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401K Investing Webliography

Retirement gamble and its consequences for ordinary folk

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“The bankers and Wall Street traders. Just because you showed ridiculous incompetence in lending doesn’t mean that you, and the hideously exposed like me, don’t deserve a second chance. God bless America! And its hard-working backbone! And there’s still their pensions for next time!”

Joke attributed to George W Bush

This is ad-hoc bibliography collected mainly from mainstream (you can call it "yellow", if you wish ;-) financial press. All recommendations expressed on this page should treated very critically. Please read section about retirement scams first !!! This is real danger for those close to retirement and all people already in retirement. Sometimes scamsters represent "reputable" Wall Street companies; sometimes they are seniors themselves and can even live in the same community and/or attend the same church.  See this short clip which provides a 6 minutes course on what is really 401K is about:

Representatives of "reputable" Wall Street firms often are peddling some disastrous new financial instrument, the instruments that brings high fees to the institution. If the investment it too good to be true is usually is. Stories of retirees who lost one million of more due to financial scams promoted by slick financial advisers recently became popular topic in major newspapers so the size of the phenomenon is probably substantial.

Published cases suggest that abuse of elderly by financial crooks is more like a rule then exception. After all financial companies badly want fees and want to sell high fee product oblivious to the personal circumstances and consequences of their actions on your financial wellbeing.

In any case please understand that we cannot be all robbers, there should be some victims too. But the natural balance between robbers and victims was distorted after Reagan due to reregulation and later rolling back the Great Deal. Robber barons returned and they returned in quantity that will amaze future historians. For all practical purposes 401K is taxable account, the only difference is that it is taxed by Wall Street, not by the government. At some point the share of financial firms profits in S&P500 above 40%: we talk about crisis of overpopulation among robbers ;-)

Robert Shiller in the past made several pretty accurate forecasts of major economic events and it might make sense to read his columns.


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Old News ;-)

. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

-- Henry Ford

[Feb 15, 2019] CAPE Fear The Bulls Are Wrong. Shiller's Measure Is the Real Deal

Notable quotes:
"... The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand. ..."
"... is 36.1% higher ..."
"... Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. ..."
"... Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum. ..."
"... t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share ..."
"... The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases. ..."
"... The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. ..."
"... In an investing world dominated by hype, the CAPE is a rare truth-teller ..."
Feb 15, 2019 | finance.yahoo.com

For the past half-decade, a controversial yardstick called the CAPE has been flashing red, warning that stock prices are extremely rich, and vulnerable to a sharp correction. And over the same period, the Wall Street bulls and a number of academics led by Jeremy Siegel of the Wharton School, have been claiming that CAPE is a kind of fun house mirror that makes reasonable valuations appear grotesquely stretched.

CAPE, an acronym "Cyclically-adjusted price-to-earnings ratio," was developed by economist Robert Shiller of Yale to correct for a flaw in judging where stock prices stand on the continuum from dirt cheap to highly expensive based on the current P/E ratio. The problem: Reported earnings careen from lofty peaks to deep troughs, so that when they're in a funk, multiples jump so high that shares appear overpriced when they're really reasonable, and when profits explode, they can skew the P/E by creating the false signal that they're a great buy.

The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand.

The CAPE's critics argue that its adjusted PE is highly inflated, because the past decade includes a portion of the financial crisis that decimated earnings. That period was so unusual, their thinking goes, that it makes the ten-year average denominator much too low, producing what looks like a dangerous number when valuations are actually reasonable by historical norms. They point to the traditional P/E based on 12-month trailing, GAAP profits. By that yardstick today's multiple is 19.7, a touch above the 20-year average of 19, though exceeding the century-long norm of around 16.

I've run some numbers, and my analysis indicates that the CAPE doesn't suffer from those alleged shortcoming, and presents a much truer picture than today's seemingly reassuring P/E. Here's why. Contrary to its opponents' assertions, the CAPE's earnings number is not artificially depressed. I calculated ten year average of real profits for six decade-long periods starting in February of 1959 and ending today, (the last one running from 2/2009 to 2/2019). On average, the adjusted earnings number rose 22% from one period to the next. The biggest leap came from 1999 to 2009, when the 10-year average of real earnings advanced 42%.

So did profits since then languish to the point where the current CAPE figure is unrealistically big? Not at all. The Shiller profit number of $91 per share is 36.1% higher than the reading for the 1999 to 2009 period, when it had surged a record 40%-plus over the preceding decade. If anything, today's denominator looks high, meaning the CAPE of almost 30 is at least reasonable, and if anything overstates what today's investors will reap from each dollar they've invested in stocks.

Indeed, in the latest ten-year span, adjusted profits have waxed at a 3.2% annual pace, slightly below the 3.6% from 1999 to 2009, but far above the average of 1.6% from 1959 to 1999.

Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. Over our entire 60 year period, GDP rose at 3.3% annually, and profits trailed by 1.3 points, advancing at just 2%. So the rationale that P/Es are modest is based on the assumption that today's earnings aren't unusually high at all, and should continue growing from here, on a trajectory that outstrips national income.

It won't happen. It's true that total corporate profits follow GDP over the long term, though they fluctuate above and below that benchmark along the way. Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum.

Now, rates are rising and so it pay and employment, forces that will crimp profits. I t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share grow a lot slower, as I've shown, lagging by 1.3 points over the past six decades.

An influential study from 2003 by Rob Arnott, founder of Research Affiliates, and co-author William J. Bernstein, found that EPS typically trails overall profit and economic growth by even more, an estimated 2 points a year.

The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases.

The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. The retreat appears to have already started. The Wall Street "consensus" Wall Street earnings forecast compiled by FactSet calls for an EPS decline of 1.7% for the first quarter of 2017, and zero inflation-adjusted gains for the first nine months of the year.

In an investing world dominated by hype, the CAPE is a rare truth-teller .

[Feb 14, 2019] Pension vs. 401(k) Comparing Retirement Plans

Feb 14, 2019 | finance.yahoo.com

2 hours ago The biggest difference is that employers on average contribute 1/3 to your 401K that they contributed on your behalf for your pension.

[Feb 02, 2019] As goes January, so goes the year Old Wall Street indicator puts odds of 2019 gain at more than 80% by Patti Domm

This is a classic, textbook example of financial astrology... You probably should read it in full to appreciate the depth of junk science here. But this is financial casino my friends, and they try to entice you with naked girls and drinks...
Feb 01, 2019 | finance.yahoo.com

Stocks had their best January gains in more than 30 years, and that should mean 2019 will be a pretty good year for the market.

