BLACKSTONE PRESIDENT: There's a hidden crisis in America that no one is talking about

Business Insider ^ | 07/20/2015 | Bob Bryan

[SeekAndFind]

If you haven't taken it upon yourself to start saving for retirement, you could already be in trouble.

Even worse, you could be part of a national crisis that's brewing under everyone's radars.

In an earnings call Thursday, Blackstone president and COO Tony James articulated the problem and its origins.

"I have the view that the hidden crisis in America that no one is talking about is what's going to happen with all of these 20, 30, 40-year-olds who no longer have corporate pension funds of defined benefit," he said. "So, they have got 401(k)s and they are making little contributions in there, which is earning very, very little."

In the good old days, young Americans went to work for an employer who would promise a comfortable retirement in the form of a pension plan — that is, a defined-benefit plan. Those plans were run by professional investment managers. And if the assets in those plans fell short of what was promised in retirement, the employer would make up for the difference.

But as James points out, it's increasingly become the responsibility of the worker to put money away for retirement in the form of a 401(k) plan or an IRA — that is, a defined-contribution plan. Not only are people expected to put away money, they have to figure out how to generate a reasonable return on their assets.

"When they retire at 65 and they don't have enough to live on and it's an entire generation, maybe two generations of people, we are going to go, 'Oh my God, what happened?'"

[SeekAndFind]

Here's the other crisis:

Municipalities and Cities cannot fulfill their obligations to pay government workers who retire their promised generous pensions and these same people who DON'T work for the government and who have not saved enough have NO MONEY to support these government retirees.

[jimpick]

Not to mention all the debt the government is taking on. Even if they did save for retirement the value is being eaten up or will be eaten up by inflation.

[ozzymandus]

If you’re depending on anybody else to support your retirement, you’re in trouble. Invest in tangible assets and sell them when you need cash.

[Buckeye McFrog]

I am actually giving serious thought to suspending my 401K contributions, because I think the government is getting damned serious about exercising the Theresa Ghilarducci option and seizing it.

[FreedomPoster]

That worries me as well.

If they steal my assets, I will regard all involved in doing so as thieves.

[Farmer Dean]

Socialists/Democrats are thieves,it’s their nature.They cast their evil gaze upon all that money in 401K’s and begin their plotting.

[SgtHooper]

I will treat them as I would Islamic pedophiles.

[VerySadAmerican]

I’ve always wondered what would happen if millions of people have nothing to retire on and the government can’t help them. And it will never go back to the way it was before SS when the next generation would take care of their elders. There are way to many narcissists for that to ever happen.

[camle]

what will happen is that the government will punish those who sacrificed to save, and reward those who never did.

[catnipman]

“I am actually giving serious thought to suspending my 401K contributions, because I think the government is getting damned serious about exercising the Theresa Ghilarducci option and seizing it.”

I’m comfortably retired today because I always contributed the maximum pre-tax money allowed to my 401K plan.

I do think the government could perform such a seizure if they could figure out how to do it without crashing the economy, but they haven’t yet figured out how to do that.

The problem with such a seizure, is that unless it was all secretly pre-planned in massive detail such that on one late Friday afternoon the dictator President announced freezing all IRAs, 401(b)s, 403(b)s and all other plans, then otherwise the normal process of legislative authorization and its lengthy debate would give plenty of time for everyone to sell out of their retirement accounts, biting the bullet of paying the maximum tax rate incurred from emptying the accounts in a single year. Such a scenario in which everyone attempted to exit at the same time would crash the financial systems and the economy and do it in such a way recovery would be nearly impossible.

Even the above mentioned freeze would itself crash the economy. After all, the government itself couldn’t exactly sell off those trillions overnight in order to convert them to government bonds without crashing the economy either. Heck, they couldn’t even do that over the course of several years. Not to mention the chaos in the markets due to the massive uncertainty such a seizure would cause, meaning the seized assets would become suddenly worthless. And finally, such a seizure would leave millions destitute and lead to massive numbers of lawsuits, adding more chaos and uncertainty.

