Retirement Blues, or The Dumbest Retirement Policy in the World

Another great link caught by Mike the Mad Biologist on 29 Sep, here.  He points us to a must-read article in Salon, here, that I mentioned a couple days ago.

You need to read the whole thing, but here's a big excerpt:

The Dumbest Retirement Policy in the World 

It was a bad idea from the get-go, but new research shows that America’s 401(k) revolution has left us even worse off than we thought. Here’s a look at how we got into this mess, and where it will take us if we don’t wise up.

Thirty years ago, as laissez-faire fanaticism took hold of America, misguided policy-makers decided that do-it-yourself retirement plans, otherwise known as 401(k)s, would magically secure our financial future in the face of gyrating markets, economic crises, unpredictable life events, stagnant wages and rampant job insecurity. It was an extraordinary shift in thinking about public policy: Instead of having predictable streams of income from traditional pensions, ordinary people with little financial expertise would suddenly transform themselves into financial gurus, putting money aside and managing complicated investments in tax-deferred accounts.

There were red flags along the way. 401(k)s were originally supposed to supplement pensions, but clever corporate cost-cutters decided that voluntary individual accounts would replace them. Big difference! Meanwhile, throughout the 1990s, the national savings rate fell. Real wages dropped. As Helaine Olen details in her book Pound Foolish, Americans started borrowing against retirement plans to pay the mortgage or send the kids to college. The media was basically out to lunch, and politicians went on claiming the nonsense that individual retirement accounts would encourage savings and turn us all into professional money managers. The stock market would bring us double-digit returns. Whoopie!

Reality check: In 2007, the financial crisis destroyed America’s retirement fantasy. Jobs evaporated or were downsized. The stock market took a nosedive. Millions of Americans who had worked hard, straining to sock away a portion of their salary for 401(k)s, watched helplessly as a black cloud formed over their golden years. In October 2008, the Congressional Budget Office revealed that Americans had lost $2 trillion in just 15 months — money that will likely never be recovered. Not long after, President Obama betrayed the public by turning away from the jobs crisis to create a deficit commission whose leaders had the stunning lack of foresight to advise cutting Social Security at a time when the retirement train wreck was quickly picking up steam.

My favorite quote above--in a sad, headshaking way--is this:

It was an extraordinary shift in thinking about public policy: Instead of having predictable streams of income from traditional pensions, ordinary people with little financial expertise would suddenly transform themselves into financial gurus, putting money aside and managing complicated investments in tax-deferred accounts.


So here we are, with millions of people facing an uncertain retirement future, and the Very Serious People in DC want to whack Social Security because "we can't afford it."

There's a special place in hell for these folks, I hope.  I'm fortunate because I am retired Federal worker who has a defined pension (until they mess with it). 

See, in the 1980s (if I recall the date correctly) the Feds brought out a new 401k-based system (called FERS, for Federal Employees Retirement System).  They made it mandatory for new hires and optional for those older employees already in. 

Thankfully, I remained under the "old" Civil Service Retirement System--CSRS for those of you who speak Fed.  What a smart, but lucky, move.  I just figured at the time that if the Feds were pushing the new FERS so hard it must be to their benefit and not mine.

I was correct.