That's what the widely watched January barometer tells you - as goes January, so goes the year. According to Stock Trader's Almanac, going back to 1950, that metric of January's performance predicting the year has worked 87 percent of the time with only nine major errors, through 2017. In the years January was positive, going back to 1945, the market ended higher 83 percent of the time, according to CFRA.

But the indicator also signaled a positive year last year, and the market suffered an unusual late-year sell-off, wiping out all of the gains. The S&P 500 ended 2018 down 6.6 percent, despite rising 5.6 percent in January. But the S&P also defied history with a terrible December decline of 9.6 percent , the biggest loss for the final month of the year since 1931.

This January, the S&P 500 was up 7.9 percent. The best January performance since 1987, when it rose 13.2 percent. It was its best overall month since October 2015.

Some market pros worry the sharp snapback in stocks since the late December low means January could be stealing the gains from the rest of the year. Some also believe there could be another test at lower levels in the not too distant future. Yet, Wall Street forecasters have a median target of 2,950 for the S&P 500 at year end, a big leap from the current 2,704.

"I'm still struck between the contrast of a year ago and now," said James Paulsen, chief investment strategist at Leuthhold Group. "We came in last year with nothing but optimism. At this point last year, we had synchronized global growth, confidence had spiked to record post-war highs, and everyone knew we had this steroid-induced earnings boost coming. The thought was how could stocks lose, and of course they did."

The market has sprung back from December's low, with the S&P gaining 15 percent since Dec. 26.

"This year, we came in with nothing but bad news - the economy was slowing down. ... The rest of the world is slowing. We have trade wars. We have the shutdown, and analysts are revising earnings lower," Paulsen added. "We're worried about a recession and a bear market. It's strikingly different, and yet it's kind of like how can stocks win, but they are and I think they will."

Strategists also point to the differences in the way the market traded in each January. This January has been full of volatile swings, with ultimately larger gains than losses. Last year, the market was at the end of a long smooth glide path higher.

Last year didn't work

Stocks did well through most of January 2018, but by the end of the month, a correction started. "On January 30, in 2018, it was the first 1 percent decline in 112 days. That was basically the start of the fall off the cliff. In terms of percent gains, this January is similar to last, but in terms of where we've come from, it's very different. That was one of the calmest advances in history," said Frank Cappelleri, executive director at Instinet.

Cappelleri said it's important to put this year's market move in context, when considering the January barometer. "You have one of the biggest snapbacks after a very bad December, so the odds were in the market's favor to do better than that. I think maybe you have to look where we are now. You're up 15, 20 percent from the low depending on where you look. Are we going to go up that much more for the rest of the year?" he said.

Paulsen sees the gains continuing, after a possible pause. "I think it's going to continue to be a fairly good year, and I think we probably go up and get close to the highs or 3,000 on the S&P, and I'm not expecting hardly anything on the economy, and earnings are going to be weak, if not flat or maybe down," Paulsen said.

He said the slowing economy and a potential U.S.-China trade deal could push the dollar down and that would be a positive for stocks. At the same time, the Fed has paused in interest rate hikes and may even stop its balance sheet unwind.

Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, said there's another set of statistics that are in the market's favor for a positive 2019, though they also failed last year. He said for the years when the S&P 500 was positive in the first five days of the year, plus gained during the Santa rally period, and was up for the month of January, the S&P 500 had a positive year 27 out of 30 times. It also had an average gain of 17.1 percent in those years, since 1950.

Nick 29 minutes ago

Job growth is solid. Unemployment remains near all time lows even while labor force participation increases. Wage growth outpaced inflation last year. The economy is humming right along...its just the liberal media wants to bombard us with articles claiming the Trump recession is imminent.

I'm surprised they actually published an article sayings its going to be a good year.

[Feb 02, 2019] Wall Street s 2019 S P 500 forecasts

Parade of eminent astrologists ;-) Those financial prostitutes of casino capitlism, aka financial analysts most often are wrong year after year, but still have a solid coverage by the neoliberal media due to the shire wieght of the companies they represent. This bets are not connected with some kind of possible financial loss so they just talking up this firms portfolio, which of course is heavily tilted in favor of stocks. God even Vanguard retirement 2015 fund has 40% in stock, while formula 100-age would give you less then 35%. If this is bullish bias I do not know what is. Of course, they play with "other people money" and commissions are everything...
Notable quotes:
"... Their guesses about a great market in 2018 was kind of a miss. But they only had like 340 days so far. They still have 25 days left to turn in around. ..."
"... These guys are seldom right. I've been tracking these predictions more closely since 2014, usually 12-15 of the large financial institutions. Last year's average consensus was the SP at 2874. We closed Tuesday (Dec 4) at 2700. ..."
"... The average of the figures cited in the article is 3068. I think that is wishful thinking considering the slow downs in many sectors, slowing GDP and a flattening yield curve. ..."
"... With regard to upside potential, these all sound wildly optimistic to me. Ten years of printing money out of thin air and exploding deficits does not a future robust economy make, IMO. ..."
"... They cannot say 2500 cause people will not invest (and no commissions); they have to say equal or higher than today. To me it is screaming between the lines the index will hit 2500. ..."
"... So all of them predict the S&P will be higher then it is today even though many are saying we are already in a Bear Market...these people only make money if the market goes up so don't trust them! ..."
Feb 02, 2019 | finance.yahoo.com

[Jan 29, 2019] The 5 Best Stock Funds for Retirement Savers in 2019

The first question to ask is: do those suckers need stocks at all?
That's all nice. But what if we are facing 2008 style event in a year or two?
The question here is why you need to risk retirement money in the casino? And stock market including all stock funds is a casino. No questions about it.
Why if you are really close to, say, 65 it is necessary to take additional risk.
If you have enough money this is stupid (pure greed is often punishable, at least accounting to teaching of Prophets). You probably can benefit from reading Other People's Money: The Real Business of Finance by John Kay first. Before jumping into this water.
If you don't -- you need to be twice more careful -- please remember that such people most often are victims of grave own errors, and/or fraud. So the cure might be worse then the disease. May be relocation to cheaper state and cutting some expenses (one car instead of two, one bedroom instead of two bedroom, etc) is a safer solution then gambling.
In any case, if you keep money in the stock fund despite your age (I think around 17% of old Americans have all their retirement savings in stock funds, or individual stocks ;-) and another financial bubble burst again (and this is a guaranteed event under neoliberalism) recovery might take much longer then you expect, and you might need to take losses to make ends meet.
So the really important question here is not what funds you need to select from a thousand of names (there are more mutual funds then stocks, I think). That's just another variety of gambling.
They real question is whether you need to play this game or not.
What if the current decline is not just a blip is a warning that more substantial trouble lies ahead?
Neoliberal with its hypertrophied and parasitic finance industry tend to produce Minsky moments (called bubble burst for non-specialists) with surprising regularity: savings and loan crisis (1986-1995), dot-com bubble (2000-2002), Great recession (2008-?), so there is no guarantee that we will not have yet another similar event in the next couple of years.
Target date funds might be a safer bet if you are old and still really want to play in a casino in hope to compensate inadequate size on your retirement portfolio. For example, its Vanguard Target Retirement 2015 Fund (VTXVX) contains 40% stocks. While classic 100-your age allocation formula for 65-year person imply 35% stocks allocation. So you see that even Vanguard is a little bit too aggressive here.
Also if you bought S&P500 at its 2000 peak (around 1500) your return for 18 years would still be 2.5% (4.5% with dividend reinvested). So if you are much younger then 65 it is important to compare long-term record with S&P500 and age and track record of the manager (change of the manager in an actively managed fund often badly affects that fund performance).
Jan 05, 2019 | www.kiplinger.com
Start with low costs. Cheaper funds actually tend to beat their competitors even before expenses. SEE ALSO: The 27 Best Mutual Funds in 401(k) Retirement Plans Buy funds the managers own. If the manager(s) of a fund won't invest in the fund themselves, why should you? Look in the prospectus for managers who put at least $1 million in their fund, as the managers of the five recommended funds in this article have done.

