Deferred plans put the risk on the individual. You need to make wise investment decisions and you need to withdraw at retirement in a way that you don't outlive your money.
Company pension plans are like annuities in that the payout is "guaranteed" for life, but with the rise in the number of firms failing or opting out this may not be a terribly good option either.
One can avoid most investment fees if one can direct one's own investments. In addition it is not necessary to invest in common stock, there are other plans available. The real problem is that most people don't set aside enough money during their working years. With the national savings rate being negative this is understandable, but not prudent.
Projections about what the stock market will do over the next few decades are unlikely to be correct. There have been periods where returns have been zero or negative (the 1970's for example), but over the working time span of most investors this tends to wash out. There are even a new class of lifestyle plans available which change the proportions of stock to bonds as one gets closer to retirement.
As for the tax benefits of deferred taxation, this used to be fairly clear, but recent changes have clouded the issue. I suggest a visit to the (non-profit) TIAA-CREF web site, they have lots of useful publications which you can read online. They were organized to provide pensions to teachers, but have recently expanded to allow anyone to participate in some of their offerings. Their fees tend to be lower than the for-profit funds.
I think people need to document this, like you did. Obviously hard to fail a technical interview when you had the answers in advance!
It's pretty obvious they reject Americans out of hand and especially make up excuses to not hire anyone over 40.
My question with such brazen statistics and so many horror stories (do you know anyone who doesn't have at least one?) abounding why is it that other people don't believe this and buy into some public relations rhetoric of a "worker shortage"?
When is Congress going to act in favor of the US middle class, working people instead of corporate lobbyists (if ever?)
I also think a few class action lawsuits need to happen and not settled out of court. That seems to be the only way anything is done...when the settlements are greater than the fictional money (they are not saving money by labor arbitraging technical people!) they believe they are saving.
I agree with you that 401k's are a politically convenient pot of money to be taxed if nothing else if the powers that be decide they overtly want to raid middle class savings.
Re Argentina and Brazil, I know some people worry that we are going to go into some kind of Weimar Germany scenario, but a cautionary note first. As you may know, I have very high regard for Swanson and Figgie's book, "Bankruptcy 1995" (which helped make Clinton President in 1992). They address the hyperinflation of Argentina and Brazil from the early 1980s, that followed the busting of real estate bubbles (uh,oh). One thing I have learned from researching this as much as I am able via the internet is that neither country went directly from low inflation to hyperinflation. In both countries, there were lengthy periods - years - of "high inflation", meaning inflation rates of ~25% - ~200% a year, before events spiraled completely out of control.
So, my concern would be, if I started seeing any double-digit YoY readings in the CPI. At the moment, we're not there.
Vanguard did a study of the ACTUAL returns on investments for individuals. Turns out individual investors are so bad, that during the entire 1982-2000 bull market their average returns were 2.7% annually! People would've done better parking their money in CD's.
I've seen studies where pensions also outperform 401k's by a wide margin. I didn't bother to put that in this diary though. I guess I should have because when I cross-posted this to DKos it went over like a lead balloon.
The overwhelming opinion to this diary was negative, even hostile. It's sort of like when I started posting diaries that gave a negative outlook to the real estate futures back in 2005. The sheeple were fully invested in real estate and they didn't want to hear that they may have made a mistake. Same goes for 401k's.
My real fear of 401k's I didn't bother to put in this diary because it sounds a little paranoid - it's the Argentina scenario.
Argentina in 2001, like America today, had a huge current account deficit, overvalued currency, and no industrial base.
When they defaulted on their debts they lost access to borrowing money, so the Argentinian government looked around for any large pool of money they could get their hands on. That money was the retirement savings of the middle class. They seized that money and forced it into government bonds - so it wasn't technically theft.
However, the currency lost 70% of its value in a matter of months. Thus people's life savings were wiped out.
Will this happen in America? Probably not, but I can't say for certain. And since 401k's are so illiquid (do you really want to quit a good job just to get at it and pay a 10% penalty?) that would be the first place I suspect a government would look.
He sure is an exceptional economics blogger, he wrote another one on Sovereign wealth funds that is dynamite. Exposing some real greed motivations behind the scenes on globalization is rare.
