Who Shredded Our Safety Net?-Mother Jones

[haha]

Who Shredded Our Safety Net? | Mother Jones

 

[REWahoo]

What starts with "f," ends with "k," and means "screw your workers"? That's right—401(k).

 

[dex]

The concept of a "safety net" is what is wrong. It implies that life can be made safe. This is a western concept and in some ways fits with the western idea that the world/nature can be fought and subdued. The vast majority of the world face insecurity/potential for harm every day they open their eyes. With acknowledgment of this you outlook on everything is influenced/changed.

 

[Bestwifeever]

I like this quote: "Through the 1960s and '70s, I worked at The New Republic and a couple of small publications I cofounded. By this time I understood a little more about how finance capitalism worked, having read the footnotes to Marx's Capital..."

After he spent most of his professional life writing about the markets, you would think the author at 70 years old would have had the cojones to tell his plan's administrator he really really wanted his money in safe old Treasuries even if it hurt the other guy's feelings.

 

[ziggy29]

From the article:

Since Bismarck's pensions kicked in at 70, and the average life expectancy in Germany at the time was under 45...

In the context of discussing the solvency of old-age pension plans, I really hate it when people skew the numbers by including infant mortality in their life expectancy calculations. Infant mortality is fairly irrelevant to THAT discussion.

I believe U.S. life expectancy in 1900 was about 47, but for those who made it deep into their childhood, the life expectancy was in the low 60s.

 

[deserat]

Oh my, he does have quite sense of entitlement combined with ignorance and a dash of victimitis....yikes, it's your money - who cares what the guy on the phone says. However, as you read his article, you can see he really didn't plan -he just floated along expecting a "safety net" without checking on whether or not the net was there or safe. Assumptions will get one all the time....

 

[ziggy29]

Oh my, he does have quite sense of entitlement combined with ignorance and a dash of victimitis....yikes, it's your money - who cares what the guy on the phone says. However, as you read his article, you can see he really didn't plan -he just floated along expecting a "safety net" without checking on whether or not the net was there or safe. Assumptions will get one all the time....

I think a couple of generations were lulled into a false sense of security. In the era before SS and pensions, retirement was always a "roll your own" concept (save it, invest it well or inherit it). I believe we've recently completed an unprecedented economic boom and age of plenty that may not be seen again in our lifetimes. I'm not pessimistic enough to say "never," but the combination of demographic trends, resource competition and globalization of the economy make repeating the 1950s to the 1990s very unlikely in the near future.

As I've said in other threads -- We can complain about the unfairness of it all we want, but the bottom line is that we're going to HAVE to help ourselves more in the decades to come; the prosperity to sustain the safety net at boom levels just isn't there.

But the generations that may get the most raw deal out of this were the generations that were lulled into believing that all they needed was SS and a good pension and they were set for retirement. Those days are almost dead in the private sector, and I think before long it will start to die in the public sector as well as state and local governments start to go belly up.

 

[Abreutime]

I PERSONALLY took part in the 401(k) revolution, though not by choice. Through the 1960s and '70s, I worked at The New Republic and a couple of small publications I cofounded. By this time I understood a little more about how finance capitalism worked, having read the footnotes to Marx's Capital—but since I also now had a house and a son and no money to spare, I never faced any moral dilemmas over whether or not to invest for the future via the corrupt free market.

Yes, this author had no money to invest due to the unprecedented challenges of having a child and a house. Poor guy. If only someone had TOLD him he should save!

 

[NW-Bound]

What I found interesting was the following comment from Bogle, made in January 09. I wonder if Bogle feels the same now. Remember that the market did continue to drop until March 09.

Vanguard's John Bogle, who predicted the recession two years ago, sees the market continuing to sink before recovery begins. "This is the most difficult set of market conditions I have seen," he told me. Stocks may recover over the next decade, but by then I may be dead. What do I do? "If you can't afford to lose another red cent," Bogle told me when I interviewed him again at the end of January, "you must get out of the stock market."​

I guess at the age of 52, I can expect to be around another 20 years, so I am going to stay put. However, Bogle did sound very discouraged, and I found that a bit alarming.

 

[freebird5825]

Such a cheerful article. I'll have to have this guy over for dinner sometime.
How on target is he or was he having a really bad day ?

 

[ziggy29]

I guess at the age of 52, I can expect to be around another 20 years, so I am going to stay put. However, Bogle did sound very discouraged, and I found that a bit alarming.

IMO, Bogle's comment has been taken out of context by some folks. I think what he was saying is: if losing any more money will bust your goal, whether retirement, college fund or something else -- if losing any more money will change your situation from bruised but not beaten to bruised AND beaten -- then get out.

For what it's worth, I think what Bogle said is ALWAYS true -- if you absolutely, positively can't afford to lose any more wealth because of a declining market, you should not be in stocks. Period. The thing is, Bogle is wealthy enough that even if he passes before a significant recovery restores the lost wealth, he still has more than enough. That may not be true for some who hear his words.

 

[REWahoo]

"If you can't afford to lose another red cent," Bogle told me when I interviewed him again at the end of January, "you must get out of the stock market."​

I wonder if this was taken out of context? Maybe not since many pundits were saying this back in that same time frame.

But this is probably sage advice no matter the time or circumstance. If you can't afford to lose any money (are prohibitively risk averse), you shouldn't be in the market - ever.

