Who Shredded Our Safety Net?

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

—Illustration: Asaf Hanuka

LIKE MOST PEOPLE whose quality of life depends upon the fluctuations of an IRA, 401(k), 403(b), or other acronym-soup retirement account, I was born long before such things existed. It's easy to forget, now that more than half of us have been made shareholders, that until well past the middle of the 20th century, most people had nothing to do with the stock market: Wall Street was for the wealthy and the reckless. It was a world most Americans didn't understand and, after 1929, didn't trust. Some lucky people had pensions, but few had the privilege of even thinking about retirement. They were too busy trying to survive the present—which in my childhood meant the Great Depression and then World War II.

I spent the war years in Washington, DC, where my father had a minor position in the Roosevelt administration. After school, my brother and I spent most of our time running around the streets, trying to get the air-raid wardens to give us a scrap of nylon parachute, or maybe even one of their cast-off World War I helmets, before the blackout drill began. One evening, my mother called us into the dining room and solemnly presented each of us with a $25 war bond. That was my first contact with the world of investment. Compared to a piece of parachute, it was a real downer.

Sixty-five years later it's a downer still, as I contemplate my future at a time of deep recession with no pension and a depleted 401(k). And it occurs to me that the very notion of a comfortable, paid retirement may turn out to have been a temporary phenomenon, with a life span almost precisely the same as my own.

The United States instituted military pensions after the Civil War, but German chancellor Otto von Bismarck is generally credited with creating the first national pension system, in the late 1880s, partly to combat the growing appeal of Marxism. Since Bismarck's pensions kicked in at 70, and the average life expectancy in Germany at the time was under 45, it wasn't much of an investment on the part of the state. In fact, until about World War II, a majority of people died before they reached what we now think of as retirement age; those who made it to 65 depended on savings or relatives, or went to the poorhouse.

The truly pivotal moment in the history of paid retirement came in the year before my birth, 1935, which saw the passage of the Social Security Act (again, in part to ward off more radical proposals). This system lifted millions of the elderly out of poverty, though it would never, by itself, provide a comfortable living. That came with the rise of employer-funded pensions, which were fought for by unions in the early part of the century and expanded during World War II, when they became a way to reward workers during government-mandated wage freezes. Suddenly, retirement became a possibility for millions of American workers.

These workers had "defined benefit" plans, which promised a steady monthly payment at retirement. Although a portion of the pension funds might be invested in the stock market, the payout to workers didn't depend on the market's fluctuations.

After the war, my father joined IBM and remained there for about 15 years. I remember that he was constantly in debt from paying our college tuitions and medical bills for his ailing parents. He never talked about it, but every so often, I would see a line of bills from credit companies spread out on the bed. He had a fierce dislike of Wall Street and the banking industry, formed during the Depression and abetted now by his high-interest debts. Although he had a three-hour round-trip commute on the New York Central Railroad every day from our home in a then-unfashionable part of the Hudson Valley, he often remarked how grateful he was that he didn't have to ride the New Haven trains with all the cocktail-wielding brokers. Even if he'd had any money to spare, he wouldn't have invested it on Wall Street. But when he retired, he got his pension, which my mother continued to collect after he died—not much, but enough to live on in a frugal way.

I WAS PLUNGED into the world of finance when I got my first job, at the Wall Street Journal, at the beginning of the 1960s. They put me to work writing up corporate bonds, especially new public offerings, on the Dow Jones ticker. Every time there was a bond sale, I would call up the manager of the syndicate of investment banks selling the securities to find out what had happened. He would invariably say, "Oversubscribed, and the books closed," which would be duly noted, along with the selling price, on the ticker. The bonds were always quickly snapped up by institutional investors and others in the know. I had only the thinnest understanding of how any of this worked, but I dutifully wrote everything down, and no one seemed to complain.

The first ordinary person I met who regularly invested in the stock market was a guy I'll call Frankie, who was in my National Guard unit. While working at the Journal, I was still satisfying my Guard service requirement with two-week summer stints as a truck and jeep driver, upstate at Camp Drum, along with periodic training sessions at the armory on Lexington Avenue. I use the term "training session" loosely: The Fighting 69th has a robust record of combat stretching back to the Civil War, but in those days, we spent a good deal of our time on the armory roof, smoking, drinking beer, and listening to Frankie recount his days driving rich people around at his job at the Jaguar showroom uptown. Frankie always had tips that he'd picked up from his well-to-do customers. The next morning we would rush out to a broker and put down $100 on some obscure stock that, according to Frankie's sources, was all set to skyrocket. I remember watching the newspapers as one of our stocks held steady and then, right on schedule, began to rise—from $7 a share to $8 to $8.50. We rubbed our hands in expectation of the proceeds that would soon be raining down on us, delighted that through Frankie we had tapped into the magic circle of rich people who got even richer by playing the stock market. Then our stock dropped overnight, to $2 a share. On the roof the following week, Frankie was sheepish and apologetic, but unperturbed. The market went up and the market went down, he shrugged. To make money you had to stick it out. He promised to get us a new and better tip from the Jaguar buyers.