I hope others put the site in their blog rolls, link over here, to some of these blog posts so we get more readers. Obviously an economics blog is never going to be on the hit parade but the writings are A+ and deserve more attention.
Each author has their own blog and their own RSS feed (news feed) with it.
To get an individuals' blog feed, click on their blog icon and then type /feed after the user name in the URL in the address bar.
Agree with Bob Oak's comment re privatising Social Security. And of course, the same baby boomer selling pressure will pressure the financial markets at large, not just via their 4-1k withdrawals.
Also, Vanguard did a study of the ACTUAL returns on investments for individuals. Turns out individual investors are so bad, that during the entire 1982-2000 bull market their average returns were 2.7% annually! People would've done better parking their money in CD's. Here's the link"
The returns incurred by the average equity fund investor since 1984 have averaged just 2.7% per year, a shocking shortfall to the 9.3% return earned by the average fund. The result is that the average fund investor has earned less than one-quarter of the stock market’s 12.2% annual return. Compounding these annual returns over the 1984-2002 period presents a dramatic picture of the plight of the typical mutual-fund investor: As the chart nearby shows, $1,000 invested at the outset would have produced a profit of $7,910 in the stock market itself, a profit of $4,420 for the average equity fund, and a profit of just $660 for the average equity-fund investor.
P.S. Midtowng, I think you publish under a different handle over at dK. Glad you've decided to crosspost here. Welcome aboard!
I'd say unions are probably the #1 thing that has increases wages for all, worker rights for all, jobs. Their strength was from 1934 to the 1970's when active attempts to union bust at every level have gone on.
So, don't throw the baby out with the bath water on this one.
You know the SEIU split from the AFL-CIO and this might be one of the reasons. Now in the SEIU case I am seeing more and more dissent like the above and certainly their pushing comprehensive immigration reform bills, loaded, positively loaded with every guest worker Visas imaginable, across the occupational spectrum would have decimated working America if passed.
Just so you know the AFL-CIO opposed those bills.
(yes they are both for "amnesty" but it's becoming more evident to me at least the AFL-CIO is paying attention to their members, wages, job security with regard to this policy area).
Many unions are only concerned with increasing their membership and collecting dues. Unions have, unfortunately become BIG BUSINESS. In a time of labor arbitrage, we, the working class need greater support that only can be obtained by uniting with other working class individuals. Unions will sacrifice their long standing members for the opportunity to add new members to their membership. Locals receive little to no support from the national, leaving them helpless to serve their members. The hierarchic structure of unions is exactly like the big business structure. From bottom to top (Member - Local - District - National) is similar to Corporate structure (Employee - Supervisor - Manager - District Manager - Regional VP - Executive - President). This padded middle insulates the Top from connecting to the Bottom.
I posted it in the forum and I agree and yeah, let's make it the front page. All of that very hard work, trying to elect representatives actually interested in representing the American people and this is what we get and such an obvious royal screw job.
And everyone wonders why the Obama-Clinton split is in essence, 50-50. Well trying to yank out an epsilon of policy that just might be in the national interest, working America's interest when it's like looking for a needle in a haystack is a very tough call!
I feel your pain I try to keep emotionalism off of here normally but in this case I just wanted to scream.
Thanks for the reply, Weaver. I understand what you're saying about labor costs being retarded in developing countries. There is some element of truth to what you're saying.
However, when we examine our trade data closely, we find that, of the top twenty per capita trade deficits in manufactured goods, only two of the top ten deficits are with nations with per capita purchasing power parity less than $20,000 per person. Only seven of the top twenty deficits have purchasing power parity less than $20,000. In other words, our worst per capita deficits tend to be with rather wealthy nations - Ireland, Japan, Taiwan, Switzerland, Malaysia, Germany, Austria, Denmark, Mexico, Korea and Italy. (Yes, Mexico's per capita purchasing power parity is $23,600.)
