I received a comment on my recent post, A
$2.5 Million Rant, from a gentleman named “Anonymous” that I find quite intriguing.
Anon doesn’t seem to realize that, for the most part, he and I are in
agreement, but I’ll argue with him, nonetheless, because, well. . . I just like
to argue.
My friend, Anon, either doesn’t read many of my posts or
he’s missing the points. Maybe he isn’t the only one. Maybe I haven’t explained
them well enough for some, so I’m using this week’s post to clarify. (Anon’s
comments below are in italics.)
I agree with a lot of what
you say, but not necessarily the spin you put on it. Many of the problems you
identify are simple economics. You cannot expect a guaranteed good return in
the stock market.
True,
but you miss my point. My complaint isn’t with stock market risk and return. Without stock market risk there
would be no reward and the stock market rewarded me well over my career.
My
complaint is that our politicians set up a retirement system based on the
belief that individual families could harness that risk to fund their own
retirement. And they created a windfall for the financial services industry.
And now, our political leaders are doing nothing to fix it.
No,
you can’t expect a good, risk-free return in the stock market. You also can’t
expect the stock market to fund retirement for the vast majority of individual
families.
My problem is your
constant tone of outrage.
“Constant” is hyperbole, but someone needs to be outraged at
our retirement system. William
Bernstein is outraged. (“I've flown airplanes, and as a doctor, I've taken
care of kids who can't walk. Investing for retirement is probably harder than
either of those first two activities, yet we expect people to be able to do it
on their own.”)
Helaine Olen
is outraged. (“The truth is this: the concept of a do-it-yourself retirement
was a fraud. It was a fraud because to expect people to save up enough money to
see themselves through a 20- or 30-year retirement was a dubious proposition in
the best of circumstances.”)
Teresa Ghilarducci was outraged, before Congress. (“It is
now more than 30 years since the 401(k)/Individual
Retirement Account model appeared on the scene. This do-it-yourself pension
system has failed. It has failed because it expects individuals without
investment expertise to reap the same results as professional investors and
money managers. What results would you expect if you were asked to pull your
own teeth or do your own electrical wiring?”)
John
Bogel is outraged. (“Where are we in terms of our retirement health? We’re
facing a train wreck.” and “We have a 401(k)
system that is profoundly flawed even as it has moved to the position of
pre-eminence in our retirement system. There are elements of the 401(k) system that are just unacceptable if
you’re trying to build a system that accumulates for retirement.”)
If you’re not outraged, you don’t understand the situation.
You were duped.
(Besides, it’s my
blog. I can be outraged if I choose.)
At whom, exactly,
should these folks be "outraged"? At "the retirement
system" or the government for not forcing them to save perhaps 25-30% of
their income throughout their working lives?
They should be outraged at political leaders who sold them a
bill of goods back around 1980. In the words of Helaine Olen, you might be
tempted to ask, “what went wrong,” but a better question might be “why did we
ever expect this to work at all?”
And they should be outraged that most American workers will
drop out of the middle class after they retire and today’s political leaders
are doing nothing about it.
[Should they be outraged] at the economy for
not guaranteeing future returns?
Now you’re just being silly.
Look, we can certainly
improve the "system"; fine.
Ya’ think? It is failing about 95% of American workers so,
yeah, maybe a little room for improvement there.
But to accumulate a
lot of money for retirement now that quite a few people live into their 90s
requires real sacrifices and not many people are signing up for that. Look at
all the complaints about increasing taxes this year and realize that it will
take MUCH more than that to fund retirement. Try telling folks you're going to
require them to save at least another 20% of their income.
My point, exactly.
Our current retirement system requires a level of savings
(sometimes 20%
isn’t enough, Anon) that is ludicrous for the American middle class.
Then it requires investment skills that even few professionals have. And on top
of that, it requires that you be born in a fortunate year. (I’m still working
on that one. A tardis, maybe?)
Do-it-yourself retirement funding doesn’t work for the vast
majority. I don’t have the answer, but my gut tells me it must involve risk
pooling to protect against longevity risk.
So, here’s what you missed, Anon. Our current retirement
system doesn’t work. It doesn’t come close. This blog is an effort to help the
95% or more of Americans who haven’t saved enough for retirement. As I have
posted often, there isn’t a tremendous amount I can do to solve a problem that
began over 30 years ago, but I may be able to help you make the most of a bad
situation.
Unfortunately for my generation (Boomers) and the next, it’s
too late. But you can begin to be outraged enough to demand that someone fix it
for your grandchildren.
We need a little
realism here.
True that.