Chose funds that have a good corporate culture. Does the fund firm consider you a customer to be fleeced or a partner in investing? Figuring this out is difficult, but low costs and manager investment are two indicators. My favorite big firms are Vanguard , American Funds and T. Rowe Price .

Consider long-term, risk-adjusted returns. You can do this by looking at Morningstar's star ratings, Sharpe ratios, alphas or Sortino ratios. All of these provide measures of risk-adjusted returns. They're all slightly different, but higher is always better.

Reduce your risk. I think the market will remain highly volatile in 2019. Standard deviation, a measure of volatility, is an excellent predictor of how a fund will behave in unstable markets. The higher a fund's standard deviation, the more volatile it has been. It's my favorite risk metric. Downside capture, which measures how a fund has done in bad markets, is also worth a close look.

Following are my picks for 2019 among actively managed stock funds. It's no accident that they're all either value funds or foreign funds. My strong hunch is that a bear market next year will lead to a change in leadership among stock sectors, as is often the case during and after a selloff. Look for growth stocks' decade-long dominance over value stocks to end, and value stocks to outperform . Likewise, I think foreign stocks will finally begin to outperform domestic stocks.

[Jan 29, 2019] A Retiree s Guide to Key Dates in 2019

You do not have to take RMDs from Roth IRAs
Jan 05, 2019 | www.kiplinger.com
April 1 If you turned 70½ in 2018, April 1 is the deadline to take your first required minimum distribution from your IRA or 401(k). First-timers get this one-time extension on their RMD (subsequent RMDs must be taken by December 31). To figure a first RMD due on April 1, 2019, divide the account's 2017 year-end balance by a life expectancy factor based on your birthday in 2018. Find the factor in IRS Publication 590-B. If you turn 70½ in 2019, you might consider taking your first RMD this year, says Bradford. By delaying the first RMD to the following year, you have to take both your first and second RMDs in the same year.

Keep in mind that while Roth IRAs don't have RMDs for the original owner, Roth 401(k)s do have RMDs. But if you are working past age 70½, you can skip the RMD from your current employer's 401(k) if you don't own 5% or more of the company. You'll still need to take RMDs from your IRAs and any 401(k)s you hold from prior employers, though. ... ... ... April 1 If you turned 70½ in 2018, April 1 is the deadline to take your first required minimum distribution from your IRA or 401(k).

First-timers get this one-time extension on their RMD (subsequent RMDs must be taken by December 31). To figure a first RMD due on April 1, 2019, divide the account's 2017 year-end balance by a life expectancy factor based on your birthday in 2018. Find the factor in IRS Publication 590-B. If you turn 70½ in 2019, you might consider taking your first RMD this year, says Bradford. By delaying the first RMD to the following year, you have to take both your first and second RMDs in the same year.

Keep in mind that while Roth IRAs don't have RMDs for the original owner, Roth 401(k)s do have RMDs.

But if you are working past age 70½, you can skip the RMD from your current employer's 401(k) if you don't own 5% or more of the company. You'll still need to take RMDs from your IRAs and any 401(k)s you hold from prior employers, though.

You must make your RMD by December 31, and it's best not to wait until the last minute. It can take a little while for your IRA or 401(k) administrator to process the request. Plus, you need to leave enough time for any trades to settle so there's enough cash for the withdrawal -- especially around the holidays, when the markets are closed or close early. "We suggest moving forward in the beginning to mid December," says Keith Bernhardt, vice president of retirement income at Fidelity .

Find out how the administrator determines which investments to sell. Some IRA or 401(k) administrators automatically take the RMD money pro rata from each of your investments unless you specify otherwise, and they could end up selling stocks or funds at a loss to make your payment. You could elect a fixed percentage from a few investments or have 100% taken from cash.

If you choose the cash option, the IRA administrator may need to send you an alert beforehand in case you need to sell shares first

[Jan 24, 2019] Your retirement questions answered Social Security, buying service credits and Medicare

Jan 24, 2019 | finance.yahoo.com

Q: I am 62. Last year, I got a Social Security calculation showing that when I am 66-plus-years-old, I will receive $400-plus in Social Security benefits per month. Because of my health, I started to work only three days a week. Will this reduce the amount of my benefits? If l decide to quit my job, but not apply for my Social Security benefits until I'm 66-plus, will it reduce my monthly Social Security benefits?

A: Social Security calculates your monthly benefit by taking your highest 35 years of earnings and your age, says Rick Fingerman, a managing partner with Financial Planning Solutions. "So, if you stop working before your full retirement age or FRA, as you suggest, you could see a lower benefit if you do not have 35 years of higher earnings already."

The same answer applies if you quit your job altogether at 62 and wait until 66 to collect, he says.

One option, says Fingerman, could be if you were going to wait until your FRA and you have a spouse that is already collecting on their own benefit. "You might receive a higher monthly benefit on their record as you would get 50% of what they are receiving, which could be more than the $400 a month under your own benefit," he says.

[Jan 24, 2019] Claiming Social Security Early vs. Delaying Pros and Cons

Jan 24, 2019 | finance.yahoo.com

Of course, nobody can predict exactly how long they'll live -- the average man and woman turning 65 today can expect to live until age 84 and 86, respectively, according to the Social Security Administration. However, if you're facing health issues and don't expect to live that long, it may be wiser to claim as early as possible rather than waiting until you have only a few years left to enjoy your benefits.

