Friday, October 31, 2008

No Problem, The Government Is Taking Care of My Retirement

There's a dip in the stock market and you no longer trust those "greedy Wall Street types" whose praises you were singing last year as your 401(k) was flying high? Perhaps you want something guaranteed, like a government pension?

Not so fast.

Many pensions are backed by the Pension Benefit Guarantee Corporation. It insures the pensions of 44 million workers. Just last week it agreed to take up the obligations of bankrupt lumber company Pope & Talbot.

But the PBGC is facing its own problems. The agency last week said it lost $5 billion dollars in stock investments and expects a deficit of $10 to $12 billion this year. It has $68 billion in assets and $83 billion in liabilities.

And there's more.

First, many Americans and politicians have an erroneous view that stocks are for “rich people” and not them. Wall Street remains a mysterious world, operated largely behind closed doors by mad scientist math wizards. The pension problem proves nothing could be farther from the truth. The teachers, cops and other government workers who trust their retirement to companies such as CalPERs may suddenly take a keen interest in equities.

The other reality is that many Americans will have to work longer than planned. Companies and governments may not have the ability to cover costs for people retiring at 62 and living another twenty years. The math of early retirement + living longer / awful stock markets simply will not add up.

And this is in addition to the ponzi scheme of increased entitlement spending.

Will California renege on its promise to me regarding retirement, will it just modify the rules a bit, or will it tap the taxpayers to make up the expected shortfall?


Polski3 said...

Don't worry....California STRS will be there for you (us).....we will just have to teach until age 85 to get full retirement benefits (a new definition of the "rule of 85").

Ellen K said...

I am just as worried about TRS-the Texas Retirement System. After the big crash, we were told that everything is "fine". Fine is a relative term. What I fear is that the dreaded Rule of 80-which means my age and my years teaching must equal 80 in order to get to full retirement-will become the Rule of 85 or even the Rule of 90. Right now, I will be able to retire in ten years-at 62. Hardly an early retirement and not for a princely sum. In that time, since most of my own kids are out of college, I am trying to sock away what I can in IRA's or stocks. But now there's the specter of having my husband's 401K-his only retirement source-gutted to pay for social welfare programs for those who either can't afford retirement, or who just flat spent all their money on themselves. By that light, yuppies who spent their money on travel and houses rather than kids and families, will fare better. Be warned, savings may not be the answer.

mazenko said...

Yet, this simply seems to justify government as the only entity to "bail out" industry/capitalism when it fails to honor its responsibilities to its workers. As Bush noted in his first speech about the bailout, "government is the only entity that has the time and resources to wait this crisis out."

America, and all successful industrialized countries, long ago realized that it is not in the interest of society to have a destitute elderly population. The PBGC was created precisely because industry too often fails to honor its commitments, and to leave people who have worked hard and saved for a lifetime with no retirement is incorrigible.

Social security functions the same way - though I concur it should "supplement" personal savings and investment, not replace it. Yet, if we had no social security, and our entire retired population had just seen their savings and income cut by half, we would be in a truly catastrophic situation.

Darren said...

My retirement doesn't come from capitalism/industry. It comes from government.

Also, anyone near retirement age who keeps much of their money in stocks isn't playing smart. The closer your retirement gets, the less your portfolio should be in "risky" investments. CDs, money market accounts, etc, at that late date.

Ellen K said...

Social Security was never set up to be a retirement income. It was meant to supplement pensions. Short of education, I don't know many workers outside of union workers who can expect a pension.

allen (in Michigan) said...

If those industries were owned by "the people" there wouldn't be any problem in getting them to honor their responsibilities to its workers.

What's that? Been tried? How'd it work out?

Retirment Planning said...

The amount of pension from social security would never be enough to supply someones needs when he retire, savings and investment is very important.