and between distributions recieve $30 k per year. Add that to perhaps $12k a year for the wife and $24k for the husband.

    Well the AGI = $66k to pay taxes on. That is State & Federal ++++. RIP>RIP>RIP>

    AverageJoe4:

    Make the 401K like an annuity which most of us don't trust??? I put more into my 401K BECAUSE it is not an annuity. I can pull it out for a health emergency WITHOUT Big Brother approval. I would be putting in the minimum if the regulations with this unaware Blogger is suggesting.

    [Feb 19, 2011] Boomers Find 401(k) Plans Come Up Short - WSJ.com

    The 401(k) generation is beginning to retire, and it isn't a pretty sight.

    The retirement savings plans that many baby boomers thought would see them through old age are falling short in many cases.

    The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.

    In general, people facing problems today got too little advice, or bad advice. They didn't realize that a 6% annual contribution, with a 3% company match, might not be enough.

    Some started saving too late or suspended contributions when they or their spouses lost jobs. Others borrowed against 401(k) accounts for medical emergencies or ran up debts too close to their planned retirement dates.

    In the stock-market collapses of 2000-2002 and 2007-2009, many people were over-invested in stocks. Some bailed out after the market collapse, suffering on the way down and then missing the rebound.

    Initially envisioned as a way for management-level people to put aside extra retirement money, the 401(k) was embraced by big companies in the 1980s as a replacement for costly pension funds. Suddenly, they were able to transfer the burden of funding employees' retirement to the employees themselves. Employees had control over their savings, and were able carry them to new jobs.

    They were a gold mine for money-management firms. In 30 years, the 401(k) went from a small program to a multi-trillion-dollar industry supporting thousands of financial planners and money managers.

    But a 401(k) also requires steady, significant savings. And unlike corporate pension plans, which are guaranteed by the U.S. government, 401(k) plans have no such backstop.

    The government and employers aren't going to pay more for people's retirements. Unless people begin saving earlier and contributing more to their 401(k) plans, advisers say, they are destined to hit retirement age with too little money.

    Vanguard Group, one of the biggest providers of 401 (k) plans, has changed its advice on how much people should save. Vanguard long advised people to put 9% to 12% of their salaries-including the employer contribution-in their 401(k) plans. The current median amount that people contribute is 9%, counting the employer contribution, Vanguard says.

    Recently, Vanguard has begun urging people to contribute 12% to 15%, including the employer contribution, because of the stock market's weak returns and uncertainty about the future of Social Security and Medicare.

    ... ... ...

    It isn't possible to calculate precisely how many people are able to cover the recommended 85% of their pre-retirement income, but Federal Reserve data suggest that many people can't.

    Consider households headed by people aged 60 to 62, nearing retirement, with a 401(k)-type account at their jobs.

    Such households had a median income of $87,700 in 2009, according to data from the Center for Retirement Research at Boston College, which derived this and other numbers by updating Fed survey data, at The Journal's request. The 85% needed for retirement would be $74,545 a year.

    Experts estimate Social Security will provide as much as 40% of pre-retirement income, or $35,080 a year for that median family. That leaves $39,465 needed from other sources. Most 401(k) accounts don't come close to making up that gap.

    The median 401(k) plan held $149,400, including plans from previous jobs, according to the Center for Retirement Research. To figure the annual income from that, analysts typically look at what the family would get from a fixed annuity.

    That $149,400 would generate just $9,073 a year for a couple, according to New York Life Insurance Co., the leading provider of such annuities- less than one-quarter of the $39,465 needed.

    Just 8% of households approaching retirement have the $636,673 or more in their 401(k)s that would be needed to generate $39,465 a year.

    Some families do have other income. Just under half expect pension income of a median $26,500 a year. Added to the $9,073 in 401(k) income, that still falls short. Some families have other savings, but Federal Reserve and other data suggest that those don't fill the gap for most people.

    These data don't even include people who are in the direst situations: Those who have lost their jobs, stopped contributing to 401(k) plans or shifted to jobs without 401(k) plans. The numbers also don't account for inflation, which would further eat into income from a 401(k).

    Some researchers question the Fed numbers because they are based on surveys rather than on records of actual contributions.

    Jack VanDerhei, head of research at the Employee Benefit Research Institute, a group supported by 401(k) providers, estimates the median person actually has about $158,754, based on data from 401(k) providers. That is based on individuals in their 60s who have been at the same company for more than 30 years, a somewhat different group than that measured by the Fed data.

    Even that amount of 401(k) savings generates much less than what is needed.

    The difficulties have been worsened by the 2007-2009 financial crisis. Since the housing and financial markets began to collapse, about 39% of all Americans have been foreclosed upon, unemployed, underwater on a mortgage or behind more than two months on a mortgage, says Michael Hurd, director of the Rand Corporation's Center for the Study of Aging.

    Rudy Haugeneder: .

    Give me a break. People don't need 85% of their pre-retirement income after they retire. Half would be more than enough. Check with people with who have retired. They generally become homebodies who would rather plant flowers, bird watch, or read than hit the permanent vacation road. And they don't care about the latest fashion or buying the latest computer toy when the old one does the job. And they downsize their housing by choice, not out of financial necessity. Just ask them. And seniors don't want to spend their lives focused and taking care of their grandchildren. A visit or two now and then, yes, but not more. Their children like to play them for babysitting suckers, hitting them with the grandma/grandpa guilt trip to get them to take care of the kiddies rather than paying to have somebody else do it. And elders don't spend their lives at restaurants or at live theater, etc. They have an assortment of other pleasures: chatting or playing cards at the local seniors' center, enjoying a cheap coffee -- not an expensive Starbucks equivalent. And if they go to such coffee shops, its to chat and read for a couple of buck a day. Investment companies and this Wall Street Journal story attempts to make seniors feel poor and stupid when in fact even 50% of pre-retirement income would, generally speaking, be more than enough income to keep them more than happy. And I could go on and on to show you what seniors don't need despite what the WSJ and investment salespeople claim. This is serious psychological assault and battery based on lies, untruths, and greed -- advertising for papers like the WSJ and super commissions for salespeople who shamefully don't know what the heck they are talking about. It's morally criminal.

    fera roberrt

    Please tell me who came up with this 85% rule? Financial advisors? Folks who make money on other people investing their money with them? When I retire, my wife and I will have far fewer expenses (i.e. no mortgage, no loans from kids' education, no union dues, etc.) than I do now. I am also fortunate enough to have a medical insurance for life. Why do I need so much money? I believe this is a myth based on faulty and lofty expectations- simplify your life as you get older and be grateful for the free time you could have (and do somehting valuable with it like volunteering in your commmunity or learning something new). Time or money- you choose..............

    Charles Hoffman

    the individuals who invested "on their own" were in self-directed 401(k) plans. They made stupid choices; they were screwed with excessive fees; they followed the advice of every crazy with his or her own sense of where the market is going. At least the Social Security portion of their retirement is intact.