... ... ...

Your full retirement age (FRA) is the age at which you'll receive 100% of the benefits to which you're entitled. So if your FRA is 67, and you wait until then to claim, you'd receive $1,300 per month. If you claim at 62, your benefits will be cut by 30% -- leaving you with just $910 per month.

... ... ...

If you wait until your FRA to claim, you'll receive 100% of your entitled benefits. But if you wait beyond that age, you'll receive a bonus on top of your full amount to make up for all the months you weren't receiving benefits at all. If your FRA is, say, 67 and you wait to claim benefits until 70, you'll receive a 24% bonus over your full amount. So if you would have received $1,300 per month by claiming at 67, you'd receive $1,612 by waiting until 70. (Keep in mind, too, that this bonus maxes out at age 70, so there's no additional benefit to waiting to claim until after that age.)

This can be a lifesaver for those who are seriously behind on saving for retirement . If you're going to rely on Social Security to make ends meet, it's in your best interest to maximize those benefits.

The amount you receive in benefits will be locked in once you claim. If you delay and receive that boost, you'll continue receiving that boost for the rest of your life. Likewise, if you claim early and your benefits are reduced, you'll receive those smaller checks for life. So delaying can play out in your favor if you spend several decades in retirement -- the longer you live, the more you will receive over your lifetime.

While delaying claiming benefits by a few years will result in bigger checks, you may not actually receive more over a lifetime than you would if you had claimed earlier. Although you're receiving more each month, that's just to make up for the years you weren't receiving any benefits at all. If you don't reach your "break even age" -- or the age at which you've received more over a lifetime by waiting to claim than you would have received by claiming early -- it may not be worth it to wait.

For example, say your FRA is 67. If you claim early at 62, you'd receive $910 per month (or $10,920 per year), and if you delay until 70, you'd receive $1,612 per month ($19,344 per year). Here's how much you'd have received in total benefits at different ages:

Age at Death Total Lifetime Benefits When Claiming at 62 Total Lifetime Benefits When Claiming at 70
70 $87,360 N/A
75 $141,960 $96,720
80 $196,560 $193,440
85 $251,160 $290,160

Source: Author's calculations

So in this scenario, you'll have to live past age 80 in order to "break even" and earn more in lifetime benefits by delaying rather than claiming early. That can be a good thing if you expect to live a long time, but if you don't expect to live past 80, it may be more advantageous to claim earlier rather than later.

[Jan 21, 2019] Should Retirees Worry About Bear Markets

Notable quotes:
"... Currently, the S&P 500 (as of 1/18/19) is trading at 2,670 with Q4-2018 trailing reported earnings estimated to be $139.50. ( S&P Data ) This puts the 10-year average trailing P/E ratio of the S&P at a rather lofty 28.86x. ..."
Jan 21, 2019 | www.zerohedge.com

Should Retirees Worry About Bear Markets?

by Tyler Durden Mon, 01/21/2019 - 12:55 31 SHARES Authored by Lance Roberts via RealInvestmentAdvice.com,

Mark Hulbert recently wrote a piece suggesting "Retirees Should Not Fear A Bear Market." To Wit:

"Don't give up hope.

I'm referring to what many retirees are most afraid of: Running out of money before they die. An Allianz Life survey found that far more retirees are afraid of outliving their money than they are of dying -- 61% to 39%. This ever-present background fear is especially rearing its ugly head right now, given the bear market that too many came out of nowhere.

Retirement planning projections made at the end of the third quarter, right as the stock market was registering its all-time highs, now need to be revised.

The reason not to give up hope is that the stock market typically recovers from bear markets in a far shorter period of time than most doom and gloomers think. Consider what I found when measuring how long it took, after each of the 36 bear markets since 1900 on the bear market calendar maintained by Ned Davis Research Believe it or not, the average recovery time was 'just' 3.2 years."

Mark correctly used total return numbers in his calculations, however, while his data is correct the conclusion is not.

Here is why.

While Mark is discussing the recovery of bear markets (getting back to even) it is based on a "buy and hold" investing approach.

However, Mark's error is that he is specifically discussing "retirees" which are systematically withdrawing capital from their portfolios, paying tax on those withdrawals (from retirement accounts) and compensating for adjustments to the cost of living (not to mention spiraling "health care" costs.)

These are the same problems which plague most of the "off the shelf" financial plans today:

  1. Faulty assumptions based on average historic rates of returns rather than variable rates of return, and;
  2. Not accounting for the current level of market valuations at the outset of the planning process.

To explain the problems with both Mark's assumptions, and the vast majority of financial plans spit out of computer programs today, let's turn to some previous comments from Michael Kitces.

"Given the impact of inflation, it's problematic to start digging into retirement principal immediately at the start of retirement, given that inflation-adjusted spending needs could quadruple by the end of retirement (at a 5% inflation rate). Accordingly, the reality is that to sustain a multi-decade retirement with rising spending needs due to inflation, it's necessary to spend less than the growth/income in the early years, just to build enough of a cushion to handle the necessary higher withdrawals later!

For instance, imagine a retiree who has a $1,000,000 balanced portfolio, and wants to plan for a 30-year retirement, where inflation averages 3% and the balanced portfolio averages 8% in the long run. To make the money last for the entire time horizon, the retiree would start out by spending $61,000 initially, and then adjust each subsequent year for inflation, spending down the retirement account balance by the end of the 30th year."

Michael's assumptions on expanding inflationary pressures later in retirement is correct, however, they don't take into account the issue of taxation. So, let's adjust Kitces' chart and include not only the impact of inflation-adjusted returns but also taxation. The chart below adjusts the 8% return structure for inflation at 3% and also adjusts the withdrawal rate up for taxation at 25%. By adjusting the annualized rate of return for the impact of inflation and taxes, the life expectancy of a portfolio grows considerably shorter. While inflation and taxes are indeed important to consider, those are not the biggest threat to retiree's portfolios.

There is a massive difference between 8% "average" rates of return and 8% "actual" returns.

The Impact Of Variability

Currently, the S&P 500 (as of 1/18/19) is trading at 2,670 with Q4-2018 trailing reported earnings estimated to be $139.50. ( S&P Data ) This puts the 10-year average trailing P/E ratio of the S&P at a rather lofty 28.86x.

We also know that forward returns from varying valuation levels are significantly varied depending on when you start your investing. As shown in the chart below, from current valuation levels, forward returns from the market have been much closer to 2% rather than 8%.

As evidenced by the graph, as valuations rise future rates of annualized returns fall. This should not be a surprise as simple logic states that if you overpay today for an asset, future returns must, and will, be lower.

