During the 1990’s and 2000’s, most companies gave up defined benefit pension plans, shifting to 401K plans where workers who chose to participate in the plan self directed their investments. While most of these plans included some kind of employer match, over the past two years many companies have ended the practice of matching worker contributions. Essentially we’ve gone from a system where a large segment of the private workforce had company pensions to where most workers in private industry are on their own to provide for retirement. At the same time most public sector workers have defined benefit pension plans ultimately guaranteed by the taxpayer.
The retirement investment choices available to those of us in the private sector have risk and most of the investment products are marketed by Wall Street and banks. Over the past three years we’ve seen the financial markets collapse due to greed and corruption, as well as government bailouts of Wall Street. We now know the ratings agencies who supposedly provided assessments of investment risk were in bed with the Wall Street firms issuing the securities they were rating.
While true conservatives support the concept of free markets, millions of our fellow citizens no longer have faith in free market capitalism. They’ve seen greed and corruption on Wall Street and in the banking sector rewarded while they’ve been left holding the bag with collapsing real estate prices, loss of value in the stock market, and huge increases in government debt to bail out Wall Street which will mean higher taxes. People are concerned about survival today and in retirement. They now perceive markets not to be “free” but to be a big Ponzi scheme managed by Wall Street an government to defraud them.
Having now learned to fear the equity market, people are flocking to government bonds. When that market collapses, there will be no “safe” investments for people to preserve their savings. Remember, average citizens putting money in government bonds or bank CD’s are not trying to make a huge gain through speculations, they are trying to preserve principal to support themselves through old age. In other words they are trying to be self reliant, not wards of the state. The coming collapse of government securities will be the last nail in the coffin — they will become economically dependent on their masters in Washington.
Most of my associates in their 50’s are at their wits end as to where to put their savings to protect their principal. They know the equity markets are rigged. They have no faith in the banking system. They fear the collapse of the dollar and US government securities.
I doubt most responsible people expect any investment to be a “sure thing”. They will diversify their investments and stick to conservative investments that are perceived to be low risk. Unfortunately our financial system has become so distorted and corrupted, it is no longer possible for the rational conservative investor to assess risk on almost any investment. The financial system itself no longer enhances economic freedom, it has morphed into a rigged game, managed by the elites for the purpose of siphoning off billions from the public to inordinately benefit a few power institutions allied with the government. It is difficult for anyone who has any awareness of the underlying causes of the recent crisis, as well as the role of our government in protecting the players, to have any faith in free enterprise as practiced in the United States today.
Free markets can work when there is information readily available for the individual to assess risk. It does not appear the individual investor today has access to the information needed to properly assess risk and the individual investor knows she/he will not be bailed out by the government, unlike the financial institutions marketing investment vehicles. It seems the individual citizen and investor in today’s market bears the greatest risk in any transaction.
Normally when I see a long post as you have provided I don’t always read every word. Yours is the exception. I enjoyed every word. Very good post. Thanks.
I don’t know if our plan for retirement has been the smartest, but we made a decision about 6 years ago to become totally debt free. We are there. Took sacrafice.
Once we got rid of all the interest we were paying, our savings rebuilt quickly and now have far surpassed what we had ever had.
We have never invested in the stock market and likely never will. We do not, however, have a plan to protect our savings against inflation - under the mattress does not pay interest but then again neither do the banks.
On the subject of cities and employee pensions, it would not be a problem so long as the cities expense into current year budgets the out-year obligations. I suspect many cities have not done that and instead have treated pension obligations as unfunded liabilities or rely on a state public employee pension system.