At the Journal, meanwhile, I was moved to the banking section, where I was assigned to cover mutual funds—something I'd never heard of before coming to the paper. Instead of buying shares of this or that stock, a mutual fund would bundle up a number of investments: blue-chip companies, or technology stocks, or low-priced securities that amounted to little more than fliers in high-risk markets. The mix within the fund, and its return, was the handiwork of supposedly astute advisers whose fortunes rose and fell depending on how their funds performed.

Although the first modern mutual fund was founded in the 1920s, they were rare until the postwar period and still didn't account for much in the early 1960s. At the time I was given the mutual fund beat, it was scorned by the other, more upwardly mobile reporters. As John Bogle, legendary founder of the Vanguard Group of funds, reminded me in a recent interview, the prevailing attitude was that mutual funds were for people "too dumb to do anything else"—those who didn't have the sophistication to deal in individual securities. But the old guard of Wall Street—well-bred WASPs and German Jews who viewed the whole financial world as an insiders' club—was being challenged by new firms coming into the over-the-counter market, many of them run by upstart kids from immigrant families. Some of these less hidebound denizens of the Street saw mutual funds for what they were: an opportunity to take advantage of the postwar boom and bring a flood of new, middle-class investors into the market.

I dutifully began going to mutual fund meetings, usually held at swank downtown men's clubs. There was always plenty of whiskey, high-class hors d'oeuvres, and sexy women handing out quarterly reports. Afterward, we would stagger back to our papers and write up a paragraph or two. Then, unexpectedly, I got a real story. An editor at the Journal had heard about a series of stockholder suits accusing some big mutual funds of ripping off consumers through a series of hidden fees, all appearing to come from different companies—investment advisers, sales outfits, management concerns—when in fact all were part of an interlocking network.

Fees have always been one of the built-in scams of mutual funds, which charge investors for managing, operating, and even marketing and advertising the fund. On average, the fees add up to 1.5 percent of the value of an account, but they can run as high as 3.5 percent a year. This means that a fund showing a 7 percent gross return has a net return to investors of 3.5 percent after taking into account the 3.5 percent fee. As Rep. George Miller (D-Calif.), chairman of the House Committee on Education and Labor, put it during a February hearing on retirement security, "Wall Street middlemen live off the billions they generate from 401(k)s by imposing hidden and excessive fees that swallow up workers' money. Over a lifetime of work, these hidden fees can take an enormous bite out of workers' accounts."

Congress, of course, has known about this scandal for years, and has periodically floated legislation to limit certain types of mutual fund fees, or at least demand full disclosure. Committees have held hearings, the Government Accountability Office has produced studies, and the Securities and Exchange Commission (SEC) has paid a good deal of lip service to the matter. But in the more than four decades since those first stockholder suits, through Republican and Democratic administrations alike, no meaningful changes have been made. Instead, the most significant challenge to the mutual fund fee rip-off has come from inside the industry, through John Bogle's invention of the index fund.

Bogle's Vanguard funds gave the lie to the fee scam by replacing the vaunted genius of the mutual fund manager with a computer that constantly evaluates the value and trajectory of different funds; his average fees are 20 percent of the industry average. (In the same spirit, the Chicago Sun-Times has in recent years had a monkey picking stocks. The monkey's four-year streak of beating the market was broken in 2007—but he still managed to outperform some major financial advisers.)

The Journal eventually fired me, and I couldn't blame them: I didn't understand mutual funds, and I barely understood stocks, bonds, or banking—save the ever-present dread of a bounced check. So I went to London, where I worked as a waiter in a mod coffee bar in North London to supplement my freelance work for the London Observer. But even there, I couldn't shake the mutual fund jinx. Right away I was dispatched to Edinburgh to cover the annual meeting of a new mutual fund company. The scene was just like the one in New York, except that the whiskey was older, the girls were younger, and the financial jargon was dished out by smiling Scotsmen whose accent I could barely decipher. Their message, as far as I could make out, was just like the New York executives', too: Mutual funds were just brilliant because they pooled resources and spread out risk, allowing ordinary lads to partake in the bounty of the market.

On both sides of the Atlantic, mutual funds at this point were promoted as a way to democratize investment. Never mind that what made the funds accessible to the common man and woman—the fact that they mixed together an ever-changing stew of financial instruments and then ladled it out in affordable portions—also made them inscrutable to most investors (and most elected officials as well). No one seemed to know what might be buried in those funds—and no one seemed to care. It was the perfect manifestation of J. Paul Getty's adage: "Money is like manure. You have to spread it around or it smells." And mutual funds were about to start really shoveling it—courtesy of the US government.