However, like I said in the original post, 18 of the top 20 deficits are with nations much more densely populated than our own. Clearly, population density plays a much more dominant role in driving our trade deficit. While labor cost can be an initial draw to lure away manufacturing jobs and establish a trade deficit, the deficit doesn't reverse as the workers earn more money. Take Japan for example. Decades ago their workers earned very little. Today, Japan is one of the wealthiest countries on earth, yet we have a per capita trade deficit in manufactured goods with them that is more than four times worse than our deficit with China.
Ricardo's theory may work when applied to nations of roughly equal population density, but it completely breaks down when attempting to trade freely with nations whose markets are stunted by over-population.
It was not a coincedence that the housing bubble burst, when the Comprehensive Immigration Reform effort failed. Investors realized that America would soon run out of sub-prime customers.
When we compete directly with undeveloped countries, salary-requirement comes into play.
Housing, food, fuel etc. make up the salary requirement. When nomadic workers are added to a high-cost economy, this creates a personal asset equity imbalance. The nomadic worker forgoes real property equity in both economies, forcing the domestic worker to compete at the nomadic worker's level, enhancing equity inflation here and retarding equity inflation abroad.
Now that the sub-prime is dead, we are left with hyper-inflated housing costs, and an excessive supply of labor. The end result is wages that do not keep up with housing inflation, and now, a have a lack of qualified home buyers with "traditional" mortgage qualifications.
To compete globally, the administration's plan seems to include allowing housing equity to crash, lessening the American housing costs -- thereby lessening salary requirement at the global level.
The "other" option is drive the USD down to "competitive" levels.
Ricardo's "principle of comparative advantage" still works. What we see happening here is an absolute-advantage, the comparative-advantages are not being discovered.
The "free movement of human capital" defeats the need to provide investment capital in the emerging nations. (AKA a second shift/cheaper labor is being added to existing factories.)
Inflation in emerging nations is retarded and the absolute-advantage persists.
Deferred plans put the risk on the individual. You need to make wise investment decisions and you need to withdraw at retirement in a way that you don't outlive your money.
Company pension plans are like annuities in that the payout is "guaranteed" for life, but with the rise in the number of firms failing or opting out this may not be a terribly good option either.
One can avoid most investment fees if one can direct one's own investments. In addition it is not necessary to invest in common stock, there are other plans available. The real problem is that most people don't set aside enough money during their working years. With the national savings rate being negative this is understandable, but not prudent.
Projections about what the stock market will do over the next few decades are unlikely to be correct. There have been periods where returns have been zero or negative (the 1970's for example), but over the working time span of most investors this tends to wash out. There are even a new class of lifestyle plans available which change the proportions of stock to bonds as one gets closer to retirement.
As for the tax benefits of deferred taxation, this used to be fairly clear, but recent changes have clouded the issue. I suggest a visit to the (non-profit) TIAA-CREF web site, they have lots of useful publications which you can read online. They were organized to provide pensions to teachers, but have recently expanded to allow anyone to participate in some of their offerings. Their fees tend to be lower than the for-profit funds.
I think people need to document this, like you did. Obviously hard to fail a technical interview when you had the answers in advance!
It's pretty obvious they reject Americans out of hand and especially make up excuses to not hire anyone over 40.
My question with such brazen statistics and so many horror stories (do you know anyone who doesn't have at least one?) abounding why is it that other people don't believe this and buy into some public relations rhetoric of a "worker shortage"?
When is Congress going to act in favor of the US middle class, working people instead of corporate lobbyists (if ever?)
I also think a few class action lawsuits need to happen and not settled out of court. That seems to be the only way anything is done...when the settlements are greater than the fictional money (they are not saving money by labor arbitraging technical people!) they believe they are saving.
What about those collapses? Seems to me they came on fairly suddenly.
I agree with you that 401k's are a politically convenient pot of money to be taxed if nothing else if the powers that be decide they overtly want to raid middle class savings.
Re Argentina and Brazil, I know some people worry that we are going to go into some kind of Weimar Germany scenario, but a cautionary note first. As you may know, I have very high regard for Swanson and Figgie's book, "Bankruptcy 1995" (which helped make Clinton President in 1992). They address the hyperinflation of Argentina and Brazil from the early 1980s, that followed the busting of real estate bubbles (uh,oh). One thing I have learned from researching this as much as I am able via the internet is that neither country went directly from low inflation to hyperinflation. In both countries, there were lengthy periods - years - of "high inflation", meaning inflation rates of ~25% - ~200% a year, before events spiraled completely out of control.