    Had the individuals mentioned in this article been subject to that "mythical, all-enriching" privatized SS that the fringe right along with the brokerage community (looking for big retail commissions and fees) have been touting as their only source of retirement income instead of as a supplement to SS, they would have made the same stupid or ill-informed, or just unlucky decisions, and all they'd have to show for it would be a collection of buy-and-sell tickets, monthly statements, and the prospect of moving in with their kids.

    The article enforces the need for social security more than a thousand Rachel Maddow or Chris Matthews shows ever could

    John Ransom

    Geremy Grantham predicted - in 1998 - that the S&P would generate negative real and absolute returns over the next decade because stocks were so over-valued. Guess what - he was right!

    I agree with you that feds screwed up the housing and mortgage market. But how did Bill Clinton or Newt cause Yahoo to trade at $1,000/share?

    John Barry

    You're talking about two different bubbles. We recovered from the tech bubble, but not from the housing bubble. Clinton helped to lay the ground work from removing Glass-Stegall. Bush helped with removing leverage limits on investing. These two, together gave us the current problems.

    Barbara Thomas

    Retirement income was supposed to be made up of pension, 401k/other savings and social security. Pension plans no longer exist at most companies. Many people are not fortunate enough to spend much time in one company to build up 401k plans and vest in their company's match. Often those job changes are not their choice due to outsourcing or other downsizing. Social security is under attack. So how are people supposed to support themselves? Working until 70 may not be possible due to health issues or inability to find a job after being laid off later in life.

    How many companies want their employees working until 70? The truthful answer is probably none. And people should be able to retire at a reasonable age to open more jobs for younger workers. If you have been unlucky enough to lose your job in the last couple of years you probably have used a portion of at least savings if not 401k. This will be a big problem for a lot of people for years to come. Going from what some consider overly generous pension plans to zero pension plans is just hurting everyone in the long run. But let's keep bashing unions and giving carte blanche to big business to do what is good for them.

    Mike Snyder

    Look, your 401k WILL BE RANSAKED AGAIN! It is just a matter of time. What guarantee has a baby boomer when all baby boomers retire to continue working? In what? Even today if you are over 50 nobody wants to give you a job but as a walmart greeter if that. Please stop the lies. Babyboomers are broke, period. Congress need to pass a law where retirement funds are guaranteed and the interest earned guaranteed as well. Otherwise you will have hunger and a revolution. Yes, right here! Obama's tiring demagoguery and the republican lies are getting really old. They pillaged the country and bankrupted it.

    On top of that, the congress and the banking industry are colluded to defraud the tax payer with their tax law that makes it pretty a nobrainer to channel their hard earned money to 401ks or be taxed to the max, then they pillage the accounts with stock market swings and transaction commissions of mutual funds. IT IS A RACKET, AN INSTITUTIONALIZED RACKET. Get your money out of there and figure out a way to outsmart the thieves. We have thieves and victims of their thievery, no in betweens. That a 401k loses half its value, a retirement fund is criminal. Concerning bonuses.. Taxed at 45%? Who created that racket? You know who. This country has been taken over by professional thieves and you have better stop them cold by not givign them your money any which way you can find and elude the massacre of your savings.

    NEAL SMITH

    The major problem with peoples retirement plans are that they are grossly underfunded and are left in risky instruments with such a short time to retirement. There are several causes of this, as a culture we feel the need to keep up with everyone else and it causes us to spend outside our means. Secondly, the wages for the middle class have been stagnant for entirely too long. The only way people are able to keep the spending going with the same level of income is to tap into their homes or underfund their retirement plans. I have a hard time seeing the executive pay in this country skyrocketing while middle income employees work longer hours (if they are lucky enough to still have a job) without seeing the corporate profits reflected in their paychecks. Every one thinks that they will one day be in that top earner bracket with enough hard work, but that day dream can only last so much longer before people wake up and realize the system is extremely skewed in favor of the haves. The middle class has run dry and cutting corporate taxes is not going to generate demand. Corporations are currently sitting on $2 trillion, it's not that they need tax breaks to move forward with hiring, they need demand. This problem will not be fixed until we address the extreme disparity in wealth.

    [Feb 15, 2011] Wall Street's Dead End - by Felix Salmon

    NYTimes.com

    ... ... ...

    These days a healthy stock market doesn't mean a healthy economy, as a glance at the high unemployment rate or the low labor-market participation rate will show. The Tea Party is right about one thing: What's good for Wall Street isn't necessarily good for Main Street. And the Germans aren't buying the New York Stock Exchange for its commoditized, highly competitive and ultra-low-margin stock business, but rather for its lucrative derivatives operations.

    The stock market is still huge, of course: the companies listed on American exchanges are valued at more than $17 trillion, and they're not going to disappear in the foreseeable future.

    But the glory days of publicly traded companies dominating the American business landscape may be over. The number of companies listed on the major domestic exchanges peaked in 1997 at more than 7,000, and it has been falling ever since. It's now down to about 4,000 companies, and given its steep downward trend will surely continue to shrink.

    Nor are the remaining stocks an obvious proxy for the health of the American economy. Innovative American companies like Apple and Google may be worth hundreds of billions of dollars, but most of them don't pay dividends or employ many Americans, and their shares are essentially speculative investments for people making a bet on how we're going to live in the future.

    Put another way, as the number of initial public offerings steadily declines, the stock market is becoming little more than a place for speculators and algorithms to compete over who can trade his way to the most money.

    What the market is not doing so well is its core public function: allocating capital efficiently. Apple, for instance, is hugely profitable and sits on an enormous pile of cash; it is thus very unlikely to use its highly rated stock to pay for any acquisitions. It hasn't used the stock market to raise money since 1981, and there's a good bet it never will again.

    [Feb 09, 2011] 5-ways-to-make-your-401k-balance-last-longer Personal Finance News from Yahoo! Finance

    If you spend too much of your 401(k) account balance early on in retirement, you will reach your later years with very limited resources. But there are steps you can take to make your retirement account balance last longer. Here are some strategies to make sure your retirement savings lasts the rest of your life.

    More from USNews:

    4 Social Security Changes Coming in 2011

    10 Key Retirement Ages to Plan For

    Best Places to Retire

    Postpone Withdrawals

    Most retirement savers aren't dipping into their nest egg immediately upon retirement. In fact, most investors don't even touch their 401(k) savings until they are required to. Only 18 percent of households with retirement accounts make any withdrawals in a typical year between ages 60 and 69, according to a recent National Bureau of Economic Research (NBER) study of IRA, Keogh, 401(k), and Thrift Plan account holders between 1997 and 2005. The proportion of households making a retirement account withdrawal grows slowly from about 10 percent at age 60 to 23 percent at age 69. Delaying 401(k) withdrawals early in your retirement gives you additional time to build up more tax-deferred growth.