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Ridgeway still doesn't know what he's talking about

Submitted by Anonymous (not verified) on April 29, 2009 - 10:43am.

Clearly, Mr. Ridgeway still doesn't understand what investing is, and for him to write an article like this one bemoaning the state of the 401(k) is absurd. For instance, he writes, "Bogle's Vanguard funds gave the lie to the fee scam by replacing the vaunted genius of the mutual fund manager with a computer that constantly evaluates the value and trajectory of different funds." Wrong. Vanguard's computers simply follow the list of stocks or bonds in an index that is handed down to them from a company like S&P or FTSE or MSCI. They don't evaluate anything--in fact the Vanguard computers that DO evaluate things like the "trajectory" of stocks (not funds) have done a lousy job.

There's way too much in this article that is either wrong, or leaning so far to the author's negative point of view that it's not worth going point by point. But I dare say that if the author hadn't put any money into a 401(k) he might not have ANY savings for retirement at all. At least he's got something.

nothing but hot air!

Submitted by Anonymous (not verified) on May 1, 2009 - 1:31pm.

You seem to know so much- explain why it is that you're just blowing hot air here.

In March 2003, Salam Adhoob,

Submitted by Lorenz High School (not verified) on June 3, 2009 - 1:11am.

In March 2003, Salam Adhoob, a prominent lawyer in the Iraqi city of Suwayrah, was glad to see US forces roll into his country. Iraqis, he felt, would be able "to rebuild our country again." But when he saw looters ransack Baghdad's National Museum on TV, he began to worry that the authorities could not protect his nation's public resources. In the ensuing months, he was horrified as corruption ran rampant amid the postinvasion chaos.

to know anything, you must know that you know nothing

Submitted by Anonymous (not verified) on June 14, 2009 - 6:30pm.

Well professor lets here the breakdown and explanation. And the point is that while he may have something, the money that did get lost went somewhere else. The point of the entire article is where did that money go besides our pockets. Oh yeah someone's privileged pocket . If you invest in a failed business, aka a bad investment, that money does not disappear just because it was mismanaged. The CEO got paid, the now often colluding companies that they did business with got paid. Hence why the 401k is a bad idea for retirement if you can't afford the risk. In fact 99.99% of people who have or manage 401k's don't truly understand how they work because to understand how each 401k works would mean to have access to privileged information. There's the process which is not that hard to understand and then what actually happens which no one would bother taking the time to account for.

"it's not worth going point by point"

Submitted by Anonymous (not verified) on August 5, 2009 - 3:46pm.

Oh! come on! take a little risk and go point by point to explain how Ridgeway is wrong! Your reaction sounds very familiar ... "If you don't know, I am not going to tell you!"

OK; I don't know! I want to know! I need to know! And if you don't clarify, define, defend your statement, I have to write you off as a know-it-all-jerk.

No it's not

Submitted by Essay Writing (not verified) on October 13, 2009 - 1:32am.

well obviously it starts with 4 not with а

f-word or 4-word that is the question...

What do we mean by "retirement"?

Submitted by westomoon on April 29, 2009 - 1:53pm.

If "retirement" means lots of travel. golfing, and fine dining, then I guess Mr. Ridgeway is in as much trouble as he says he is.

If retirement means "downsizing" and simplifying life, then what's his problem? He's 70, so he has Social Security benefits, plus his investments -- shrunken from their 2007 high, no doubt, but still bigger than they were in, say, 2002. That's enough to live on.

As long as we share John McCain's definition of "wealthy" (starts at $5 mill a year), 99% of us are going to see ourselves as deprived. Looking at what is enough is not what we've been trained to do, but it's worth a shot.

I'm speaking as someone who took a huge hit in income in order to retire -- to a simpler place and a simpler life -- ten years ago. Recovery from upper-middle-class consumerism was quite a wrestling match at the beginning, but I wouldn't take back a day of it.

You missed the beauty of this.

Submitted by Caspian of the Lake on April 29, 2009 - 2:05pm.

Don't you see it? What better way to virtually eliminate the estimated 20,000,000,000,000 social security short fall: wipe out everyone's nest egg. And not just their 401K, but the value of their houses and everything else they own. Further devaluate them all by creating robust inflation and what are you left with? A majority of people who will never be able to retire. If you keep working you can't collect social security. It's brilliant really. We all thought they had to either raise taxes, means test or cut benefits. Instead they- Democrats and Republicans-created a fourth way: make it impossible to stop working.

Now about that Medicare shortfall.......

Real Pity

Submitted by Anonymous (not verified) on April 29, 2009 - 3:59pm.

