The Nation: How Wall Street Wrecked Your Retirement

[Hissyspit]

http://www.alternet.org/workplace/92658

How Wall Street Wrecked Your Retirement
By Nicholas von Hoffman, The Nation. Posted July 25, 2008.

People are discovering they have been forced into a system in which others have gambled with their retirement savings and lost it.

Our disfunctional financial system hit a new low last week when Citigroup, the hopeless wreck of Wall Street, announced it had lost $2.5 billion in the past three months -- a cheer went up, and so did the Dow. Only $2.5 billion; people were afraid the losses would be much higher. Happy days are here again.

There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market's downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?

Many of the millions suffering through these worrisome months didn't buy a house they could not afford, didn't speculate on their homes, didn't let greedy impulses lead them to the edge of foreclosure or bankruptcy. Nevertheless, the excesses of their neighbors and the criminal folly of American finance is destroying their plans for retirement. It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort.

For years, the privatization propagandists have been telling people that when the time comes, Social Security will not be there for them. Now many are learning that it's their private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it.

The way the private, you're-on-your-own retirement system was supposed to work had individuals, during their younger, working years, investing in stock through tax-sheltered accounts. Almost nobody who is not breaking the law can choose among individual stocks and make money, so future retirees have been encouraged to buy mutual funds run by professional managers, who are supposed to be able to pick the winners.

Most of them aren't much better at doing that than are their customers, but in a rising market, a chicken pecking at stock tables can pick winners. In boom times, it doesn't matter that the future retiree must choose among thousands of mutual funds, many of which carry ruinously high fees. The damage to people's savings goes unnoticed until the market begins to go down.

Even as the market falls, future retirees are told not to panic, to keep their money where it is, because in the long run the value of their accounts will go up and they will have many a happy sunset year traveling the globe and showering their grandchildren with presents.

As the retirement date comes near, they are advised to begin selling stocks and buying fixed-income securities -- as bonds are sometimes called -- because these pay the interest they earn on a fixed schedule, providing a regular income.

For this to work, stock prices must be high when the holdings are sold and the bonds purchased must pay high rates of interest. But what happens when the stock market is in a nosedive and interest rates are half of the inflation rate, as is the case right now? Panic and worry, no golden years of travel, no presents for the grandchildren. The energy that was to be expended on leisure activities is spent instead trying to figure out how to make ends meet.

The bright spot is Social Security. That check does come with the regularity of the calendar, whether the market is up or down, whether interest rates be high or low and if, as is the case now, the Greenspan-Bush inflation is destroying family budgets. Social Security adjusts for the rising prices.

But Social Security is too narrow a ledge to stand on through the years between retirement and death. It was designed as the base on which other retirement savings were to be built.

MORE

[liberal N proud]

1. Luckily the republicons didn't get Social Security shoveled in this system

Otherwise that wouldn't be there.

Makes one wonder if this collapse wasn't planned all along by the bu$h regime. They just failed to get it ALL.

[elehhhhna]

7. I think the markets have been unnaturally high on the anticipation of SS # flooding the system

[DrDan]

2. this is particularly depressing as millions of baby-boomers

begin to think of retirement.

Health care sucks.
The economy sucks.
Jobs are non-existent.

And one party can be blamed for this.

The Republicans have sabotaged a national health care plan. They have taken the dollar to new lows. They have driven the nat'l debt to new highs. They have driven jobs off-shore.

Thank God they were told to keep their hands off Social Security.

But - pensioners are left with crumbs. The big pieces are in the hands of the repig contributors.

May they all rot in hell.

[Greyhound]

20. Oh please, our "Representatives" in DC, from both parties, have put us in this position by

helping the looting of our national wealth.

We must be and remain aware that the forces of larceny are not concerned about which team is in power at any given time, only that the party is compliant with their ongoing theft. Just look at the "leadership" of either party, crooks and liars, almost without exception, and watch what is done to fight and discredit the few good ones that sneak in (I.e. Dean gets far more shit from the DLC/Bluedog/'moderates', than he ever gets from the republiks.

[DrDan]

25. I will stand by my post

[fasttense]

3. Just think how absolutely desperate those elderly Baby Boomers

would have been if the Republicons had gotten their way and privatized Social Security.