    Avoid Tax Penalties

    After decades of delaying taxes, retirees age 70 1/2 and older are required to take distributions from traditional retirement accounts and pay any resulting income tax. (Seniors who are still working and not at least 5 percent owners of the company may be able to further delay 401(k) withdrawals.) Account holders who fail to withdraw the required amount from their traditional 401(k) or IRA face a 50 percent tax penalty on the amount that should have been withdrawn in additional to the regular income tax due. Between ages 69 and 71, the proportion of households taking retirement account withdrawals jumps from about 20 percent to over 60 percent. And after age 73, about 70 percent of households take withdrawals annually. "The sharp increase in withdrawals when distributions become mandatory suggests that many households in their early 70s would not make withdrawals if it were not for the required minimum distribution rules," write NBER researchers James Poterba, Steven Venti, and David Wise. Withdrawals from Roth 401(k)s and Roth IRAs are not required after age 70 1/2 because account owners already paid income tax on that money.

    Avoid Two Distributions in the Same Year

    The year you turn 70 1/2, you have until April 1 of the following year to take your required distribution. But every year after that, required minimum distributions must be taken by December 31. If you wait until the April 1 deadline to take your first distribution, you will have to make two withdrawals in the same year, which could result in a hefty income tax bill that year.

    Reduce Withdrawal Rates

    The less you withdraw from your 401(k) each year, the longer your money will last. Before age 70, the average 401(k) withdrawal is about 1.9 percent of the account balance each year. "In most years, the average real rate of return earned on personal retirement account balances would exceed this value, so the pool of personal retirement account assets would grow even in the absence of new contributions," NBER found. After age 70, the average annual withdrawal rate is 5.2 percent. "Rather than declining in value after households retire and begin to finance retirement consumption, our findings suggest that personal retirement account balances continue to grow through at least age 85, although the rate of growth is slower at older ages than at younger ages," according to the NBER report.

    While most retirees spend about 5 percent or less of their nest egg each year, some retirees do withdraw unsustainable amounts from their retirement accounts. Between ages 60 and 69, about 7 percent of households withdraw more than 10 percent of their retirement assets. And 11 percent of those over age 72 withdraw more than 20 percent of their balance in a single year. These households are in danger of using up their savings too quickly.

    Reinvest Withdrawals

    Taking money out of your retirement accounts doesn't mean you need to spend it. "Withdrawals from personal retirement accounts do not necessarily translate into consumption," the NBER study found. "Households may simply redirect their assets from personal retirement accounts to other investment accounts." If you don't need the money right away, consider reinvesting your 401(k) withdrawals in a taxable investment account, bonds, or a savings account for future use.

    [Jan 08, 2011] How to Avoid the New Year's Top Scams

    [Jan 08, 2011] 5 Most Costly Lies in Finance

    MoneyWatch.com

    Most financial professionals are not trying to confuse you on purpose. They simply spoke so much jargon in business school that they forgot that most people don't know that a "subordinated debenture" is a low-priority debt or that "PEG" is a short-hand way of talking about a company's earnings growth.

    Unfortunately this confusing Wall Street-speak could put you in in a fog when approaching financial transactions. And that can make you vulnerable to people who would like to trick you out of your money. When salesmen and con artists see that your normal radar for bad advice, toxic investments and outright scams is getting nothing but fog (the potential result of all the hot air on Wall Street), they ramp up clever lies to separate you from your cash.

    You can fight back by knowing Wall Street's 5 most costly lies. When you hear these phrases, run for cover.

    Lie #1: This time it's different.

    As every market bubble in history approached a spectacularly devastating pop, stupid and scummy "advisors" spit out this ridiculous statement to convince people that gravity no longer applied to this portion of the earth. To be sure, each time that it was(not) different, they were able to articulate a good justification for why it should be.

    During the stock market bubble of the late 1990s, for example, it was "different" because "the Internet changes everything!" The Internet would make workers more productive; companies more profitable; communication easier; and foster international business transactions. And, of course, it did.

    So did the telephone, the automobile, the typewriter, the printing press, the airplane, the assembly line, the cotton gin, and computers…just to name a few. And yet these market-changing technologies did not change the relationship between stock prices and fundamental indicators of value. Not then. Not now.

    When a stock is selling for a price that substantially exceeds it's earnings multiplied by its growth rate, sell it.

    Lie #2: It's returns, not fees, that matter

    This clever lie is almost always spoken by somebody whose livelihood depends on you overpaying for his or her services, such as planners who sell high-cost "load" funds, annuities, and "wrap" accounts.

    The lie is effective because it's based on a partial truth: If you could guarantee higher returns, you wouldn't mind paying higher fees. But in reality, the high fees are a sure thing. The returns are not.

    In fact, decades of academic research has come to one inescapable conclusion: The more fees you pay, the worse your average annual returns.

    Lie #3: This opportunity won't last!

    Again, there's a chance that at least part of this statement is true. Financial regulators could get wind of the "opportunity" you're being sold and shut it down before more people are scammed. For instance, you can't invest with Bernie Madoff anymore. You also missed your chance to invest in hundreds of "initial public offerings" of companies that went belly-up shortly after raising investor capital. Brokers selling these dogs rightly said the "opportunity won't last" because the companies issuing these shares were taking their last rattling breaths, which is why institutional investors refused to buy their shares and why brokers were trying to peddle the stock to you - or anyone gullible enough to buy it.

    In reality good investment opportunities are commonplace and consistent. They don't go away overnight. Take your time evaluating investment options. If you invest in haste, you'll repent in leisure.

    Lie #4: Banks don't understand it

    When somebody offers you a "guaranteed" 20% profit, the only logical question to ask is: Why are you offering this to me? After all, if the salesman really had a sure-fire route to earning a 20% profit, he/she could go to a bank, borrow the money at 5% or 6% and pocket the remaining double-digit return. They wouldn't need your money. But here the salesman says: "Banks just don't understand this opportunity…"

    News flash: Your local bank teller may not be an Ivy League graduate, but someone in that bank building likely is. And they're not at all confused. Neither, by the way, is the promoter who is talking to you. He's functioning on one of Wall Street's favorite truths, best expressed by P.T. Barnum: "There's a sucker born every minute." If you buy an "opportunity" that the banks don't understand, you are that sucker.

    Lie #5: You can trust me

    If you wanted to peddle some smarmy, rotten investment, would you go find a ugly, rude person to sell it? Of course not. You'd go out and look for a charming, good looking salesman who would smile at prospective marks and say, "You can trust me. I put my Grandmother in this investment."

    These guys will pull out your chair, bring you coffee and take your elderly grandmother to the grocery store. Why? The idea is to build trust - to make you think that a salesman is your friend. If they do this right, you'll be so convinced you can trust them that you'll fail to read the legally required disclosures that spell out all the red flags.

    If someone wants you to invest your hard-earned money, make sure you read and understand the fine print. Trust no one with your financial security who doesn't live in your house and share the rewards or penury along with you.