Surprising that no one has commented on the loss of the defined-pension programs of the past. By moving employees to 401K plans and setting up parachutes and retention bonuses for the "important" employees -- companies have removed themselves from the liability of the defined plans. Guess the auto companies weren't able to catch that train... Many companies may not have been able to avoid dipping into those funds set aside for the defined plans to cover operating expenses -- a temptation Congress also seems to have suffered, and lost. Perhaps company funds set aside for defined plans might also have suffered losses in the recent Market fiasco -- but there has to be a better way than simply setting employees adrift, staring into the abyss of future Social Security cuts, helplessly listening to the sounds of fluttering golden parachutes in the background... Especially those paid for with taxpayer bailout dollars.

Its very easy to debate the

Submitted by Trollstein on April 29, 2009 - 5:21pm.

Its very easy to debate the details of the economic system and thereby assign blame for its failure.
I take a big-picture vantage-point. People are born with some amount of inherent corruption and to different degrees, degenerate as they grow older. Sadly, our system too often rewards bad and self-absorbed behavior. This traces back to our (cave-and-jungle) pre-history, wherein "alpha" leaders got 80% of everything and the remaining 20% had to be split among the rest of everyone.
Humans also go through regular repetitive phases wherein societies push their luck to the breaking point (and generally beyond). The Vietnam war was such a pivotal event wherein the economically powerful took us into a draft and major war war for profit.
Who shredded our "safety net"? Why--we did--of course. I marched against the Vietnam was when I was 10 and more important, I knew why.
I've been in more people's faces then most people have been out to dinner. And, my habit is to confront much, MUCH bigger adversaries.
As another example, on an earlier MJ blog subject (“This Little Piggy Goes Home”) someone tried to convince us that peanut butter was more dangerous then Animal borne illnesses. The Troll wrote:
“ . . . E-coli is exclusively from animals, as is trigenosis, CJD (aka. Madd Cow), bird flu, etc...”
Anyone ever heard of an airborne-spread peanut flu?
On a cable-TV talk show about 12 years ago I was debating a conservative who was ranting about AIDs being so dangerous that Gays should be separated from society.
The Troll argued that the overwhelming likelihood is that a pandemic would arise from at least five other sources first, especially one based on Agra-farm techniques.
If you want a safety net, go out and fight for it. Put it one the line. Yes, you will (from time-to-time) be embarrassed and even rejected as a result. Poor frikin babies . . .

password

Submitted by Anonymous (not verified) on April 30, 2009 - 2:57am.

I forgot my password . Any chance of helping me ?

password help

Submitted by Laura McClure on April 30, 2009 - 8:36am.

sure! go back to the login page as if you were signing in, and click the 'request new password' tab. then, enter your email address and our system will send you more info from there. hope that helps.

This is a brilliant piece if

Submitted by Anonymous (not verified) on April 30, 2009 - 5:42am.

This is a brilliant piece if viewed from a plane above the mechanics of investing. It brings home powerfully the idea that for non-professional investors, Wall Street will always find a way to defraud the public from its wages.

People who work for a living - even at highly technical jobs - will never have the sophistication or more importantly inside information, to outwit a class of thieves on Wall Street that are empowered, and protected by the "guns" they purchase in Washington.

Only the most naive working class persons can faithfully believe that money they put on the Street is going to come back safely at a high rate of return.

My favorite line in the piece? "Wall Street has yet to create anything as swolvent and reliable as Social Security."

feeding payroll taxes into the general fund

Submitted by Moby Doug (not verified) on April 30, 2009 - 1:43pm.

This talk (much of which comes from brokers and politicians bought by Wall Street) about the alleged underfunding of Social Security does NOT focus on what may be the biggest scam of all: the money American workers pay into Social Security is then fed into to the general fund and spent for no-bid contracts for Halliburton, 8,000 toilet seats for bombers, or whatever the gov't decides. Well, part of it is spent to cover the pensions of the already-retired. But the rest is effectively a REGRESSIVE income tax falling hardest on the heads of those with the lowest incomes. So over the past 30 years, not only has the Reagan Revolution been relentlessly reducing taxes on the rich, it has been pounding the middle & lower classes with a regressive income tax disguised as a pension payment. This naturally led to Bush trying to panic the sheeple into forsaking the allegedly underfunded Social Security system altogether in favor of pumping their retirement savings into Wall Street, where the broker-wolves could eviscerate it with various transaction fees and ponzi schemes.

It was Lyndon Johnson and

Submitted by Caspian of the Lake on April 30, 2009 - 4:04pm.

It was Lyndon Johnson and the Democratic Congress that hid the cost of Vietnam by sopping off the social security surplus to pay for the war. That wonderful tradition has continue on with every President and every Congress since then. I don't suspect, after reading your partisan screed that you'd like to take account of that.

The Reagan Revolution- for the next 30 years as you say- has resulted in the wealthiness paying a higher and higher percentage of Federal Income tax. Let's not confuse the two taxes, they are different. In addition the end result of reducing taxes has always results in economic growth. It may or may not result in more taxes to the treasury you can look at the statistics a hundred different ways and reasonable people can come to different conclusions. But the elephant in the room, which Obama ignores, is that we need economic growth now more than anything. That's our only savior.

