Several weeks ago my cable went out. I've called the local cable monopoly and a tech is scheduled to come in... well sometime. In the meanwhile, I've actually started watching some television which I otherwise would not have taken in, such as this program on retirement put on by PBS. I didn't watch the entire program when it showed on television, but I did catch the program in progress when it talked about the sorry saga of United Airlines ditching its employee pension program when it was in its three years of Chapter 11 bankruptcy. The PBS Frontline program went on to talk about 401k programs where employees ended up with widely different outcomes, showing an engineer who worked for 12 years and ended up with $450,000 and another employee who ended up with only $26,000 after cashing in his 401k.
If you want to blow a lot of time, go ahead and read through the public discussion of the PBS Frontline program - all 8 or so pages of it. The accumulated commentary posted by site visitors covers the entire gamut of public opinion on this subject. Viewers really should read everything people have to say about this matter.
This topic has garnered my attention because VLICA is currently being considered as a takeover target on Wall Street. As such, I have to start thinking about what the near term future might hold. In fact the recent takeover rumors helped yours truly out quite a bit. You see, I took a big position in company stock this past summer, only to see the company stock take a nose dive in the early autumn. I was still about 10 - 12 percent down until this week's events brought VLICA's stock price within range for me to sell at only a small loss. It turned out that the company stock price went up again ever so slightly today, but the deed is done and I am not going to sweat the small stuff. For now, I have my money socked away in some fairly safe investments.
The idea of retirement is a modern phenomenon. First of all, the average life expectancy in the United States in 1900 was 47 years. It should also be mentioned that the U.S. was one of the wealthiest countries in the world on a per capita basis then, just as it is now. The idea that someone would live until age 85 and retire from work for the last 20 - 30+ years of their lives would have been nearly unthinkable just 50+ years ago. So questions naturally begin to arise, such as whether we actually "deserve" to retire from work? If so, then who pays for it? These aren't idle questions. For most of human history, most people worked until the day they simply couldn't work anymore. Indeed this is still the case today for many people in many parts of the world.
I would love to believe that simply asking these questions would result in people coming to the correct answers. Namely that there is nothing in this world that entitles you to retire from working. You have to earn that for yourself if you can. It should naturally follow that since you are going to have to earn your retirement that other people should not be forced into paying for your retirement!
Well, as everyone knows, we Americans (and indeed most other wealthy industrialized societies) have elected via the political process to do just that - foist off retirement, caring for the elderly, etc, on the public as a whole through taxation to pay for programs such as Social Security and Medicare. Disclaimer - I have two parents, aged 74, who have been collecting Social Security for 12+ years now and have probably come out at least a good $40,000 - $50,000 plus on the deal. The bad news is that they will be amongst the last of the people that come out ahead on the program. If you were born after 1945, then the numbers are that you are going to be a loser on American federal entitlements.
The main problem with using taxation to provide for retirement entitlements is that they can be used to bribe voters to give the current electorate lots of handouts at the expense of future voters who have little or no say in the matter today. That and that the tax monies can be diverted for other purposes. Ergo, such programs will end up in the red sooner or later. That will be forthcoming in the following decade across the Western world.
A second method of taking care of older people is through the idea of pensions. Pensions have been around for over 300+ years. The thing about pensions, or at the the defined benefit versions of pensions, is that you often have to work at least 20+ years at an organization before the level of money which you would start to collect upon retirement becomes significant enough to where it would really start to come in handy in making a dent towards providing for a comfortable retirement. Well of course, everyone knows that Mr. Mighty Wizard, so what exactly are you getting at? What I am getting at is that many organizations do not last more than 10 years, much less 20!It is a known fact that probably 50 percent of new business ventures do not make it past 5 years. Indeed the failure rate for businesses climbs into the 70 percent range by the 10th year after the founding of a business.
So where does that leave us in terms as to which organizations would be the ones which would offer pensions? One obvious answer are governments. After all, once governments are founded, they never go away. That goes for government bureaucracies, agencies, and for that matter your local public school district. In the private sphere, your most likely candidates for offering pensions are large bureaucratic titans. Why? Because if you are going to offer your current and future employees a pension, then you'd better damned well be confident that your organization is going to be around 20, 30, or 40 years down the road when it comes time for your employees to retire and collect on what you have promised them. And that can be a problem in the private sector or sphere because in a reasonably free market economy, there are no such guarantees that any company will even survive that long. Indeed as one can see in the United Airlines case, the competitive situation facing an entire industry will change over time. New competitors can enter the game and threaten the very existence of a private firm which has promised its employees a pension scheme to the point where that firm may be faced with having to ditch the pension scheme or fail. The real shame of the UAL case was that management and the lawyers still came out winners in the whole deal, as the legal bill for the UAL bankruptcy ran well into the hundreds of millions of dollars. Meanwhile management at UAL continued to earn bonuses.
What the Frontline program really did bring forth is the idea that we as a society have decided over the past 25+ years to place an enormous amount of the burden for retirement on employees themselves via the offering and expansion of 401k programs. The problem here is, as the Frontline program points out, is that people will effectively differ in their skills, temperments, and desire to put in the necessary time, money, and effort to make such savings programs work well for them.
I myself spent several hours this morning digging out old 401k statements which I have kept over the years. I then wrote down what my 401k plan totals were and started doing the math on how well I have done in managing my investments over time. I will not indulge the public on the exact numbers, but let's just say that you should not be taking financial advice from yours truly. I have statements that go back to 1999 and I believe that I started investing circa the beginning of 1996. I will have made about 6.5% on my investments this year. I made 12.3 percent in 2005, probably my best year. In 5 other years, I managed to get a between 0 - 8% gains, while one year I actually lost 2.3%. That was in 2001 when the general market condidtions were poor in the aftermath of the stock market bubble popping in 2000 - 2002 and September 11, 2001.
Now then, VLICA has recently changed its 401k custodian. For all this time it was Fidelity Investments. I have to admit that I am extremely happy that VLICA has done this. Quite frankly, our investment options with Fidelity sucked. I tried to pay attention to what the markets were doing, diversify, and all the rest of that. But no matter what I tried, it seemed that I just couldn't get anything to come my way. Our new system offers many more options and I feel much more confident that I can do better with what is on offer.
Now none of this is to deflect blame from myself as why my investments haven't done well. Through sheer effort over a long period of time, I have managed to accumulate a fair sum of money, even though most of my investments were made after the go-go 15-20% per year gains of the 1990's. One could even factor in that the markets as a whole were not the greatest places to be in over the past 5-6 years. Still, provided nothing goes wrong (knock on wood), I have a good shot at being one of those people who actually get to have a decent retirement. But it really didn't help having Fidelity as my 401k company. Indeed I have an old IRA from a 401k rollover with a previous employer which has consistently outperformed my Fidelity investments even though I did practically nothing with it. And in order for me make it through to retirement Nirvana, I will still have to keep socking a lot of money away for a long time to come and anything can happen along the way which could derail those plans. I can say that I am also one of those lucky souls who still is covered under a pension, but VLICA could be bought out, fail, or underfund their defined pension scheme. I am not counting on VLICA to be there, nor am I counting on collecting anything from Social Security. I consider Social Security to be an immoral thing anyway.
Enough for now. Happy reading!
TMW
Posted by The Mighty Wizard at November 30, 2006 11:38 PM