So the paranoid scenario of sudden retirement account seizure by the government has a probability that approaches zero.

Keep contributing and keep your eyes open and ears to the ground and bail out at if need before any seizure hits the fan.

[originalbuckeye]

I have a question. I agree that past generations have taken the responsibility for their family members who need help. Is a family member, who has worked hard for decades, saved for retirement and, hopefully, will not need to lean on others in retirement, responsible for another family member, who has taken off time, even a year here and there, because this family member didn’t like his bosses? Both had received a small inheritance which this other family member used to pay for one of the years off. I believe responsibility for family should be linked to the behavior of the family members who may have exhibited irresponsibility for their futures. What say you?

[originalbuckeye]

I believe Obama has already decreed that you can only roll over ONE IRA/401K, etc, in any twelve month period. That would preclude the possibility of cashing in all your retirement funds in one year.

[VerySadAmerican]

I agree with you. It’s up to each family member to decide if they want to enable another family member.

I don’t believe it’s a family member’s responsibility to care for ANY family member. It’s up to the individual.

And it never has been a legal responsibility. When I was younger it was “expected” that the elders would be taken care of. It was also “expected” that only those who deserved help would get help.

[i_robot73]

So the retirement savings/investments part worries you/others?

They already steal...property taxes (so it’s NEVER *yours*, even if/when you pay off the mortgage), numerous local ‘fees’ (check your phone/elec bill), City tax (maybe), County tax (maybe), State tax, income tax, FICA tax, unemployment ‘insurance’, medicare tax, interest tax, ‘early withdrawal’ tax, etc. etc.

When do you/rest get more than ‘worried’?

[i_robot73]

At least a corp/biz whom offers pensions are on the hook; along with the shareholders.

Those promised by GOVT include the above AND the taxpayers (though you had NO say in the matter, bargaining or the like)

WORLD of difference. Even if govt unions are ‘lawful’, there’s still the matter of 5th and 13th.

[texas booster]

“So, they have got 401(k)s and they are making little contributions in there, which is earning very, very little.”

My major issue is that the funds included in my ADP account are earning 1% - 2% annually after fees - nuts when the market keeps hitting records. I don't even keep up with inflation.

The fund managers that designed this crop of 401(k)s have hidden fees and charges that absorb most of my potential profit.

For those people that can't set aside the max - $17,500 annually per spouse - there is little chance that those folks will ever retire.

[precisionshootist]

Agree.

I'm also getting sick and tired of hearing how irresponsible the middle class are for not saving enough for retirement when half of their earnings are being taxed away. So the choice is live like a peasant until 65-70 years of age and retire or try to live life on half your actual earnings and be old and broke. That's slavery folks, wake up

[goodnesswins]

YUP...what YOU said....and one of the reasons we may sell one of our assets....don’t want to feed the tax monster.

[Skepolitic]

The outright seizure scenario is indeed very unlikely. However, I would not put it past the Feds to use the magnitude of 401(k) and IRA balances as a means-test on social security and Medicare benefits. Of course, they would probably craft this as as a hidden income tax that would escape notice by most taxpayers. That is, it would probably only affect those with balances in the upper quintile, which is where the money is.

According to the Census Bureau’s Survey of Consumer Finances, average 401(k)/IRA balances four retired households, age 65-84, in 2013 were as follows:

Lowest $206
Second $11,376
Third $17,392
Fourth $69,225
Highest $400,647

As the US fiscal situation worsens, I really don’t think that politicians, academic advisors, and bureaucrats will have much aversion to stealing the accumulated wealth of the top quartile ... in the name of fairness and equality, of course.

[MIchaelTArchangel]

The Blackstone CEO does not go far enough back in history. If he went back to 1915 instead of only going back to 1955, he would realize that people went to work, saved for their wife’s old age, and worked until they died doing whatever it was they did.

Maybe we should turn the clock back 100 years rather than just 60 years.