Warren Buffet is famous for declaring that he pays a lower tax rate than his secretary and offers to pay $1M to anyone who can prove his room. It may be true that in a percentage total taxes to total income he pays at a lower rate but in terms of cost vs benefit of social security tax, his secretary will do much better. She will get much more back as a percentage of income than he will.

We're in a danger spot when the bottom 50% of income earners pay less than 3% of total federal income tax. There is a direct cost-benefit to social security. I'm sure you want you healthcare free, your defense and police protection free, your environment clean and free, sorry you've got to pay for something.

PS. We don't have a rich tax. We have an income tax. Use your head and stop calling it "tax cuts for the rich".

"PS. We don't have a rich

Submitted by Anonymous (not verified) on May 1, 2009 - 11:59am.

"PS. We don't have a rich tax. We have an income tax. Use your head and stop calling it "tax cuts for the rich"."

-- But a tax cut based on income is...? They are reductions in payments to the federal government that only apply to a socioeconomic group that are at the higher brackets of income, IE tax cuts for the rich...

So 'higher incomes' are

Submitted by Caspian of the Lake on May 1, 2009 - 3:34pm.

So 'higher incomes' are 'rich'? Then lower incomes must be poor. Fabulous logic.

Johnson was the 'boss-hog'

Submitted by Trollstein on May 2, 2009 - 8:14pm.

Johnson was the 'boss-hog' Democrat, true. But the composition of the two parties was extremely different then today. There were so-called 'liberal' Republicans (and some were QUITE liberal) and there were also conservative Democrats, plus, there were odd fusions of both (odd by today's standards). For example, the Bush family favored legal abortion because they represented affluent families who's daughters wanted to gain college degrees and possibly become professionals. The Gore political family opposed abortion, because their poorer citizens just as soon got marrried and in some respects, the younger the better.
Johnson was a pro-military anti-communist. He was also very pro-oil. While he is credited for the voters rights act and other civil-rights legislation, he may have proceeded on that front out of a sense of resignation that there would be no stopping it anyway. Once can not compare democrats of those days, especially South Western Ds with today's mix.
As for Reagan:
Reagan lowered taxes and especially so re: capitol gains. He campaigned (in 1979 and 1980) on a platform to abolish the (then $73-bln) budget deficite, which he called a disgraceful theft from future generations.
You wrote:
" . . . the end result of reducing taxes has always results in economic growth."
Because it has always been done on borrowed capitol. No magic. No virtue either.
Under that marxist-commie Eisenhower, the wealthiest wage-earners paid 90% income tax and capitol gains tax was more then double today's rate. This continued with Kennedy, at which point the USA had the highest economic growth in its entire history, in the range of 6.5%/annum. Only one parent needed to work and people could save money every year. Doctors charged like $25.00/for a house call. Lawyers drove Chevy Novas and unless they were well established, without Air Conditioning. There were like a dozen billionares in the entire world. Today there are hundreds. Lastly, the citizenry had a positive net worth. Today, 2% of the public owns 100% of the equity and 98% owns 100% of the debt. Anyone who does not see the folly in our greed-driven society is either brain-damaged or in gross denial. You don't sound brain-damaged to his Trollness.

Respectfully submitted~

'Free' social services

Submitted by The Little Guy (Gal) (not verified) on May 3, 2009 - 11:27am.

Caspian, you wrote "We're in a danger spot when the bottom 50% of income earners pay less than 3% of total federal income tax... I'm sure you want you healthcare free, your defense and police protection free, your environment clean and free, sorry you've got to pay for something."

Guess what? You're right, sort of. We ARE in a dangerous spot when Nestle's CEO makes 7 million a year, and the farmers who actually grow the chocolate cannot afford to feed their families. We ARE in a dangerous spot by allowing the corrupt rich to continue to expand their wealth on the backs of the little guy.

Yes, I DO (in the bottom income brackets) have to pay for all these services, one way or another. I pay for them by working as hard, or harder, than the people at the top of the pyramids, while barely eking out a living for myself. Instead of getting pay I deserve and then paying my share towards support of the whole, the money just goes straight to the top. I HAVE 'paid' it, just with my blood, sweat and tears, rather than the dollars the rich never paid me in the first place. I damn well better get free healthcare, schooling, etc., because I contribute my fair share and then some, in the grand scheme of things.

Hope that clears things up for you a little.

One thing more to mention...

Submitted by f401ck (not verified) on May 1, 2009 - 1:59pm.

My company, as many others, has been using the 401k and the way we "owe ourselves to the investors" as n excuse to cut on all sorts of benefits, education, vacation, etc. With the tale that we now also "own" the company (via stocks) we are expected to look after the stock value, not after the workers, we have to lay off people so Wall Street can be happy, we have the worst cheapest medical insurance, etc. and at the end all the big wigs in Wall Street made obscene amounts of money financed by worker's savings and ran away leaving everyone else high and dry.