Math also proves the same. Capital gains from markets are primarily a function of market capitalization, nominal economic growth plus the dividend yield. Using the Dr. John Hussman's formula we can mathematically calculate returns over the next 10-year period as follows:

(1+nominal GDP growth)*(normal market cap to GDP ratio / actual market cap to GDP ratio)^(1/10)-1

Therefore, IF we assume that

We would get forward returns of:

(1.04)*(.8/1.25)^(1/30)-1+.02 = 4.5%

But there's a "whole lotta ifs" in that assumption.

More importantly, if we assume that inflation remains stagnant at 2%, as the Fed hopes, this would mean a real rate of return of just 2.5%.

This is far less than the 8-10% rates of return currently promised by the Wall Street community. It is also why starting valuations are critical for individuals to understand when planning for the accumulation phase of the investment life-cycle.

Let's take this a step further. For the purpose of this article, we went back through history and pulled the 4-periods where trailing 10-year average valuations (Shiller's CAPE) were either above 20x earnings or below 10x earnings. We then ran a $1000 investment going forward for 30-years on a total-return, inflation-adjusted, basis.

At 10x earnings, the worst performing period started in 1918 and only saw $1000 grow to a bit more than $6000. The best performing period was actually not the screaming bull market that started in 1980 because the last 10-years of that particular cycle caught the "dot.com" crash. It was the post-WWII bull market that ran from 1942 through 1972 that was the winner. Of course, the crash of 1974, just two years later, extracted a good bit of those returns.

Conversely, at 20x earnings, the best performing period started in 1900 which caught the rise of the market to its peak in 1929. Unfortunately, the next 4-years wiped out roughly 85% of those gains . However, outside of that one period, all of the other periods fared worse than investing at lower valuations. (Note: 1993 is still currently running as its 30-year period will end in 2023.)

The point to be made here is simple and was precisely summed up by Warren Buffett:

"Price is what you pay. Value is what you get."

This idea becomes much clearer by showing the value of $1000 invested in the markets at both valuations BELOW 10x trailing earnings and ABOVE 20x. I have averaged each of the 4-periods above into a single total return, inflation-adjusted, index, Clearly, investing at 10x earnings yields substantially better results.

Not surprisingly, the starting level of valuations has the greatest impact on your future results.

But, most importantly, starting valuations are critical to withdrawal rates

When we adjust the spend down structure for elevated starting valuation levels, and include inflation and taxation, a much different, and far less favorable, financial outcome emerges – the retiree runs out of money not in year 30, but in year 18.

As John Coumarionos previously wrote:

"And, if you're retired and withdrawing from your portfolio, the 'sequence-of-return' risk – the problem of the early years of withdrawals coinciding with a declining portfolio – can upend your entire retirement. That's because a portfolio in distribution that experiences severe declines at the beginning of the distribution phase, cannot recover when the stock market finally rebounds. Because of the distributions, there is less money in the portfolio to benefit from stock gains when they eventually materialize again.

I showed that risk in a previous article where I created the following chart representing three hypothetical portfolios using the '4% rule' (withdrawing 4% of the portfolio the first year of retirement and increasing that withdrawal dollar value by 4% every year thereafter). I cherry-picked the initial year of retirement, of course (2000), so that my graphic represents a kind of worst case, or at least a very bad case, scenario. But investors close to retirement should keep that in mind because current stock prices are historically high and bond yields are historically low. That means the prospects for big investment returns over the next decade are dim and that increasing stock exposure could be detrimental to retirement plans once again. In my example, decreasing stock exposure benefits the portfolio in distribution phase, and that could be the case for retirees now."

As John correctly notes, there is a case for owning stocks in a retirement portfolio, just maybe not as much as your "run of the mill" financial plan suggests. To wit:

"Returns from cash and bonds may not keep up with inflation, after all. But stock returns might fall short too. And if stocks do lag, they probably won't do so with the limited volatility that bonds tend to deliver, barring a serious bout of inflation. So, if you're within a decade of retirement, it may be time to think hard about how much stock exposure is enough. The answer might be less than you think for a portfolio in distribution phase."

Questions Retirees Need To Ask About Plans

Importantly, what this analysis reveals, is that "retirees" SHOULD be worried about bear markets. Taking the correct view of your portfolio, and the risk being undertaken, is critical when entering the retirement and distribution phase of the portfolio life cycle.

More importantly, when building and/or reviewing your financial plan – these are the questions you must ask and have concrete answers for:

If the answer is "no" to the majority of these questions then feel free to contact one of the CFP's in our office who take all of these issues into account.

With debt levels rising globally, economic growth on the long-end of the cycle, interest rates rising, valuations high, and a potential risk of a recession, the uncertainty of retirement plans has risen markedly. This lends itself to the problem of individuals having to spend a bulk of their "retirement" continuing to work.

Two previous bear markets have devastated the retirement plans of millions of individuals in the economy today which partly explains why a large number of jobs in the monthly BLS employment report go to individuals over the age of 55.

So, not only should retirees worry about bear markets, they should worry about them a lot.


WileyCoyote , 10 minutes ago link

The insidious and hidden tax - inflation. Retirement is mostly fantasy - it is always being one step away from poverty. Even after decades of sacrifice and saving.

buzzsaw99 , 32 minutes ago link

the nikkei topped out in 1989 and still hasn't recovered nearly 30 years later. most old farts, including family members, aren't balanced, they are almost totally in stocks because they believe that the fed guarantees the s&p only goes up. if someday it doesn't, too bad for them.

boo frikkedy hoo. [/dr. evil]

brushhog , 35 minutes ago link

The only way to retire [ unless you are very wealthy ] from the system is to adopt a self-reliant lifestyle where your cost of living is way down. A single adult, in fair condition, living a self reliant lifestyle can live comfortably on 15k per year. Thats assuming no debt. To do that privately, you'll need about 400-600k, the right piece of land [ paid for ], and a whole mess of specific skills.

You wont be laying on your ***. This isnt your father's retirement of leisure. This is a shifting of focus away from contribution / compensation through the system and towards independence and literal "Self" reliance.

Big Fat Bastard , 5 minutes ago link

What is the$600k for?

All Risk No Reward , 37 minutes ago link

Be afraid. Be very afraid.

ZD1 , 38 minutes ago link

Retirees should just avoid the rigged markets.

zob2020 , 1 hour ago link

bull, bear who gives a ****? Only an idiot eats up the seed capital in pensions. All that does is set down a death date you better follow thru with- With a bullet if neccesary.

Big Fat Bastard , 1 hour ago link

Answer: NO

Why: Because most retirees are dead broke swimming in a sea of mortgage debt on a depreciating asset called a house.

saldulilem , 1 hour ago link

Did they pick only companies that existed and survived the 30-year duration, in which case they may not be representative of the market? Or did they use index, in which case there is no complementary aggregate P/E ratio to account for dividends - or did they ignore dividends altogether?