Isn't it still something Grandpa McInsane and ENRON Phil want to do? You can bet that if the privatization of Social Security had passed, there would not have been any gradual removal of the original plan like the deathly slow increases of the barely minimum wage. No, it would have been privatized overnight and millions of elderly Americans would have been on the brink of starvation.

I bet the Republicons are pining away for that image of masses of America's elderly poor dying on the streets. They almost got their way.

[liberal N proud]

5. As long as there is Social Security, Republicons will be trying to get it

It pisses them off that they have not been able to destroy it since the day it was created.

[Dr.Phool]

11. Keep an eye on your Blue Dogs, DLC, and "New Democrats".

They, including the likes of Steny Hoyer, have been whispering a lot lately, about "reforming Social Security after the election.

It's bad enough that we have to watch repukes like a hawk, 24/7. We've got a few double agents in our midst.

[Virginia Dare]

8. Socialism is going to look REAL good to a lot of people..

within the next ten years.

[PA Democrat]

9. Yes, McCain STILL thinks privatizing SS is a good idea.

It should be something that the Obama campaign slams McCain on in TV commercials, in the debates, etc. I think if Americans knew the truth about McCain's slimy economic policies, McCain's numbers would be down in Bush approval territory. We certainly can't depend on the corporate whore media to inform voters.

[geckosfeet]

4. Precisely. They saw all that money in retirement plans, 401ks, IRA,s and

pension funds and could not resist. Couldn't wait till people had to spend it. Had to pilfer it out from under our noses by selling and buying worthless investments, taking their commissions and leaving us holding the bag.

[Greyhound]

21. They need the massive infusion to keep the Ponzi scheme going for

another generation.

Suppress wages.

Loot the pensions.

Push people into a 401(k).

Loot the stock market.

Loot the housing market.

What's left?

[screembloodymurder]

6. Yesterday on CNBC, Barney Frank explained how we have to

bail out a few bankers to keep everyone else from experiencing pain. Okay, here's what I want in return. I want the motherf*ckers in jail. I want all their assets seized. I want the politicians that allowed this to happen out of office w/o a pension. I want the regulators that failed to do their jobs fired and tried for neglecting their fiduciary responsibility. I want the President impeached and tried for his war crimes. I want everyone who ever supported this asshole off Social Security and on their knees begging for forgiveness. How about it Barney, deal or no deal?

[Dr.Phool]

12. That sounds like a good starting point.

[NashVegas]

10. I Lost My Entire 401(k)

Because my employer wasn't able to recognize a fly-by-night operation when they saw it. When I brought my concern to our comptroller I was told not to worry, they wouldn't steer me wrong. Ha.

[aspergris]

13. ignorance

"There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market's downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?"

amazing. the market goes up AND it goes down. That is the history of the markets for hundreds of years... bubbles, pops, ramps, drops, etc.

Simply stupendous ignorance and no sense of historical perspective. NOBODY should be exposed to stocks if they cannot handle the fact that they go up AND they go down. And you adjust your relative exposure accordingly.

When the tech bubble popped in 2001 - it was the end of the world (it wasn't). Before that, as they were ramping, it was a new paradigm (it wasn't).

In 1987, when the market dropped 20% in ONE DAY, it was the end of the world (it wasn't). When the dutch tulip bulbs were in euphoric bubble state hundreds of years ago - it was a NEW paradigm (it wasn't).

When individual investors were using 5:1 and greater leverage in the mid 1920's to buy stocks, it was the way to go (it wasn't).

When the market crashed in 1929, idiots with too much leverage PAID for it

etc. etc.

If you have a stock portfolio - 401k or otherwise, and you can't take recessions, downdrafts, etc. then either set tight stop losses, hedge with shorts OR DEAL WITH THE FACT THAT THIS IS HOW THE MARKETS WORK.

Anybodu within 10 yrs of retirement, for instance should have at most (imo) 50% stock exposure (long) with the rest in cash, some commodities (gold, oil), etc.

This article is simply amazing in its ignorance, lack of historical perspective and misunderstanding of how capital markets work.

they aren't ATM's. If you want a guarantee, don't invest in the stock market

otoh, if you want to build longterm wealth - do.

