Retiring Your Retirement Plan?
Retiring Your Retirement Plan?
How healthy is your retirement
account these days? According to stories from the Wall Street Journal, Forbes, and
the financial sections of the major news outlets, ever-increasing numbers of people
are finding that the investments made in their 401k and private retirement accounts
are dwindling. As if the very high levels of inflation due to energy cost increases
was not doing enough on its own to devalue the worth of accounts, there is a very
strange propensity for the funds associated with retirement accounts to seemingly
always take a hit whenever the markets rise and fall. For a lot of people, if it
were not for matching funds contributed by employers, they would be seeing net negative
Over the last many years of participating in company 401k plans,
I have seen even the "safe" investment part of the portfolio barely make any advance.
With inflation factored in, the value is actually less than when my money from a
former employer was rolled into the new one. From what I am hearing, my experience
is not unique.
This is by no means a recent phenomenon. Back in the middle
to late 1990s, while working for a very large aerospace/electronics defense contractor,
my 401k actually lost money over a period of about three years. Remember that was
an era when the dot-com companies were going platinum overnight and everybody was
making money hand-over-fist. Well, except for the retirement plan participants,
that is. Again, I was not alone. Only by virtue of the matching company contributions
did many of us make any profit. If you did not examine your statements carefully,
the fact would be easy to miss.
During that same period, were we being warned
of the possible negative effects of stagflation or even negative inflation. Your
money would be worth more tomorrow than it is today. Everything was smoking along
so well that we were actually told that the longstanding business cycle was dead.
I have to admit that I never did quite "get" that argument. It did not matter after
all, because the tech stock market and a good portion of those who were invested
in it came tumbling down beginning in the spring of 2000. My neighbor at the time,
a real estate agent, had purchased a whole lot of AOL stock for his retirement portfolio
earlier in the year, and bragged of how much money he was making on that one stock
alone. About June, his demeanor changed noticeably - probably had something to do
with the tanking of AOL stock.
For the rest of 2000 and into 2001, we were
served story after story of people coming out of early retirement to return to work.
Concurrently, the $10 per hour burger flipper jobs that employers could not fill
were being taken with people glad to get $7 per hour pay. I think I have told the
story of the owner of the music store where Melanie buys her violin supplies, where
the proprietor claims to have lost more than $100,000 (yep, that's five zeros) on
RFMD stock alone, and had been on the verge of retirement until the bubble burst.
The euphoria was relatively short-lived, but at least people had learned a good
Even so, the pundits kept selling the same bill of goods about
how over the long term, the stock market always makes money. They brought out charts
of the DOW with arrows pointing to gains made over 30-years periods and labels showing
why now is the time to buy, buy, buy. What they fail to point out, of course, is
that the theory holds true mainly if you were able to invest a huge lump of money
at the beginning of the 30-year period. That, of course, is the period when most
people are earning the least they ever will earn and subsequently have the least
available for investment. In later years, when there will be less time remaining
to realize any gains, the implications of short-term market fluctuations can - and
have been - deadly.
Largely at the encouragement of, and through the manipulation
of the government, the majority of people have been convinced (or coerced) to be
spenders and/or investors in the markets rather than savers - that is if they have
the ability and are inclined to make monetary investments in the future. That makes
nearly everyone a "global player" because their fortunes are tied directly to the
performance of stock values in the marketplace. I am old enough to remember a time
when most of the people I worked with never even mentioned the stock market, and
certainly did not worry about whether it was going up or down. The overall savings
rate for Americans in 2006 was -1%, which means people are spending more than they
make. Still, anyone caught up in the savings & loan debacle in the 1980s is
aware of how even savings are not a guarantee of financial security. At least with
that, depositors eventually got their money back - often on the backs of taxpayer-funded
bailouts. There is nobody or no institution to bail out the people who have and/or
are losing wealth in stock market based retirement programs.
It seems, however,
that many of the corporations are being quietly aided in back-handed ways by the
world banks. Look at the current situation with the sub-prime, and marginal qualification
mortgage lenders and related activities. Shareholders are losing their shirts, while
methods are being put in place to provide relief to the institutions themselves
(and of course their heads). Who knows where that money is coming from? A lot is
funneled via creative accounting from the Federal Reserve and many never-to-be-discovered
sources. With the initial crisis last fall, we heard news of the high-risk lending
policies being halted, and the companies being blamed for predatory practices (sure
would not want to blame the dunderheaded borrowers), and we just assumed that would
spell the end of it. Ha! Just three weeks ago we sold our house to an unmarried
couple who were able to borrow not only the full purchase price of the house, but
additional money to cover closing costs and even have a couple thou in their pockets
after settlement. The lender's name: Bank of America - sound familiar? I guarantee
there were plenty of people with retirement portfolios filled with BoA stocks.
Am I alone in suspecting that there is some intentional manipulation of retirement
investment funds? How can it be that so many retirement funds are performing so
dismally, while there are obviously many investors actually making good money? Do
the investment companies assign retirement accounts to their lowest-performing employees
as the last act before putting them out on the street? Can it really be as simple
as professional incompetence, or is something more devious at work here? I suspect
that somewhere along the way, retirement accounts have become the dumping ground
for the poor investing of fund management businesses. They know that most participants
are now watching closely, either out of ignorance or empathy. After all, by now
nobody really expects much from the markets, right? Even if people do catch on,
what can they really do about it? There has to be a lot of financial institution
boardroom backslapping going on around the world.
How about you? Is your retirement plan suffering?