It really blows my mind how no one saw it coming, I always said to my husband that the whole thing was unsustainable, he was making 20% or more which are completely unreal returns and was just not going to last. The sad part is that by gambling in wallstreet people lost not only the returns but also their capital, I am glad I decided to stay out and make my own plans, they might not be spectacular but they are solid.

Galbraith Article Cited

Submitted by Tex Trial Lawyer on May 1, 2009 - 3:08pm.

Does anyone have a link or cite to the Galbratih article cited near the end of page two? The link simply send one back to the first page of this article.

RE: Galbraith Article Cited

Submitted by dsTrekker (not verified) on May 1, 2009 - 5:53pm.

tagged as:

solution

Yeah, I had trouble with that link too. Here's the best I could come up with: http://www.motherjones.com/toc/2009/05. Unfortunately it will cost you $15 to go further. So I didn't.

Thanks for share, it helped.

Submitted by Peters (not verified) on June 10, 2009 - 11:14am.

Thanks for share, it helped.

401(k) & Wall Street

Submitted by Anonymous (not verified) on May 1, 2009 - 8:33pm.

tagged as:

solution

None of it ever should have existed, because the wage is slavery. We should have all worked 10 hrs a week building only 100-story tower cities connected to mag-lev trains. Not killer cars, weapons, etc.

Social Security was always spent by the government

Submitted by greenknight on May 2, 2009 - 1:59am.

Lyndon Johnson didn't start the practice of the government borrowing the money from the Social Security Trust Fund - that's the way the system was set up, the funds were to be invested in government bonds because that was considered the most secure investment. So the "Trust Fund" was really just a debt that the Federal government owed to workers.

The only thing Johnson changed was that he started counting this borrowing as income instead of what it really is - part of the national debt. This was dishonest, but he wasn't raiding workers' retirement funds; he was just lying about the size of the budget deficit - and every administration since has carried on the lie.

As for the idea that "we don't have a rich tax" - that's exactly what the income tax was originally intended to be. It was supposed to be a tax on "excess income" of those who had way more money than they needed.

bad link in article

Submitted by Anonymous (not verified) on May 2, 2009 - 2:16am.

the link "How Social Security Can Save Us All" doesn't go there, it points back to page 2 of this article.

starts with "f," ends with "k,"

Submitted by Sir Real (not verified) on May 2, 2009 - 4:26am.

Thanks to James Ridgeway for another insightful article on the demise of America.

Yes it starts with "f" ends with "k" and is followed by "you".

The transference from a defined benefit plan to a risk based retirement was a scam from the get-go.The degenerates who stole the wealth of our retirement funds knew exactly what they were doing and what the end game would be,no retirement for millions of people while the brokers reaped and raped huge fees and profits for their firms while they 'earned' huge salaries for themselves.
I am convinced those at the highest levels of government knew full good and well what was coming with the stock and banking scam.That is what was at the heart of Bush's push to privatize Social Security,to postpone the inevitable collapse of the Ponzi Scheme known as Wall St.

The Wall St. gang was aided and abetted by a reliable and pliant base in congress eager to sell out their constituants for a few dollars in campaign donations to further their own careers.It's easy for congress to do as they still have a quite generous defined benefit retirement plan of their own with a very high percentage of their salary paid out yearly and full medical benefits at the best national medical institutions.

I believe the time has come to strip our representatives in government of their retirement plan and let them flounder in the same quagmire they have saddled us with.What's good for us,as they constantly tell us,would be suitable for them too.

Defined benefit / defined contribution

Submitted by ChuckD (not verified) on May 3, 2009 - 1:06pm.

This is just to point out that even government workers have for the most part been moved from "defined benefit" retirement (Civil Service Retirement System) to "defined contribution" retirement (Federal Employees Retirement System). At the time it was introduced, employees covered by CSRS were offered the opportunity to convert to FERS, to enjoy the benefit of a more portable pension (the money's in YOUR account, you can roll it over into a 401(k)!). So, while federal employees who are retiring now are probably looking forward to defined benefit, most of the federal workforce is as unhappy with the stock market as anyone else.

A Little Confusion Here

Submitted by serial catowner on May 2, 2009 - 1:39pm.

Some people in this thread don't really understand what SS will do for you.

Many people don't pay the payroll tax. If you do you will see it on your paystub and you should receive a regular report from SS about how much you have paid in.

The average SS recipient gets a little over $800/month. If you need Medicare Part B and Part D, the insurance premiums for these programs will be deducted from your check. You will need to make co-payments to doctors and pharmacies for treatments and drugs under these programs.

Not to worry, though- you will probably be eligible for about $20 worth of food stamps.