    Kathy Kristof is the author of Investing 101, published by Bloomberg Press

    [Dec 30, 2010] granny-and-clyde-when-seniors-scam-seniors

    Yahoo! Finance

    A grim category of crime is on the rise: senior-on-senior financial fraud.

    According to regulators and prosecutors, there has been a significant increase recently in the number of cases in which older investors have been taken advantage of by elderly scam artists.

    "That's a definite new trend," says Denise Voigt Crawford, the Texas securities commissioner. "We're seeing more cases of older people ripping off other older people. Someone joked that seniors ripping off their peers is becoming 'the new retirement plan.'"

    In Texas, John F. Langford, 76 years old, is expected to go on trial in Amarillo next year on charges that he fraudulently sold about $6 million in promissory notes and what he called "private annuities" to a circle of his fellow senior citizens. "We dispute all the state's allegations," says Mr. Langford's attorney, Tim Pirtle.

    In Louisiana, meanwhile, Judith Zabalaoui, 73, pleaded guilty in February 2009 to five counts of mail fraud and is now serving an eight-year prison sentence after persuading at least 35 clients, many of them elderly, to invest in two nonexistent companies that promised "safe" returns of 13% to 26%. She had clients sign a power of attorney, giving her access to their funds - and spent more than $3 million of their money on her own expenses, including clothing and vacations, according to court documents.

    Anthony Joseph, Ms. Zabalaoui's attorney, didn't respond to requests for comment.

    Many financial planners who got into the business during the bull market of the early 1980s are senior citizens themselves now. With their own wealth ravaged by the bear market of the past decade, many of these people can no longer afford to retire. That, say regulators, may be prompting some older financial advisers to engage in riskier and less ethical behavior.

    Elderly investors are natural targets in part because they may be more susceptible to fraud. A 2008 study by researchers at the Georgia Institute of Technology found that older adults are significantly worse than younger people at detecting whether someone who may have stolen money is telling the truth.

    [More from WSJ.com: Too Wealthy for Your 401(k) Plan?]

    What's more, according to research by Harvard University economist David Laibson and his colleagues, the typical person's ability to make astute financial decisions peaks at about age 53, then wanes with each passing year; another study found that investing ability takes a steep drop after age 70.

    Brian Knutson, a neuroscientist at Stanford University, has monitored the brain activity of dozens of older investors. "When they encounter a risk," says Prof. Knutson, "they will be more likely than younger people to focus on the upside of that risk." That can lead older investors to play down the downside.

    According to Mara Mather, a psychologist at the University of California, Santa Cruz, older adults also seek less data than younger people do when making complex decisions - and will go out of their way to avoid negative information or confrontations. This "high avoidance," Prof. Mather says, can lead older investors to get sucked further into a scam, throwing good money after bad.

    Some older financial advisers use their age as a selling point, telling clients they understand the challenges that older investors face. In many instances, say prosecutors, unscrupulous advisers also tout their professional designations, or credentials, as further evidence of their expertise.

    Professional credentials have exploded in popularity among financial advisers in recent years. Some credentials are difficult to obtain, but many of the newer ones can be gotten easily - often with minimal study and just a few hundred dollars.

    The Wall Street Journal has identified more than 200 credentials available to financial-services professionals, including at least six with the word "senior" in their name: certified senior adviser; certified senior consultant; certified senior specialist; certified senior financial planner; chartered senior financial planner; and chartered adviser for senior living.

    Mr. Langford, the Texas adviser, marketed himself by telling prospective clients that he was a certified senior adviser and even showing them the number on his membership certificate, says Ludie Stone, 89, who invested $211,000. "That gave me confidence," she says. The Society of Certified Senior Advisors permanently revoked Mr. Langford's designation in October 2008 after receiving a complaint, a spokesman says.

    Some advisers find that credentials are so effective in winning new clients that they don't even need to keep the designation current.

    The certified financial planner designation, for example, is among the industry's most stringent and respected. It requires a bachelor's degree, 15 credit hours of college-level courses in certain subjects, 10 hours of exams over two days, adherence to an ethical code and 30 hours of continuing education every two years in order to qualify for biannual renewal.

    Yet Ms. Zabalaoui, the Louisiana adviser, marketed herself as a CFP, say clients, even though her credential lapsed in 2000. Among the burned investors were Rex and Jackie Hall, an Albany, La., couple ages 58 and 60, respectively, who lost $24,000. Mr. Hall says his wife met Ms. Zabalaoui at a seminar and was impressed. "When you see the letters [CFP] after her name," Mr. Hall says, "you assume she has an enhanced position."

    It is important for older investors to run financial decisions past a younger relative or someone who can resist the emotional pull of the situation, says Prof. Knutson. In some states, such as Alabama, "sentinels" trained by securities regulators seek to attend any free lunch or dinner seminars hosted by financial advisers. If the sentinels see anything awry, they report it to state or federal investigators.

    At the very least, older investors should never attend such events unless they are accompanied by a trusted younger friend or family member. And younger relatives should periodically ask their older family members whether they have been pitched any products or services by financial advisers, say regulators and consumer advocates.

    The husband-and-wife team of Thomas and Susan Cooper, ages 69 and 67, respectively, have hosted several such seminars over the years. Securities regulators in Illinois allege that the couple improperly sold annuities to 15 elderly clients. Last week, testimony concluded in administrative hearings through which the state is seeking to revoke the investment-adviser registrations of the Coopers and their firm.

    The Coopers, according to the state's investigation, generated more than $400,000 in commissions in the first half of 2008 by persuading clients to buy fixed indexed annuities. According to the state's investigation, the Coopers' clients incurred more than $125,000 in early-surrender charges when they exchanged out of existing insurance products.

    "The state's allegations are completely unfounded, and its numbers are inaccurate and not proven," says the Coopers' attorney, Thomas Kelty. "The state failed miserably to prove any of its allegations." A decision is expected in the case early next year.

    Mrs. Cooper is a CFP. George Keller, a 69-year-old retired factory worker, says the professional credential raised his comfort level. "Oh my goodness, yes, I was impressed by that," recalls Mr. Keller of their first meeting, an informational seminar the Coopers hosted over dinner at the Hilton Garden Inn in Kankakee in 2006.

    "Her husband, Tom, stood up before we ate and gave a very solid, God-honoring prayer," Mr. Keller says. According to Mr. Keller, the Coopers had asked several of their existing clients to attend the dinner. "Some were friends of ours," he recalls.

    "We felt that because [the Coopers] were close to our age, they would understand and would have dealt with a lot of the problems that we face at our age: health setbacks and that sort of thing," he says. "Isn't that supposed to be a plus - to get somebody who understands your problems?"

    According to Mr. Keller and state investigators, the Coopers prematurely switched him out of an insurance policy and into a fixed indexed annuity. That allegedly earned the Coopers a commission of $3,519 while costing Mr. Keller roughly $27,000 in insurance death benefits and a surrender penalty of more than $1,100.

    Mr. Keller says he realized something had gone wrong when he noticed that his insurance death benefit had dropped to less than $5,000. Even so, Mr. Keller says he "felt bad about pushing this" with investigators.