So, my concern would be, if I started seeing any double-digit YoY readings in the CPI. At the moment, we're not there.
I've seen studies where pensions also outperform 401k's by a wide margin. I didn't bother to put that in this diary though. I guess I should have because when I cross-posted this to DKos it went over like a lead balloon.
The overwhelming opinion to this diary was negative, even hostile. It's sort of like when I started posting diaries that gave a negative outlook to the real estate futures back in 2005. The sheeple were fully invested in real estate and they didn't want to hear that they may have made a mistake. Same goes for 401k's.
My real fear of 401k's I didn't bother to put in this diary because it sounds a little paranoid - it's the Argentina scenario.
Argentina in 2001, like America today, had a huge current account deficit, overvalued currency, and no industrial base.
When they defaulted on their debts they lost access to borrowing money, so the Argentinian government looked around for any large pool of money they could get their hands on. That money was the retirement savings of the middle class. They seized that money and forced it into government bonds - so it wasn't technically theft.
However, the currency lost 70% of its value in a matter of months. Thus people's life savings were wiped out.
Will this happen in America? Probably not, but I can't say for certain. And since 401k's are so illiquid (do you really want to quit a good job just to get at it and pay a 10% penalty?) that would be the first place I suspect a government would look.
He sure is an exceptional economics blogger, he wrote another one on Sovereign wealth funds that is dynamite. Exposing some real greed motivations behind the scenes on globalization is rare.
I hope others put the site in their blog rolls, link over here, to some of these blog posts so we get more readers. Obviously an economics blog is never going to be on the hit parade but the writings are A+ and deserve more attention.
Each author has their own blog and their own RSS feed (news feed) with it.
To get an individuals' blog feed, click on their blog icon and then type /feed after the user name in the URL in the address bar.
Agree with Bob Oak's comment re privatising Social Security. And of course, the same baby boomer selling pressure will pressure the financial markets at large, not just via their 4-1k withdrawals.
Also, Vanguard did a study of the ACTUAL returns on investments for individuals. Turns out individual investors are so bad, that during the entire 1982-2000 bull market their average returns were 2.7% annually! People would've done better parking their money in CD's. Here's the link"
P.S. Midtowng, I think you publish under a different handle over at dK. Glad you've decided to crosspost here. Welcome aboard!
This must be why they are so intent on privatizing social security. They need that money to prop up stock prices.
I haven't read this book but it's not on my read list. I noticed he has a new one (2007) on universal healthcare.
I'd say unions are probably the #1 thing that has increases wages for all, worker rights for all, jobs. Their strength was from 1934 to the 1970's when active attempts to union bust at every level have gone on.
So, don't throw the baby out with the bath water on this one.
You know the SEIU split from the AFL-CIO and this might be one of the reasons. Now in the SEIU case I am seeing more and more dissent like the above and certainly their pushing comprehensive immigration reform bills, loaded, positively loaded with every guest worker Visas imaginable, across the occupational spectrum would have decimated working America if passed.
Just so you know the AFL-CIO opposed those bills.
(yes they are both for "amnesty" but it's becoming more evident to me at least the AFL-CIO is paying attention to their members, wages, job security with regard to this policy area).
Many unions are only concerned with increasing their membership and collecting dues. Unions have, unfortunately become BIG BUSINESS. In a time of labor arbitrage, we, the working class need greater support that only can be obtained by uniting with other working class individuals. Unions will sacrifice their long standing members for the opportunity to add new members to their membership. Locals receive little to no support from the national, leaving them helpless to serve their members. The hierarchic structure of unions is exactly like the big business structure. From bottom to top (Member - Local - District - National) is similar to Corporate structure (Employee - Supervisor - Manager - District Manager - Regional VP - Executive - President). This padded middle insulates the Top from connecting to the Bottom.
Why is it Colbert's comedy makes more economic sense than most news shows? Has a reference to Jim Cramer in this clip.