If you DIDN'T make any payments to SS, and you don't have any other assets or income, you are a BIG WINNER- you can collect about $500/month in SSI benefits (some restrictions may apply).

Social Security just kept our recession from turning instantly into a Great Depression. How much more do you need to know?

Wow - the author of this

Submitted by Wozzeck (not verified) on May 2, 2009 - 8:11pm.

Wow - the author of this article really has had a horrible experience with 401(k)s. However after a lifetime of being defrauded by a corrupt Wall Street one has to wonder why he would continue to invest money in the stock market especially since the pitchmen he spoke with so reminded him of his unreliable friend from decades earlier. Oddly enough my experience with 401(k)s have been much different than his. I've never had any smarmy salesmen try to sell me on the importance of buying their particular brand of snake oil. Instead I've had many demonstrations of the importance of judging one's asset allocation based on one's timeframe to retirement. I'm pretty sure the idea of selling a 70 year old retiree on the value of investing in equities is anathema to all of them so I wonder how the author could have had such an experience.

Look - this article shows such a basic misunderstanding of how to allocate one's assets (here's a hint - if you're retiring in say the next five years you should have - hmmm let me see - 100% of your money in cash) that I'm almost forced to wonder how many of the injustices he regales us with actually happened. If this truly was his experience then yes he truly did receive a raw deal. The only thing is that it isn't even close to the experiences that I or anyone I know have had.

---------------- Look - this

Submitted by Anonymous (not verified) on May 3, 2009 - 10:59pm.

----------------
Look - this article shows such a basic misunderstanding of how to allocate one's assets (here's a hint - if you're retiring in say the next five years you should have - hmmm let me see - 100% of your money in cash) that I'm almost forced to wonder how many of the injustices he regales us with actually happened. If this truly was his experience then yes he truly did receive a raw deal. The only thing is that it isn't even close to the experiences that I or anyone I know have had.
---------------

Hardly: If you're planning to retire in 5 years at age 65 and you intend to live until at least 85-90 year old. Then a substantial portion of your investments should be in the 20-30 year time frame. Cashing out 5 years before retirement would be foolish in the extreme.

...

Submitted by Zoomy (not verified) on May 5, 2009 - 5:27am.

get to the point already. There's no content relavant to the the headline on the first page. I'm just going to guess that eventually the author complains that 401(k)'s fluctuate and go read something else.

401K and Wall Street

Submitted by tradewise (not verified) on May 6, 2009 - 9:51am.

Yes, Wall St. has been a ponzi scheme for as long as it has been in existence.
When the sheep get fat, as we were seeing until recently, you know it's time for shearing. It's just that the scheme can't grow any more and is ready to collapse.
Also, the writer and commenters (whom I found as interesting) didn't mention the nature of our recent economy being one of a cascading series of bubbles. The dot com bubble and bust led to housing bubble and bust, and now Obama and a frantic Fed and Treasury are busy printing money for the next bubble. Guess it's time to buy for the ride up.....

The author does not

Submitted by Anonymous (not verified) on May 7, 2009 - 6:27am.

The author does not understand even the minimum basics about investing. Every time we have a market correction, people like this author want the government to run investment funds. Where do you think the government would invest the money? What is so sad about this author is his failure to understand that risk exists all the time in everything. The minute you get out of bed, you take a risk that you might fall. Should the government have someone there to stop you from falling? At retirement, the author should have taken the time to interview as many qualified advisors as possible and find one that would listen to him. A good advisor would have listened and either bought US Treasury bonds or something even safer. But in his article it does not show that he ever bothered. Instead he was budy concocting another government program. He ABDICATED his responsibility like so many Americans do with everything in their lives. Some how government has to take care of the needs of people like this author. Given that he was fired from so many jobs, this only proves that what's really broken is the education system. Sir, the only place in the world that ever really tried to take care of everyone from cradle to grave was the Soviet Union. It didn't work. Get educated. There are books. You are retired? READ! There are public libraries full of books on the whole topic! Become educated and emancipated from the idea that government (i.e. someone else) must pay for your retirement and lack of education!

Pensions

Submitted by Ouija on May 7, 2009 - 7:35pm.

I think a defined benefit plan is always a better deal. I work for a municipality now and will get a pension when I retire. I also collect a small defined benefit check from the movie studios. I should receive some social security although, due to the windfall elimination provision, it will not be much. I also have a small IRA. Think I would have had to invest a huge sum of money in the market to get what I'll receive in defined benefits. I was never a high income employee.

Missing the point

Submitted by Anonymous (not verified) on May 8, 2009 - 10:45am.

This article drastically exaggerates the fee issues. As someone who works on the compliance side of 401(k)'s, not the investment side, I have yet to see a mutual fund that has fees as high as 3.5%. Managed funds are typically in the 1% and lower range (unless a share class is used that pays higher 12b-1s to the broker, but even then I NEVER see them over 2.0%). And in most 401(k)s, there are alot of services provided for the amount of fees involved. Our politicians rant about fees because then they can say how they are looking out for everyone.