    As with many senior-on-senior fraud cases, a sense of loyalty kept the alleged victims from complaining even after losses were sustained. Illinois investigators say they had to subpoena many of the alleged victims to gather information from them. Mr. Kelty, the Coopers' attorney, says that during testimony in the hearing, "to a person, they testified that they were satisfied, fully informed and have no complaints whatsoever against the Coopers."

    "We were feeling guilty," recalls Mr. Keller about raising his complaint in the first place. "We thought we'd somehow started it."

    [Dec 18, 2010] Charlie, don't let anyone ever tell you that Wall Street is anything but a casino for suits. A billionaire guest to Charlie Rose

    Political Forum Google Groups

    It's hard to top priestly pedophilia (and bishops covering up for them) for sheer despicability, but Bernie Madoff and his fellow hucksters are giving the men of clod a close run for their--and our-- money.
    Dan Gerstein, Forbes

    ==========
    It's difficult to imagine a more self-serving sentence, as if all of the troubles of Wall Street can be laid at the feet of one thief, who by the way, took all of his lucre from the rich. Don't misunderstand me. Madoff is guilty and many a philanthropic Jew is pulling back from his or her favorite charities which hurts the poor and middle
    class here and abroad.

    But the true culprits are unnamed. Gerstein doesn't even bother to elude to them -- insider tips, free lunches, mingling with the wealthiest people alive are identifiable perks. Who would want to lose them just so he could tell the truth?

    The real thieves are the unnamed men and women who stole pension funds from the middle class, stole the equity of their homes -- in most cases their largest if not only asset -- who brought the world's economy to its knees, who are watching now as their own portfolios are growing because even the largest and most patriotic (salute here please) corporations in American have laid off workers -- hundreds of thousands of workers -- so that the Wall Street zombies can continue to suck blood from America's working class.

    Madoff is where he belongs. But where are the rest? Why have they escaped even a hearing on capitol hill? We know who they are, we know what they did, and they are walking free, making record profits because operating costs are down (no one is working), benefits are being taken away (in the name of a healthcare plan that won't even start for four more years) and they are squeezing more and more from the pockets of the poor with claims of high costs.

    GE's costs were so high they didn't have to pay taxes last year. All their expenses went to running the company, paying their shareholders and throwing exorbitant wages to those at the top. Of course, they were only able to make a few dollars in the countries where the taxes are low to nil.

    What we need is a new financial game. We need for people to get off the grid -- in every conceivable way. We need for people to learn to cooperate -- it can't be done on the fly or under pressure. It's more difficult than you can imagine.

    On Dec 4, 7:11 pm, Doc Holliday <dokholli...@bellsouth.net> wrote:

    I ain't totally over yet and "folks" are getting the real story and > musing over and over the reality of the situation and not the propaganda of the fat cats and their MSM what is becoming more and more distasteful as news, What is being spoken as the truth because so > many now have experienced it or beginning to feel the effects of this wash of shit that has flooded across our nation through and amongst themselves over the last decade of more folks than not have had in one way or the other received a royal screwing of which they didn't not deserve by the fat cats via the complicity of a collective elitist comradeship of our government. It seems more and more "we" are getting damned tired of it!
    ... ... ...

    [Dec 07, 2010] Seven Reasons Banks Pay Peanuts on Savings Accounts

    The same applies to card with points toward cruses, amazon, etc.
    NYTimes.com

    You can eke out a bit more by moving money to smaller banks that offer the new breed of high-interest checking accounts that require you to use your debit card a lot and to sign for purchases. This may require giving up access to a branch, however, which some people are unwilling or unable to do.

    Or you can try to earn more on the rewards side, through a bank like PerkStreet or a savings plan like SmartyPig's, which also requires you to spend money to get the biggest possible return.

    My tactic is to keep spare cash at BankDirect, an online bank that pays 100 American Airlines frequent-flier miles each month for every $1,000 I have on deposit. There's a bit of risk here because you need to redeem the miles to get any return.

    But the yields can easily run 2 percent or more depending on the retail price of the flights or premium-class upgrades you redeem your miles for. (The miles have also helped me qualify for lifetime platinum status on the airline, which I will hit in the next couple of days.) Plus, you pay no taxes on the miles you get; that's not the case for interest you earn.

    Yeah, the miles aren't worth much, and the 5 percent interest rates on savings accounts from several years ago would certainly be preferable. But at least you can fly to a beach free and worry there about when you'll be able to do a little better.

    [Dec 02, 2010] 3 Reasons Now is Not the Time to Speculate in Stocks

    3 Reasons Now is Not the Time to Speculate in Stocks Written by Staff Writers When it's sunny, you head outside without a thought, but when it's rainy, you look for your umbrella.

    When the markets are trending up, you don't worry about your investments much, but when the markets turn bearish … what do you do?

    In an interview with Jeff Sommer of The New York Times in July 2010, Robert Prechter said that he is convinced that a "market decline of staggering proportions" is on its way, and that individual investors should get out of the market and into cash and cash equivalents, such as Treasury bills.

    "I'm saying: 'Winter is coming. Buy a coat,'" Prechter said. "Other people are advising people to stay naked. If I'm wrong, you're not hurt. If they're wrong, you're dead. It's pretty benign advice to opt for safety for a while."

    Read some of the latest nuggets directly from Elliott Wave International President Robert Prechter's desk - FREE. Click here to download a free report packed with recent analysis and forecasts from Prechter's Elliott Wave Theorist.

    For more specific advice as to why now is not the right time to speculate in stocks, here's an excerpt from chapter 20 of Prechter's business best-selling book,Conquer the Crash - You Can Survive and Prosper in a Deflationary Depression, 2nd edition 2009.

    * * * * *

    Should You Speculate in Stocks?

    Perhaps the number one precaution to take at the start of a deflationary crash is to make sure that your investment capital is not invested "long" in stocks, stock mutual funds, stock index futures, stock options or any other equity-based investment or speculation. That advice alone should be worth the time you spent to read this book.

    1. Stocks May Go to Near Zero

    In 2000 and 2001, countless Internet stocks fell from $50 or $100 a share to near zero in a matter of months. In 2001, Enron went from $85 to pennies a share in less than a year.

    These are the early casualties of debt, leverage and incautious speculation. Countless investors, including the managers of insurance companies, pension funds and mutual funds, express great confidence that their "diverse holdings" will keep major portfolio risk at bay.

    Aside from piles of questionable debt, what are those diverse holdings? Stocks, stocks and more stocks. Despite current optimism that the bull market is back, there will be many more casualties to come when stock prices turn back down again.

    2. Stock Mutual Funds Will Fall, Too

    Not only will many stocks fall 90 to 100 percent, but so will a substantial number of stock mutual funds, which cannot exit large equity positions without depressing prices and which have the added burden to you of one percent (or more) annual management fees.