Basically Paulson in an obscure 218 report is not going to have any more regulation of the financial sector.
I just saw new ads by these same predatory lenders for new "refinancing" and new mortgages that are clearly teaser rates, same damn thing.
I'm also watching some Martin Luther King type news on CNN and how the unemployment rate, wage disparity hasn't changed in 40 years.
they lost their tax base to do anything about it, so they are just sitting there, turning into crack/meth houses, rat infestations and so on.
I would prefer they turn them into public housing for people in need. There are millions of homeless out there.
Why would a city need money to buy foreclosed properties?
In the case of an abandonment or disrepair they bulldoze the improvements and add the cost to the tax levy.
In most States, mortgages are dismissed against homes that are delinquent on property tax payments. This makes me wonder what else is in the Bill.
I posted it in the forum and I agree and yeah, let's make it the front page. All of that very hard work, trying to elect representatives actually interested in representing the American people and this is what we get and such an obvious royal screw job.
And everyone wonders why the Obama-Clinton split is in essence, 50-50. Well trying to yank out an epsilon of policy that just might be in the national interest, working America's interest when it's like looking for a needle in a haystack is a very tough call!
I feel your pain I try to keep emotionalism off of here normally but in this case I just wanted to scream.
Sell out bastards.
you beat me to it. I didn't see your forum post when I made a blog entry this afternoon.
But we have the exact same reaction.
Thanks for the reply, Weaver. I understand what you're saying about labor costs being retarded in developing countries. There is some element of truth to what you're saying.
However, when we examine our trade data closely, we find that, of the top twenty per capita trade deficits in manufactured goods, only two of the top ten deficits are with nations with per capita purchasing power parity less than $20,000 per person. Only seven of the top twenty deficits have purchasing power parity less than $20,000. In other words, our worst per capita deficits tend to be with rather wealthy nations - Ireland, Japan, Taiwan, Switzerland, Malaysia, Germany, Austria, Denmark, Mexico, Korea and Italy. (Yes, Mexico's per capita purchasing power parity is $23,600.)
However, like I said in the original post, 18 of the top 20 deficits are with nations much more densely populated than our own. Clearly, population density plays a much more dominant role in driving our trade deficit. While labor cost can be an initial draw to lure away manufacturing jobs and establish a trade deficit, the deficit doesn't reverse as the workers earn more money. Take Japan for example. Decades ago their workers earned very little. Today, Japan is one of the wealthiest countries on earth, yet we have a per capita trade deficit in manufactured goods with them that is more than four times worse than our deficit with China.
Ricardo's theory may work when applied to nations of roughly equal population density, but it completely breaks down when attempting to trade freely with nations whose markets are stunted by over-population.
Pete Murphy
Author, Five Short Blasts
It was not a coincedence that the housing bubble burst, when the Comprehensive Immigration Reform effort failed. Investors realized that America would soon run out of sub-prime customers.
When we compete directly with undeveloped countries, salary-requirement comes into play.
Housing, food, fuel etc. make up the salary requirement. When nomadic workers are added to a high-cost economy, this creates a personal asset equity imbalance. The nomadic worker forgoes real property equity in both economies, forcing the domestic worker to compete at the nomadic worker's level, enhancing equity inflation here and retarding equity inflation abroad.
Now that the sub-prime is dead, we are left with hyper-inflated housing costs, and an excessive supply of labor. The end result is wages that do not keep up with housing inflation, and now, a have a lack of qualified home buyers with "traditional" mortgage qualifications.
To compete globally, the administration's plan seems to include allowing housing equity to crash, lessening the American housing costs -- thereby lessening salary requirement at the global level.
The "other" option is drive the USD down to "competitive" levels.
Ricardo's "principle of comparative advantage" still works. What we see happening here is an absolute-advantage, the comparative-advantages are not being discovered.
The "free movement of human capital" defeats the need to provide investment capital in the emerging nations. (AKA a second shift/cheaper labor is being added to existing factories.)
Inflation in emerging nations is retarded and the absolute-advantage persists.
A sudden increase in jobless claims to ~400,000 is one of the hallmark signs of the onset of recession.
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