The Death Of Pensions
Today, the world faces many growing disasters, disasters such as the poisoning of the environment, massive global debt, and cyberterrorism. A disaster in the making that few are paying attention to today is the same disaster my poor dad faced in the 1970s: entering his retirement years—without a retirement paycheck. It’s one of the biggest financial crisis hitting my generation, the baby boom generation, is that many public pensions and private pensions are going bust.
This is what happens when people invest in fake assets or trust their retirement savings to fake fund managers who invest in fake assets such as stocks, bonds, mutual funds, ETFs, insurance, and cash.
In the United States, Social Security, and Medicare are on life support, just as millions of Baby Boomers retire and need to rely on these social programs. Here’s a fact you may be familiar with: The number one cause of bankruptcy in America is medical expenses.
In 2030, the year Baby Boomers become “super seniors,” (85+) the global pension systems may collapse—just when Baby Boomers need the money most.
Death of the Stock Market and 401(k)
In 1974, the U.S. Congress passed the Employee Retirement Income Security Act (ERISA), which led to retirement vehicles like the 401(k). This act effectively forced millions of workers who enjoyed employer-provided defined benefit (DB) pension plans to instead rely on defined contribution (DC) pension plans and put all their retirement money in the stock market and mutual funds. Wall Street now has control of the U.S. citizens’ retirement money. The rules of money were completely changed and heavily tilted in favor of the rich and powerful.
One of the intended results of ERISA was to encourage individuals to save for their own retirement. People suddenly became responsible for their own retirement planning, transferring the responsibility from the employer to the employee—without the financial education needed to help the employee plan successfully. Suddenly there were thousands of quickly trained financial planners educating millions of people to “invest for the long term, buy and hold, and diversify.”
What many people don’t understand is that whatever you and your employer put into the plan is no longer guaranteed to exist when you decide to pull it out. This is because plans like the 401(k) and the superannuation are subject to market forces. In other words, one day you could have a million dollars in the account. But, if there were a stock-market crash, which every market occasionally has, your million dollars could be cut in half or even wiped out. With defined-contribution plans, the guarantee of lifelong income is gone.
Are You Ready for Retirement?
While the rules of retirement changed in 1974, most people’s mindset didn’t. They still played by the old rules of money, choosing to save money for retirement, thinking putting a little aside in a 401(k) would be enough.
Unfortunately, they did not understand the powers of inflation, taxes, and debt; and how the market works. Many people have lost a lot of money in their 401(k) plans because they had no control over their money, giving it to financial planners, former teachers, plumbers, waiters, etc. who became salespeople for the financial industry.
Today, the result of this financial ignorance is a devastating realization that retirement is not an option—at least not at the standard of living many expect.
This is a tragedy. As I mentioned earlier, ERISA forced people who had no financial education to become investors. Then con-men and crooks swooped in, taking the form of trusted financial advisors, and sold people on the stock market. The problem is that these financial advisors and planners are not investors either; they are employees of the financial industry. They push their company’s products.
During the booms, many planners pushed people into the stock market, collecting fees and commissions. People poured their money into the market at the peak, turning it over to the “experts”. Then the market crashed. “Invest for the long term, hold steady,” the financial planners said. Finally, in a panic, as the market collapsed, people moved their money into bonds and other “safe” investments.
Then, leery of the stock market, they watched helplessly as the market climbed back up again and bonds paid some of the lowest returns in history. The problem is that people were investing for capital gains, not cash flow. They were hoping to time the market right and cash in on rising prices. That is not investing. It’s trading.
Now, at retirement age, these amateur investors who invested for capital gains, hoping they could time the market with no education, are forced to keep working, having lost all their money.
We have a very real retirement crisis happening right now. If people don’t have enough savings to retire even with a 401(k), Social Security, a pension, and savings, they are more financially unintelligent that I imagined.
The real problem is that people live paycheck to paycheck, buying more liabilities as their earned income goes up. Though they know the old advice of live below their means, people do not follow it. Instead, they have so many liabilities that they cannot retire and are forced to live below their means, making cuts they never hoped to make and selling properties they thought were assets but found out the hard way were liabilities.
As you know, Kim and I don’t believe in living below our means. We think that crushes our spirit. Instead, we buy assets that pay for our liabilities. The difference between Kim and I, and the people struggling at retirement is that those people play by the old rules of money, relying on savings and 401(k)s for retirement. The problem is that people are living longer, healthcare is more expensive, and those savings are not enough—yet, they have no other way to have money come in besides going back to work and making cuts in expenses.
Kim and I, on the other hand, invest in assets that cash flow like real estate, oil wells, business, and more. Each month, cash pours into our accounts from these investments, covering our expenses. We never say, “We can’t afford that.”
We always ask, “How can we afford that?”
We then find an investment that will pay for our standard of living.
The difference is our money works for us, not the other way around.
So, the question today is: Are you ready for retirement?
Now is the time to begin building your financial ark to survive the coming retirement storm.
Editor, Rich Dad Poor Dad Daily