This exercise doesn't seem to arrive anywhere.

Blankfuck , 1 hour ago link

Huh? Just print more ponzi! I didnt get mine the last few recessions!

RICKYBIRD , 1 hour ago link

Very easy to calculate amortization of a retirement boodle. Just go online to a mortgage amortization calculator. 1) Put in the initial amount of the retirement stake (= the amount of a mortgage to be paid off, e.g. $1 million) 2) Punch in the projected interest rate (= the interest on the mortgage). This will be the amount the retirement boodle pays in interest/dividends over time as it's being drawn upon 3) Punch in the number of years the retirement principle will have to pay out (= the number of years the mortgage is for). Crunch these with the calculator provided and you'll get the amount the account will pay out each month (= monthly payment of a mortgage with interest). Simple and free. The only uncertain thing is the interest/dividend rate of the account. But one can be conservative (Say 2-3%) and still get a very accurate monthly payout figure.

dead hobo , 1 hour ago link

Also, nothing personal, but why should I take investment advice from someone who is still working or paid to give it? I could never figure that one out.

If I were an investment genius, I would be rich, retired long before reaching age 65, and avoiding people who need investment advice.

admin user , 1 hour ago link

Does a wild bear market **** in the portfolio?

Fahq Yuhaad , 1 hour ago link

Lolz... No, the pope does.

GotAFriendInBen , 1 hour ago link

No Lance, they need not worry

Bear markets don't exist anymore

Hero Zedge , 22 minutes ago link

They exist, according to MarketWatch, they are just over before anyone knows we are in one (yes, they said that).

Batman11 , 1 hour ago link

How much have they skimmed out of my pension with HFT?

When Wall Street has finished there will be **** all left.

Get used to it.

ZENDOG , 1 hour ago link

Is Ruthy Bader dead yet????

dead hobo , 1 hour ago link

Who knows? She's going to make Trump pull a nomination for a new justice from her cold dead, possibly long refrigerated, hands.

dead hobo , 2 hours ago link

Retirees shouldn't worry about bear markets because retirees should never be in the equity market in the first place. Especially during the times of rate normalization, where sell-siders view every utterance by the Fed as 'dovish', and algos need ultra-volatility to keep in business.

Assume $1 million in savings and Social Security of $25,000/yr based on a life of very decent wages. At 4%, very easy to earn during normalized rates from fixed income, that's $65,000/yr with NO principal reduction. Paltry for NYC or CA, but very decent for a comfortable life almost everywhere else for an old person with no debts.

ZENDOG , 2 hours ago link

""Overall, between bank accounts and retirement savings, the median American household currently holds about $11,700 , according to MagnifyMoney. Almost 30 percent of households have less than $1,000 saved, MagnifyMoney finds, though the amount varies drastically by age.Aug 28, 2018""

itstippy , 53 minutes ago link

The article says, " For instance, imagine a retiree who has a $1,000,000 balanced portfolio, and wants to plan for a 30-year retirement . . . "

It's not aimed at the median American household. The median American household doesn't have a financial advisor, portfolio, or any hope for a retirement that goes beyond a $1,800 a month Social Security check.

dead hobo , 14 minutes ago link

People dig their own holes.

BandGap , 2 hours ago link

I could easily live on 35K right now. Social security? Hahahahahahaha, not in the cards for anyone.

hoffstetter , 45 minutes ago link

Here's why:

https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

http://www.multpl.com/inflation-adjusted-s-p-500/table/by-year

booboo , 2 hours ago link

and to make matters worse it is becoming more and more difficult to find a reasonably priced canned cat food that can substituted as a Decent Liver Pate. We have a high net worth Bridge Owners party next week and the stuff we tried last month pulled the bridges right out of their mouths.

CoCosAB , 2 hours ago link

retirees MUST worry about TERRORIST FINANCIAL MARKETS. But since they are dumb as a PoS they just do nothing.

All Risk No Reward , 28 minutes ago link

You proved his point. You would be very concerned if you knew the true Money Power Monopolist Game of Thrones.

===============

All Risk No Reward , 26 minutes ago link

It won't go to zero.

The debts will persist, only the fiat required to pay the debts will vaporize - at least for Main Street.

The people who believe that FRN's are based solely on faith are complete monetary illiterates.

No, their value is based upon the trillions in physical collateral backing the debt used to create them!

This is so simple, but the programming is too strong for most people, even otherwise smart people, to escape.

costa ludus , 2 hours ago link

"Retirement" is a fairly new fad- prior to the 1950s it was unheard of - expect that fad to end some point soon. The whole concept resembles a Pyramid Scheme- as long as there are enough people at the bottom supporting those at the top everything is OK- the problem occurs when there are not enough at the bottom contributing to support those above them - which we have now.

spastic_colon , 2 hours ago link

the answer is simple; the math of a distribution portfolio is vastly different than that of a portfolio NOT making withdrawals.....depending on the amount being withdrawn the recovery point will take longer if at all.

Sorry_about_Dresden , 2 hours ago link

just keep dry powder ready for when FERAL Reserve jacks discount rate up in the teens, the geezers will make it back fast. I do not doubt I will see rates in CDs at 10%. They have to drain 4.4 trillion of gravy from the system to protect what they stole in 2008 or inflation will get it fast.

All Risk No Reward , 18 minutes ago link

"If you must fight a war, end it quickly, or you will bankrupt the country." ~Sun Tzu, Art of War

The unstated corollary is, "Engineer a never ending war (on terror) if you goal is to bankrupt the country."

What makes you think the GOAL isn't to bankrupt USA, Inc. and then seize the tax payer collateral on the national debt?

You do know your property taxed home is contractually collateral for government debt, right?

You do KNOW that, right?

They aren't dumb, WE ARE GULLIBLE CHUMPS!

Dragon HAwk , 2 hours ago link

Retirement gives you time and a chance to work a few angles that your wisdom from living so long should be pointing out to you.

Die with your boots on and stick it to the man if you can, on the way out.

[Jan 20, 2019] John Bogle's Bombshell Gift to Americans

Jan 20, 2019 | wallstreetonparade.com

John Bogle's Bombshell Gift to Americans

John Bogle, Founder of the Vanguard Group

By Pam Martens: January 17, 2019 ~

The legendary John Bogle passed away yesterday in Bryn Mawr, Pennsylvania. He was 89. Bogle was the founder of Vanguard Group. In announcing his death, Vanguard said that Bogle "introduced the first index mutual fund for investors and, in the face of skeptics, stood behind the concept until it gained widespread acceptance; and he drove down costs across the mutual fund industry by ceaselessly campaigning in the interests of investors."