 

[NW-Bound]

For what it's worth, I think what Bogle said is ALWAYS true -- if you absolutely, positively can't afford to lose any more wealth because of a declining market, you should not be in stocks. Period.

I was referring to the statement "This is the most difficult set of market conditions I have seen". It reinforces all other observations we heard before from old-timers, that the recent event was unprecedented. As such, hanging-on is contingent on having faith that we will find a way out (yes, I still have some ).

Another thing to consider is that where else do you stash your savings? Are bonds that safe in the long run? In another thread on inflation, in the late 70s when economic conditions were bad, Buffet made a comment that stocks might not beat inflation, but other choices might be worse.

So, I just diversify and hang on. Well, with a bullish 60% equity as I think we are past the bottom.

 

[Midpack]

Back to the OP. I don't always agree with their POV, but Mother Jones often does some excellent work. I don't think their 401(k) story was their best work. YMMV

 

[HFWR]

If 401k plans have low-fee index funds, and encourage diversification, then they are hard to beat, especially if there's a match involved. Based on horror stories I've seen, many 401k plans are none of the above...

 

[Notmuchlonger]

If 401k plans have low-fee index funds, and encourage diversification, then they are hard to beat, especially if there's a match involved. Based on horror stories I've seen, many 401k plans are none of the above...

Yep, finally DW's plan offered some decent low fee funds through Fidelity. This was after they were with an insurance company who's fees and 12b1 fees were through the roof. Buggers.

 

[ziggy29]

If 401k plans have low-fee index funds, and encourage diversification, then they are hard to beat, especially if there's a match involved. Based on horror stories I've seen, many 401k plans are none of the above...

I'm quite fortunate; I think I probably have a 401K plan in the top 5% of all of them. We don't pay any quarterly/annual fees in the plan directly. (Maybe the employer pays them, and maybe Fidelity is reimbursed by the expenses in the mutual funds.) But I have quite a good array of funds available -- highly rated, consistent performers, either index funds or low-fee institutional versions of long-time solid performing funds. I get a dollar for dollar match on the first 5% of pay with no ceiling on the match.

 

[clifp]

More myth building of the wonderful era of pension plans that never was, and a great example of how liars use statistics to make their point.

As I have posted in the past from my research no more than 1/3 to 40% of American private sector workers were every covered by defined pension plans, for the simple reason that they were too expensive for medium much less small business to set up.

So I was astounded to see this quote in the article.

In 1983, 62 percent of workers relied on a defined- benefit plan; by 2007, only 17 percent did, while 63 percent only had a 401(k) or similar defined-contribution plan. Assets in 401(k)s had jumped from $92 billion in 1984 to $3 trillion.

Wow it sounds in the like in the good old days most of us had pensions. Ah but here is the actual statistic as quoted in the LA Times.

The transition to the new system occurred largely over the last two decades, with relatively little public debate. In 1983, 62% of workers with employer-sponsored retirement plans had a defined-benefit plan, according to Boston College’s Center for Retirement Research. By 2004, only 20% of such workers had defined-benefit pensions. And the proportion of workers who relied solely on 401(k) plans rose to 63% from 12%.

The obvious question is so how many people have employer-sponsored retirement plans? Well surprisingly few. According to a 1999 study done by Pension Benefit Guarantee Corp. Who presumably have the incentive and resources to do a good study.

About half of all workers have no employment-based pension coverage. In businesses with fewer than 100 employees, only about 20 percent of workers are covered by any retirement plan. Traditional pension plans, i.e., defined benefit plans, provide a predictable lifetime benefit,
guaranteed by the PBGC. Yet the defined benefit system is stagnating.

In fact back in the early 80s one of the main reasons for the government encouraging the use 401k was because so many company offered no retirement plans. This means that probably far less than 1/2 the companies back in 1983 offer any retirement plans.

The article is offering us a false choice between the rigged, evil, 401K, and the wonderful pensions of yesteryear. The real choice for the vast majority of American is between a 401K and no retirement plan at all.

 

[REWahoo]

I really hate it when someone comes along and pours cold facts on a good rant. Why must accuracy always spoil our sense of outrage? Where's the fun in that?

 

[dex]

More myth building of the wonderful era of pension plans that never was, and a great example of how liars use statistics to make their point.

As I have posted in the past from my research no more than 1/3 to 40% of American private sector workers were every covered by defined pension plans, for the simple reason that they were too expensive for medium much less small business to set up.

Excellent point. It is the "good old day" argument - things were better in the past. As in your info. it was a very small window of time when 33% of people got defined pensions - unions and major corps like IBM.

 

[unclemick]

Duh? So how do you spell Norwegian? Pssst - Wellesley.

What part of Walter L. Morgan (aka Wellington 1929), Ben Graham, or my ancient(ok semi ancient 1980 piechart) of the 'policy portfolio.' did these finance whiz types refuse to see.

I'm old enough to remember Bogle's Folly.

heh heh heh - Hey - I must be finally getting old and cranky since these type of articles push my rant button. Rather than grateful we had low cost Index 500 in our 401k and I had read what Ben Graham's Intelligent Investor, the typical pension fund(60/40) and later Bogle was all about.

One more time - with feeling - psst Wellesley. .