    The good news is that we will finally find out who the few truly good fund managers are and which ones were heroes by virtue of being around for a bull market.

    3. The Fed Won't Be Able To Save the Stock Market

    Don't presume that the Fed will rescue the stock market, either. In theory, the Fed could declare a support price for certain stocks, but which ones? And how much money would it commit to buying them?

    If the Fed were actually to buy equities or stock-index futures, the temporary result might be a brief rally, but the ultimate result would be a collapse in the value of the Fed's own assets when the market turned back down, making the Fed look foolish and compromising its primary goals, as cited in Chapter 13.

    It wouldn't want to keep repeating that experience. The bankers' pools of 1929 gave up on this strategy, and so will the Fed if it tries it.

    [Dec 01, 2010] The Investment Answer

    Amazon.com

    Hugo Belgien

    "the investment answer" for today's markets - does not preserve your capital, November 28, 2010
    By Hugo Belgien - See all my reviewsAmazon Verified Purchase(What's this?)
    This review is from: The Investment Answer (Kindle Edition)

    The book "The investment answer" doesn't tell you how to invest self-directed, but what you should tell your fee-only advisor. The authors are (rightly) against managed funds but do not clearly spell out that you should buy ETFs and what their advantages are. The authors are for diversification (a la Markowitz) but do not point out that diversification did not help you much in the last bear market. The authors are for buy-and-hold (a diversified portfolio) with some annual readjustment, but buy-and-hold does not work in a major bear market --- you would have been better off to cut your losses with e.g. stop-loss orders, selling all holdings which are e.g. below their 200 dma, or using relative strength.

    Conclusion: This book is NOT "the investment answer" for today's markets; it does not address e.g. the question: How to preserve your capital. It's not worth the $ 7.99 (for a kindle version).

    [Nov 30, 2010] Could investors fleeing stocks become a lost generation by Adam Shell,

    9/1/2010 | USATODAY.com

    There are no visible picket signs on Wall Street. The U.S. stock market- the world's biggest when measured by the market value of the companies that trade here - still opens for business every trading day. And the 6 o'clock news still lets everyone know if the Dow finishes the day up or down.

    Yet, increasingly, investors on Main Street are not playing the stock market game with confidence like they used to, mainly because the game of making money has gotten tougher and more volatile since the financial crisis. Retail investors are buying fewer stocks. They are paring back on stocks and stock funds they already own. Instead, they're moving into safer investments, like cash and bonds.

    "Investors are on strike," says Axel Merk, president and chief investment officer at Merk Mutual Funds.

    The fear on Wall Street is that this buyer's strike will linger for years, resulting in a lost generation of investors similar to what occurred after steep stock declines in the 1930s during the Great Depression and early 1970s, a recessionary time punctuated by high inflation.

    Consider Stacy Harris, 58, from Nashville. While she's not totally out of the stock market, her cash stash has ballooned to 42% of her portfolio. That's twice as big as her slimmed-down stock holdings, now just 21% of her investment pie.

    "I'm sitting on an uncomfortable amount of cash," says Harris, editor of Stacy's Music Row Report, an online publication that blogs about the country music scene. "Until things get better, I'm not putting any more money into stocks."

    Another member of the shaken-investor class is Bill Woodward of Pittsburgh. He was once an avid stock investor. A decade ago, he used to troll stock chat rooms on the Internet in search of hot stocks. Now, his portfolio is down to three holdings: a dividend-paying oil tanker company, a fund that bets against the real estate market and a penny stock he calls his "lottery ticket."

    He couldn't care less about the nearly 5,000 other stocks that trade on major U.S. exchanges. "I have no interest in coming back," says Woodward, 60, who works at a local employment center that helps people find jobs. His distrust of market regulators and his belief that they don't protect individual investors are the top reasons for his anti-stock stance.

    It's hip to be conservative

    After back-to-back stock market busts in a 10-year span in the 2000s, cocktail party chatter that once centered around get-rich-quick stocks has given way to sober chats about ways to reduce risk, the best places to stash cash and why it makes sense to buy boring bonds instead of sexy stocks. Days like Wednesday, when the Dow skyrocketed 255 points, are offset by months like August, when the Dow suffered its worst August drop since 2001.

    Yanking cash out of the stock market for fear of losing it has been the trade of choice for Main Street investors since the start of 2009, when the fallout from the financial crisis made it clear stock prices don't always go up.

    "The lost generation is not coming back," says Michael Panzner, who writes the blog Financial Armageddon.

    Recent statistics paint a picture of retail investors in retreat. Nothing illustrates Main Street investors' diminished appetite for stocks more than the dollars flowing in and out of mutual funds. Since the beginning of 2008, stock mutual funds have suffered cash outflows totaling roughly $245 billion. In contrast, bond mutual funds have enjoyed inflows of close to $616 billion, according to data from the Investment Company Institute, a mutual fund industry trade group. Similarly, prior to the financial meltdown two years ago, 401(k) investors had seven of every 10 dollars of their retirement money invested in stocks, but that is back below 60%, according to Hewitt Associates.

    Anti-stock sentiment is also evident in the soon-to-be-released 2010 Scottrade American Investor Study. While 73% said they still believe the stock market will produce long-term gains, 65% of investors polled said they were "very" or "somewhat stressed" about their current financial situation. The "economy" was the No. 1 source of that stress. Nearly one of three investors (31%) said they were "investing less money" or "investing more conservatively." The most conservative investors of all: Gen Y (18 to 28 years old) and Gen Xers (29-45), the study found.

    Bad times for stocks

    It's hard to blame individual investors for their growing skittishness toward stocks. They've endured not one but two of the worst stock market downturns in history - within a short 10-year span. The dot-com-inspired stock bubble burst in early 2000, knocking the broad stock market, as measured by the Standard & Poor's 500-stock index, down 49.1% by the time the bear market ended in 2002. That was followed by the 56.8% plunge from 2007-09, when a credit-driven bubble in stocks, real estate and many other assets ended badly.

    As a result of the back-to-back bear markets, the Dow Jones industrial average is still trading just 270 points above the 10,000 level, a milestone it first attained to great fanfare back in 1999. Since the Oct. 9, 2007, high, the stock market's value has declined by $5.6 trillion, according to Wilshire Associates. "Investors are saying, 'Why would I want to put money into stocks? I'm still losing money,' " says Charles Biderman, director of research at TrimTabs, a firm that tracks fund cash flows.

    Panzner ticks off three other key reasons Main Street investors have suddenly turned very risk-averse:

    And there's no guarantee that stocks will rebound strongly after major bear markets, as they have tended to do in the past. "Markets don't always go up," Merk warns. For proof, he points to the Nikkei 225, Japan's main blue-chip stock index. The index peaked on Dec. 29, 1989, at 38,915.87 before a multiyear asset bubble burst. On Wednesday, more than 20 years later, the Nikkei closed at 8927.02 - 77.1% below its record high.