We'll always remember Bogle for the courage he demonstrated on April 23, 2013 when he appeared on the PBS program Frontline . Bogle dropped the bombshell that Wall Street has attempted to hide for half a century: If you work for 50 years and receive the typical long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, almost two-thirds of your account will go to Wall Street.

Bogle explained the math to Frontline's Martin Smith:

Bogle: What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compounding costs. It's a mathematical fact. There's no getting around it. The fact that we don't look at it -- too bad for us.

Smith : What I have a hard time understanding is that 2 percent fee that I might pay to an actively managed mutual fund is going to really have a great impact on my future retirement savings.

Bogle: Well, you have to rely on somebody to get out a compound interest table and look at the impact over an investment lifetime. Do you really want to invest in a system where you put up 100 percent of the capital, you the mutual fund shareholder, you take 100 percent of the risk and you get 30 percent of the return?

You can check the math yourself. Access a compounding calculator on line. Input an account with a $100,000 balance and compound it at 7 percent for 50 years. That gives you a balance of $3,278,041.36. Now change the calculation to a 5 percent return (reduced by the 2 percent annual fee) for the same $100,000 over the same 50 years. That delivers a return of $1,211,938.32. That's a difference of $2,066,103.04 – the same 63 percent reduction in value that Smith's example showed.

If you don't know the amount of fees that you're paying on the mutual funds in your 401(k) plan, 403(b) plan, IRA or other retirement vehicle, you may be putting your ability to retire with adequate income and dignity at risk.

[Jan 12, 2019] Little or Nothing Saved For Retirement You Are Not Alone - TheStreet

Jan 12, 2019 | www.thestreet.com

Roughly a third of Baby Boomers have saved less than $25,000 while just over a fifth of all American have no savings at all, according to a study by Northwestern Mutual.

[Jan 05, 2019] S P 500 Return Calculator, with Dividend Reinvestment DQYDJ

Jan 05, 2019 | dqydj.com

Total S&P 500 Return
Annualized S&P 500 Return
Total S&P 500 Return (Dividends Reinvested)
Annualized S&P 500 Return (Dividends Reinvested)
Inflation Adjusted (CPI)?

[Jan 04, 2019] The best indicator of whether someone will be amenable to being defrauded has to do with financial insecurity

Jan 04, 2019 | www.nakedcapitalism.com

theories and games , January 4, 2019 at 2:58 pm

Sad story of people chasing some version of an American Dream: How to Lose Tens of Thousands of Dollars on Amazon [Atlantic] , with an insightful observation:

"'The best indicator of whether someone will be amenable to being defrauded has to do with financial insecurity,' [said] David Vladeck, the former director of the Federal Trade Commission's Bureau of Consumer Protection."

So I wonder what the trend is on being scammed. Perhaps fairly level at the moment.

[Dec 29, 2018] U.S. retirees try to keep cool as stocks tumble by Tim McLaughlin

Overinvestment in stocks of retires is very common under neoliberalism.
There are several factors here: one is greed cultivated by neoliberal MSM, the second is insufficient retirement funds (gambling with retirement savings) and the last and not least is lack of mathematical skills an inability to use Excel for viewing their portfolio and making informed decisions.
Notable quotes:
"... At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their 401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee Benefit Research Institute in Washington. ..."
"... 19 percent had more than 80 percent of their 401(k) invested in stocks in 2016 ..."
"... "We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today, employment is way up. The housing market is steady and corporations are flush." ..."
Dec 29, 2018 | finance.yahoo.com

BOSTON (Reuters) - Nancy Farrington, a retiree who turns 75 next month, admits to being in a constant state of anxiety over the biggest December stock market rout since Herbert Hoover was president.

"I have not looked at my numbers. I'm afraid to do it," said Farrington, who recently moved to Charleston, South Carolina, from Boston. "We've been conditioned to stand pat and not panic. I sure hope my advisers are doing the same."

Retirees are worrying about their nest eggs as this month's sell-off rounds out the worst year for stocks in a decade, and some fear they are headed for a day of reckoning like the 2008 market meltdown or dot-com crash of the early 2000s.

Retirees have less time to recover from bad investment moves than younger workers. If they or their advisers panic and sell during a brief downturn, they may lock in a more meager retirement. But their portfolio could be even more at risk if they hold on too long in a prolonged decline.

"I have no way of riding it out if that happens," said Farrington. "I can feel the anxiety in my stomach all the time."

While many industrialized countries still have generous safety nets for retirees, pensions for U.S. private-sector workers largely have been supplanted by 401(k) accounts and other private saving plans. That means millions of older Americans are effectively their own pension managers.

Workers in countries like Belgium, Canada, Germany, France and Italy receive, on average, about 65 percent of their income replaced by mandatory pensions. In the Netherlands the ratio of benefits to lifetime average earnings is abut 97 percent, according to a 2017 Organization for Economic Cooperation and Development report.

The OECD says the comparable U.S. replacement rate from Social Security benefits is about 50 percent.

U.S. retirees had watched their private accounts mushroom during a bull stock market that began in early 2009. Meanwhile, the Federal Reserve kept interest rates near zero for years, enticing retirees deeper into stocks than previous generations as investments like certificates of deposit, government bonds and money-market funds generated paltry income.

At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their 401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee Benefit Research Institute in Washington.

Still, fewer have gone all in on stocks in recent years. Just 19 percent had more than 80 percent of their 401(k) invested in stocks in 2016, down from 30 percent at year-end 2007, according to nonprofit research group EBRI.

"Nothing has gone wrong, but it seems the market is trying to figure out what could go wrong," said Brooke McMurray, a 69-year-old New York retiree who says she became a financial news junkie after the 2007-2009 financial crisis.

"Unlike before, I now know what I own and I constantly read up on my companies," she said.

The three major U.S. stock indexes have tumbled about 10 percent this month, weighed by investor worries including U.S.-China trade tensions, a cooling economy and rising interest rates, and are on track for their worst December since 1931.

The S&P 500 is headed for its worst annual performance since 2008, when Wall Street buckled during the subprime mortgage crisis. But some are not quite ready to draw comparisons.

"We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today, employment is way up. The housing market is steady and corporations are flush."

Still, Bauer said he is uneasy about White House leadership. He and several other retirees referenced U.S. Treasury Secretary Steve Mnuchin's recent calls to top bankers, which did more to rattle than assure markets. U.S. stocks tumbled more than 2 percent the day before the Christmas holiday.