Best thing I ever did

[slackmaster]

14. Anyone who is planning to retire in the next 0-5 years and still has assets all tied up in stocks

Made some bad decisions.

[Hidden Stillness]

15. This is Not New

This crisis is not even slightly new; as a matter of fact, PBS had a great documentary on it a couple of years ago, called "Do You Have Enough for Your Retirement?" or something like that, and it got almost no response on DU. It was about corporations killing real pensions, replacing them with 401k's, making employees "learn about the stock market and make wise investments"--a total disaster for those who don't even like these issues and did not want to have to do this--and a study at the time that proved that, no matter how you calculate it, there is not enough money in a 401k to meet ordinary expenses during retirement. The program focused on many people who realized that they will never retire, and will actually have to work until their deaths, because there is not enough money. The inadequate-funds of 401k "plans" was just proved again, from a study that was featured several days ago on "Washington Journal." Also, most women, being forced their whole lives into the worst, lowest jobs, never have pensions or actual benefits really, of any kind. Social Security will be their/our only income source at retirement, no matter what any corporate-media "economic expert" claims. This is going to be a separate economic collapse all its own, along with credit cards, mortgage/home loans, outsourcing of jobs, etc., etc.

As always, Social Security is the only one that is guaranteed; the only safe one.

[Firespirit]

16. What in the hell is "retirement"?

I'm generation Y. We won't get a damn thing, including Social Security, by the time we are of "retirement age," because we absolutely cannot even break even in this economy, let alone put aside savings. Our "extra" money, if we make enough, goes to pay off student loans that are close to mortgages in the amount. Because of the housing bust, good luck to anyone in their 20s who wants to buy a house -- not gonna happen unless it's a trust fund kid. IRAs and stock options? It is to laugh.

[slackmaster]

17. I was unable to buy a house until I was almost 37

...Our "extra" money, if we make enough, goes to pay off student loans that are close to mortgages in the amount....

That is one difference between your generation and we Boomers. I hope someone figures out how to fix health care by the time you approach the "gap" age. That is my biggest concern for financial planning. (I am 50 BTW.)

Be patient on housing. The market will come around again to a point where normal people can buy homes.

[Firespirit]

18. The problem with housing

Rental housing has gotten as bad as mortgages. At the beginning of the year, my monthly rent on a 3-room apartment (NOT 3-bedroom) in a middle-class part of town was higher than my folks' monthly payment for a 3000-sq ft house, a ridiculous injustice that was lost on none of us. Paying that kind of money and building up no equity whatsoever will kill the "American Dream" for us. There are lower rents, certainly, but not in areas where you can actually get a job.

[slackmaster]

23. You are on the uphill side of a hump most people deal with in their lives

Unless you can find a property being rented out by someone who bought it when prices and mortgage payments were low, rents are going to naturally track mortgage payments because most properties being rented out are mortgaged (at rates higher than people get for owner-occupied homes).

At the beginning of the year, my monthly rent on a 3-room apartment (NOT 3-bedroom) in a middle-class part of town was higher than my folks' monthly payment for a 3000-sq ft house...

It may be unfair, but frankly that is usually the way things work until you manage to get into the world of home ownership yourself. I pay about $1,250 per month on my 1,500-square foot house including P&I, taxes, and insurance. You would be lucky to find a decent 1-bedroom apartment in my area for that. The reason is that I bought in 1994 when prices were much lower. As the market calms down, eventually rents should ease as well.

[shanti]

22. yes

i was 40 myself, before i bought for the first (and probably last) time. i'm 52 now. i realized that it was a possiblity to finally qualify for a loan (as a single person) and just decided that i was going to DO it! i made some mistakes in the process, but still glad i did it.

[mnhtnbb]

19. Hey, buck up all us gray hairs. I'm sure Mal-Wart needs greeters!

[Kolesar]

24. This presumes that workers are incapable of comprehending what they are investing in

It is certainly not as simple as waiting on "the mutual fund company" to tell you when to sell stocks and switch to a bond portfolio.

Let's give Americans some credit for knowing what they are investing in.