    Fears of another super swoon are what keep Ron Munn, a 69-year-old retiree from Green Valley, Ariz., up at night.

    "As part of the 'Lost Generation,' now is certainly not the time to jump back in the market and possibly become part of the 'Gone Forever Generation,' " Munn says in an e-mail. "Keeping your powder dry with safe cash and bond investments makes sense under the current economic and political situation."

    What will get investors back?

    Despite all the doom and gloom, not everyone on Wall Street believes that investors will stay away from the stock market for years, if not decades.

    "A lost generation? I don't buy it," says Jim Paulsen, chief investment strategist at Wells Capital Management. He says investors always say they hate stocks and that they "don't want to touch a stock" after a sharp downdraft. They said it after the 1973-74 bear market, they said it after the dot-com crash and they are saying it now. "I've heard this all before," he says.

    What will bring the Main Street masses back to Wall Street?

    There's one more thing investors like Harris and Woodward would like to see before they would feel comfortable investing aggressively in stocks again: a stiff crackdown by the Securities and Exchange Commission on unscrupulous Wall Street types that prey on individual investors.

    Says Woodward: "What would bring me back? Show me that the SEC is back to protecting the little guy."

    Adds Harris: "I don't think we want to be in a position again where we have a guy like Bernie Madoff." Madoff orchestrated the biggest Ponzi scheme in history, robbing the financial futures of countless people.

    For now, "Everyone is thinking more conservatively," Harris says. "They want to make sure their money is there when they need it."

    montanavet3:

    "Could investors fleeing stocks become a lost generation?" ++++++++++++++++ Take put the word "investors" and plug in "gambling addicts", and I say good riddance. But the stock market "investing/gambling" firms suck in new suckers every day with their slick TV ad campaigns .... now you even have them pushing AMATURES into CURRENCY trading .....

    Sheep to slaughter ..... and the "killers'' laugh all the way to the bank!

    John Pombrio:

    Y'see, the problem is right there in the story. Stock Price=Profit. Sorry, not true. The price of a share of stock was NEVER meant to be "profitable". The COMPANY was to make the profits and DISTRIBUTE them to the shareholders as DIVIDENDS and with the shareholders helping to cover the risk of doing business. This core idea has been well and truly perverted in the past 20 years. It was the greed and the media that invented the stock market as a "Get Rich Quick" scheme when some of the internet and computer companies rang up such astounding profits in such a short time. Microsoft, Yahoo, Google. All of a sudden, the news started throwing the DOW in our face and how much profit some companies and investors were making. Thus started the great stampede to the stock market. Even boring companies were now faced with "WHERE'S MY PROFIT?" from their shareholders. Well, profits did rise by slashing headcount, acquiring other companies, or perhaps moving expenses to another year. CEO's were given huge incentives to rise the stock price by outrageous bribes of "options". Was all this "profit" good for the COMPANY, its CUSTOMERS, or the SHAREHOLDERS? You wonder why so many companies are now floundering with no trained people, few good customers, and a flat stock price. Will the market recover? I cannot see that happening for 10-15 years. Why? The US baby boomers are the richest generation that has ever lived on this planet. They have been burned badly 4 times in less than 10 years, 2 stock crashes, a housing crash, and finally a staggering loss of jobs. Like my parents who lived through the depression, that is a truly bitter lesson that they will remember for the rest of their lives. It will not be until an entirely new generation that will regard what we have been through as "history" that will start investing again. Hopefully, with a new maturity at the risks involved in investing and with an awareness that a good company to invest in is one that rewards the stockholders with dividends, not hyped up stock prices.

    Ontopofit:

    "His distrust of market regulators and his belief that they don't protect individual investors are the top reasons for his anti-stock stance."

    Exactly, why put your money where a den of theives live?

    Jackov

    :highlySkilled (0 friends, send message) wrote: 29m ago
    The problem is that there is no longer a stock market to invest in.... what we have is wall street insiders racing Ferraris on a track they designed (directly connected hi frequency trading robots) and keep messing with in a game that has nothing and I mean nothing to do with investment or reasearch, and the rest of the so called non Wall Street "investors" are subjected to heavy marketing to come rent a Ford Pinto to race blindfold.

    In short investment is the wrong name, Wall St is a fixed game for insiders to PLAY using outsider's money.
    =============
    You can invest directly in businesses or franchises--laundrymats, liquor stores, etc.

    RidingHigh:

    The Stock Market was initially used for companies to raise capital in exchange for ownership - it gradually turned into a gambling parlor.

    topdawg:

    It's really pretty simple. The average investor on Main Street feels like he's been duped by the Wall Streeters. We play one game, while the big cats on Wall Street play an entirely different game where they know and make the rules. We lose, they win.

    As the old saying goes, "Fool me once, shame on me ..................... "

    larry elford:

    the industry has earned it's "reputational bankruptcy" very well.

    It will be safe to invest once again when those who tried to steal our economy are jailed, and those regulators who helped them, (or simply looked the other way) are also jailed for failure to protect the public interest. Until then, white collar crime is simply the best paying occupation in the world.

    Larry Elford, Canada http://www.youtube.com/user/investoradvocate?feature=mhum

    2 minute video on how to become an investment advisor (in canada) 4 minute video on how to commit the perfect crime BREACH OF TRUST, The Unique Violence of White Collar Crime, by a twenty year veteran broker turned whistleblower

    [Sep 28, 2010] Bank of England Tells Old People to Eat Their Seed Corn, Um, Principal

    Anyone who can use Excel would agree with "Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.". Let's say that you are 60 years old male with more major chronic deseases. That's assume that you can last till 90 (very few males, and females managed to do this). Or if you are in perfect health conditions and all your relatives are centinaries you can raise it to 95. Now assume 3% a year average return on your funds. You probably already know pretty well what your Social security is. It's prudent to take it at 70. Let's assume that it is 2K a month. forget about inflation: deterioration of your physical conditions will limit your needs faster then inflation. Everything else is simple.
    naked capitalism
    Well, at least you have to give the mandarins at the Bank of England points for honesty.

    ...courtesy the Telegraph:

    Older households could afford to suffer because they had benefited from previous property price rises, Charles Bean, the deputy governor, suggested.

    They should "not expect" to live off interest, he added, admitting that low returns were part of a strategy.

    His remarks are likely to infuriate savers, who are among the biggest victims of the recession. About five million retired people are thought to rely on the interest earned by their nest-eggs. But almost all savings accounts now pay less than inflation.

    The typical savings rate has fallen from more than 2.8 per cent before the financial crisis to 0.23 per cent last month.

    Mr Bean said he "fully sympathised". But he continued:

    "Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit."

    He added: "Very often older households have actually benefited from the fact that they've seen capital gains on their houses."

    Selected Comments

    charles 2:

    There is no god-given right to be a rentier, old or young.

    Furthermore, a lot of the savers that are today crying murder would not have been in a position to save anything had the economy not gone into a credit frenzy for the last twenty to thirty years. The principal they are forced to eat now is simply the couterparty of the undeserved income (be it from capital or labor) that they received in the past.