As to Defined Benefit plans (traditional pensions), those are great plans and many are still in existence. But there are 3 problems with them that I can think of right now.

1 The first being the funding requirements that companies have when the market corrects. Many companies right now just cannot afford to fund to make their mandatory contributions right now....especially in this economic environment.
2. The complexity of the regulations governing those plans (way out of control) have driven the administration and compliance costs sky high.
3. And maybe most importantly....a traditional pension works well when someone spends their entire carreer with one company. If you have a decent pension plan and work 30 years or so with that company, you will receive a very nice monthly pension. However, that isn't the reality of today's worker. People tend to switch jobs multiple times throughout their working life (sometimes voluntary, sometimes involuntarily). If you work for 30 years, and work 5 different jobs over that span, even if each company you worked for had a traditional pension plan, you would end up with very, very little. Working for the same employer for 30+ years just doesn't happen much anymore.

Bashing fees, and by association, Wall Street, has become the hip thing to do.

But it is being blown way out of proportion.

The truly pivotal moment in

Submitted by Kent Bester (not verified) on May 29, 2009 - 1:07am.

The truly pivotal moment in the history of paid retirement came in the year before my birth, 1935, which saw the passage of the Social Security Act. It is a perfect topic for writing essays, term papers, research papers, speeches and dissertations. I got some ideas for my academic writing.
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Submitted by sara (not verified) on June 10, 2009 - 2:07am.

Hypothecary programs in the USA provide very flexible conditions of return of extra means when the payments first some years under credits so are small, that practically any family presumes to itself such generic viagra expenses, and only after a while the sizes of payments considerably increase and become for some excessive.

Considering advantages of

Submitted by gossip (not verified) on June 11, 2009 - 10:39am.

Considering advantages of the American model of the hypothecary credit, it is necessary to consider complexity of its application in the Russian market. Creation of Federal national association on hypothecary crediting in the USA has helped to meet the hardest financial crisis in the country, to involve necessary means for economy development. But it is necessary to consider that fact, that already in 30th in the USA there was also a system of public (public) registration of the certificates connected with the immovable property, and institute of estimation of cost of the real estate, and insurance system as objects of the real estate, and the transactions connected with it, and the market of the real estate. Insufficient development of these elements in Russia interferes with formation of system of the hypothecary credit. Unlike the USA in Russia not so much stimulation of development of the mortgage, how many creation of its infrastructure is necessary.
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The myth of the wonderful world of yesteryear pensions..

Submitted by Clif (not verified) on June 17, 2009 - 12:47am.

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.

In research I've done, I believe that 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%.

How convenient that phrase "with employer-sponsored plans" was omitted. 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 offered any retirement plans. Meaning less than 1/3 of Americans had a pension plan.

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. Defined benefit plans are very expensive to set up and run, these costs are paid by consumer in the form of high prices, and to employees with lower wages.

Ironically back in the 1980s when 401K were becoming popular, I was MJ subscriber, I see MJ journalism standard have not improved.

Future of pensions

Submitted by Flooby on June 18, 2009 - 12:35pm.

Its unfortunate thing but the country cant go on supporting an aging population. More people are living longer and have to be supported by the system, so the only alternatives are to raise the pension age, or ensure that sufficient funds are saved over the course of an average workers career to subsidise for the cost of keeping us once we are no longer able to contribute to paying our way. Murano

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Good Article

Submitted by Kayak PFD (not verified) on July 28, 2009 - 5:40pm.

You make some good points. I enjoyed the article.

Yeah, I've never thought of

Submitted by Portland window cleaning (not verified) on August 23, 2009 - 6:50pm.

Yeah, I've never thought of 401k's as secure.

That theory is becoming more true every day.

impartial

Submitted by Golf Reviews (not verified) on September 16, 2009 - 8:55am.

I would agree that the days of retirement in the sense of traveling, spending gobs of money and not having a worry in the world are indeed over. Social Security can not afford to pay all of the people about to go into retirement. My father in law is aware that with all the hits his 401k has taken in the stock market, he will be working at his oil company until he dies. It sucks, but it's a reality.

Maybe we could learn from

Submitted by Jaime Austria (not verified) on October 9, 2009 - 7:04pm.

Maybe we could learn from the Danes?

"Why Danes Are the World's Happiest People"

http://www.spiegel.de/international/business/0,1518,573447,00.html

Enjoy.

Great and you fulfill your

Submitted by Jon Hellmuth (not verified) on October 10, 2009 - 4:01pm.

Great and you fulfill your point here. I agree with a lot of the points that people state here, and I definitely agree with you which is why I enjoy reading a lot of articles written here.
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In research I've done, I

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