    The public in western countries is in denial when it thinks that it is ONLY bankers who were overpaid.

    Yves Smith:

    With all due respect, I believe you are projecting the US love affair with stocks onto the British. If you were a fixed income investor, the story was unduly low risk spreads, remember? That's why everyone went so far out on the risk curve.

    You are assuming ordinary people who are now retired in the UK were taking on a lot of extra risk knowingly. Not sure they were going out on the wild side in terms of risk assumption, and certainly not understanding the tradeoff if they did.

    Indeed, your "rentier" goes even further and suggests these savers never worked but were members of the idle rich. Huh? Most people who are retired and have a stash have saved it out of labor income.

    charles 2:

    Yes, and the bankers in the city, their servants, and the people that produced their luxury goods, and others also gathered their savings as "labor income" !

    Consider for instance a craftsman working for say, Hermes, would he have had a job with the credit bubble and the extension of the wealthy class that came with it ? Same thing with the Mercedes builder, etc…

    When credit excesses having lasted for so long, very few workers can claim with certainty that 100% of their labor income could have existed in a sustainable economy. Remember that it is the marginal income that is the source of savings : if I am saving 30% of my income but in reality I should be paid 15%, it means that 50% of my saving should not exist.

    charles 2:

    I meant : " if I am saving 30% of my income but in reality I should be paid 15% less, it means that 50% of my savings should not exist."

    i on the ball patriot :

    charles 2 says; "There is no god-given right to be a rentier, old or young."

    This is victim bashing!

    There is no god given right for the wealthy ruling elite to control the destiny of the many, and make that destiny dependent on "rentier" crumbs and the misdirection of the use of resources in the production of shit goods for the benefit of the wealthy. Further, there is no god given right for the wealthy ruling elite to then cut that crumb supply when those same people are older.

    Had the wealthy ruling elite pigs at the top not misdirected the use of resources and created the enslaving credit bubbles - read intentional debt traps - the people may very well have created a more sustainable future for themselves.

    Your point is good that the public in western countries have 'benefited' to some degree by the excesses, but it deflects from the fact that some pigs are more equal than others in creating and controlling the conditions in which those false 'benefits' were created.

    The public, in western countries and in all other countries on the planet, is in denial when it thinks that it has a say in its governments. That is the problem.

    Deception is the strongest political force on the planet.

    Banker:

    >>When credit excesses having lasted for so long, very few workers can claim with certainty that 100% of their labor income could have existed in a sustainable economy.

    You could have been right, if the the "credit excesses" had spread their wealth around in proportion. It is absolutely not so.

    The gains during the boom disproportionately went to a small group. The losses during the bust are spread around.

    The entire Greenspan "pump-n-dump" scheme is a giant wealth transfer upwards. During the pump, the wealthy get almost all the benefits. During the dump, they lose less.

    This is exactly like saying Bear Strearn's Cayne lost money and was punished by that. Hello? Cayne amassed a few hundred millions, and lost most of it. He still comes out of the pump and dump with about 100 million. Your average pensioner earned next to nothing from the pump, and now is supposed to lose what he has.

    Now if you were going to make another kind of argument – that savings are illusory, or that you can't take it with you,

    F. Beard :

    A good book on the history of money and powerful ammunition against the gold-bugs is The Lost Science of Money by Stephan Zarlenga

    Tao Jonesing:

    One of the primary reasons that FDR was able to accomplish many of the New Deal reforms, including those that flowed from the Pecora Commission (e.g., creation of the SEC and the Galss-Steagall Act) is he had "inside help" from members of the rentier class who realized that the system that had benefitted them would inevitably consume them, after it got done consuming "the little people."

    In the absence of a modern day Pecora Commission, the kind of hubris displayed by the Bank of England is our best hope of waking the ire and passions of members of the economic elite, whose wealth translates into political power.

    By the way, in general, I refuse to think of elderly people as "rentiers," particularly if what they've saved came from the fruits of their labor. That being said, if they've saved enough to live off the interest in a savings account, it's hard to imagine that all of that money came from being a middle-class working stiff. Regardless, we shouldn't be penalizing savers to reward banksters.

    r cohn:

    There are huge negative consequences of the current very low interest rate policy. Among them are:

    1.much higher poverty rates among older people

    2.Much lower pensions even for defined benefit programs. It is absolutely inevitable that public pensions will have to change radically either voluntarily or through the court system.

    3. accelerated pressure on housing prices with all of the resulting negative feedbacks.

    4 depressionary spending patterns for decades in retirement areas like FLA. and AZ 5.lower wages and less availibilty of jobs for younger workers.

    For those abhoring the rentier class, you have to realize that the ZIRP benefits mainly the banks. Basically we have a policy where everyone is subsidizing the banks; savers directly and consumers by fewer jobs and lower rates of investment

    Tao Jonesing:

    Another way to look at it: having savings does not make you a "rentier."

    For example, my 13 year old daughter has $350 in a savings account. She ain't a rentier by any stretch of the imagination.

    In the face of QE, the Fed's ZIRP seems aimed to encourage savers to chase higher yield by speculating in the secondary markets. Financial specualtion is the hallmark of the rentier, not savings that earns interest as part of the essential bargain of commercial banking.

    Ed:

    One blogger, at the site "Early Warning", had an amazing post up last week which argued, in effect, that of course there are going to be no investments with returns higher than inflation in the future. That means that a dollar you save today will be worth exactly that, a dollar, when you retire so you better be saving at least 50% of your income.

    Of course, if a dollar I save today is worth exactly that, a dollar, thirty years from now this means I shouldn't be saving anything. Because I may not be alive in thirty years. It makes no sense for a 40 year old to not consume to support a 70 year old who may not exist, if the choice is spending exactly the same amount on the 40 year old and the 70 year old. Not to mention the risk of losing the saved dollar anyway.

    An economy that has effectively zero interest rates, with only bubble investments available, is an economy that is not friendly to savings. If this is what we are going to have, expect no one to save for their old age.

    But the implications go further, because as "structural unemployment" creeps up, there is an increased likelihood that an old person may not be able to work even if he wants to and is physically capable of doing so. So no income.

    For an individual, I don't have any answer other than muddling through. As a society, there are hard questions to be asked why wealth is draining from the middle class and working class and how long this will last. Plus there is the question of managing the transition. Once the pie is no longer getting bigger, the question of who gets the slices becomes much more critical.

    Tortoise:

    Look at the issue in a logical and unemotional way: Is it possible that savings only accumulate? Is it not more rationale that, ON THE AVERAGE, people save during their productive years so that they can live while they are not working?

    Those who invested in stocks, bonds, or real estate between 1982 and 2000 did marvelously and many may consider themselves very smart - it is human psychology to attribute misfortunes to bad luck and successes to our own genius. T

    Those who graduate from college nowadays face a much tougher world where there is a lot of wealth in other people's bank accounts - and