Nevertheless, Bauer is prepared to ride out any market turmoil without making dramatic moves to his retirement portfolio. "When it's up, I watch it. When it's down, I don't," he said. And there are some factors helping take the sting out of the market rout, said Larry Glazer, managing partner of Boston-based Mayflower Advisors LLC.

[Dec 16, 2018] The Festering Social Rift Over Pensions by Adam Taggart

Dec 16, 2018 | www.zerohedge.com

Authored by Adam Taggart via PeakProsperity.com,

Why does he get to retire and I don't?

Most Americans will never be able to afford to retire.

We laid out the depressing math in our recent report Will Your Retirement Efforts Achieve Escape Velocity? :

( Source )

There a number of causal factors that have contributed to this lack of retirement preparedness (decades of stagnant real wages, fast-rising cost of living, the Great Recession, etc), but as we explained in our report The Great Retirement Con , perhaps none has had more impact than the shift from dedicated-contribution pension plans to voluntary private savings:

The Origins Of The Retirement Plan

Back during the Revolutionary War, the Continental Congress promised a monthly lifetime income to soldiers who fought and survived the conflict. This guaranteed income stream, called a "pension", was again offered to soldiers in the Civil War and every American war since.

Since then, similar pension promises funded from public coffers expanded to cover retirees from other branches of government. States and cities followed suit -- extending pensions to all sorts of municipal workers ranging from policemen to politicians, teachers to trash collectors.

A pension is what's referred to as a defined benefit plan . The payout promised a worker upon retirement is guaranteed up front according to a formula, typically dependent on salary size and years of employment.

Understandably, workers appreciated the security and dependability offered by pensions. So, as a means to attract skilled talent, the private sector started offering them, too.

The first corporate pension was offered by the American Express Company in 1875. By the 1960s, half of all employees in the private sector were covered by a pension plan.

Off-loading Of Retirement Risk By Corporations

Once pensions had become commonplace, they were much less effective as an incentive to lure top talent. They started to feel like burdensome cost centers to companies.

As America's corporations grew and their veteran employees started hitting retirement age, the amount of funding required to meet current and future pension funding obligations became huge. And it kept growing. Remember, the Baby Boomer generation, the largest ever by far in US history, was just entering the workforce by the 1960s.

Companies were eager to get this expanding liability off of their backs. And the more poorly-capitalized firms started defaulting on their pensions, stiffing those who had loyally worked for them.

So, it's little surprise that the 1970s and '80s saw the introduction of personal retirement savings plans. The Individual Retirement Arrangement (IRA) was formed by the Employee Retirement Income Security Act (ERISA) in 1974. And the first 401k plan was created in 1980.

These savings vehicles are defined contribution plans . The future payout of the plan is variable (i.e., unknown today), and will be largely a function of how much of their income the worker directs into the fund over their career, as well as the market return on the fund's investments.

Touted as a revolutionary improvement for the worker, these plans promised to give the individual power over his/her own financial destiny. No longer would it be dictated by their employer.

Your company doesn't offer a pension? No worries: open an IRA and create your own personal pension fund.

Afraid your employer might mismanage your pension fund? A 401k removes that risk. You decide how your retirement money is invested.

Want to retire sooner? Just increase the percent of your annual income contributions.

All this sounded pretty good to workers. But it sounded GREAT to their employers.

Why? Because it transferred the burden of retirement funding away from the company and onto its employees. It allowed for the removal of a massive and fast-growing liability off of the corporate balance sheet, and materially improved the outlook for future earnings and cash flow.

As you would expect given this, corporate America moved swiftly over the next several decades to cap pension participation and transition to defined contribution plans.

The table below shows how vigorously pensions (green) have disappeared since the introduction of IRAs and 401ks (red):

( Source )

So, to recap: 40 years ago, a grand experiment was embarked upon. One that promised US workers: Using these new defined contribution vehicles, you'll be better off when you reach retirement age.

Which raises a simple but very important question: How have things worked out?

The Ugly Aftermath America The Broke

Well, things haven't worked out too well.

Four decades later, what we're realizing is that this shift from dedicated-contribution pension plans to voluntary private savings was a grand experiment with no assurances. Corporations definitely benefited, as they could redeploy capital to expansion or bottom line profits. But employees? The data certainly seems to show that the experiment did not take human nature into account enough – specifically, the fact that just because people have the option to save money for later use doesn't mean that they actually will.

And so we end up with the dismal retirement stats bulleted above.

The Income Haves & Have-Nots

In our recent report The Primacy Of Income , we summarized our years-long predictions of a coming painful market correction followed by a prolonged era of no capital gains across equities, bond and real estate.

Simply put: the 'easy' gains made over the past 8 years as the central banks did their utmost to inflate asset prices is over. Asset appreciation is going to be a lot harder to come by in the future.

Which makes income now the prime source of building -- or simply just maintaining -- wealth going forward.

That being the case, it's obvious that those receiving a pension will be in far better shape than those who aren't. They'll have a guaranteed income stream to partially or fully fund their retirement.

Resentment Brewing

While the total number of people expecting a pension isn't tiny, it's certainly a minority of today's workers.

31 million private-sector, state and local government workers in the US participate in a pension plan. 3.3 million currently-employed civilian Federal workers will receive a pension; as will some percentage of the 2 million people serving in the active military and reserves.

Combined, that's about 25% of current US workers; roughly 13% of total US adults.

Now that the Everything Bubble is bursting and a return to economic recession appears increasingly probable within the next year or two, the disparity in prospects between these 35 million future pensioners and the rest of the workforce will become increasingly obvious.

The danger here is of festering social discord. The majority, whom we already know will not be able to retire, will highly likely start regarding pensioners with envy and resentment.

"Hey, I worked as hard as Joe during my career. How come he gets to retire and I don't?" will be a common narrative running in the minds of those jealous of their neighbors.

This bitterness will only increase as taxes continue to rise to fund government pension payouts, already a huge drain on public budgets . "Why am I paying more so Joe can relax on the beach??"

Humans are wired to react angrily to perceived injustice and unfairness. This short clip shows how it's hard-coded into our primate brains:

https://www.youtube.com/embed/meiU6TxysCg

So it's not a stretch at all to predict the divisive tension and prejudice that will result from the growing gap between the pension haves and have-nots.

The negative stereotypes of union workers will be tightly re-embraced. This SNL sketch captures a good number of them:

https://www.youtube.com/embed/_br3uMudQSM

The steady news reports of pension fraud and abuse will anger the majority further. Any projected decreases in Social Security (benefit payouts will only be 79 cents on the dollar by 2035 at our current trajectory) will only exacerbate the ire, as the small governmental income the have-nots receive becomes even more meager.

The growing potential here is for an emerging social schism, possibly accompanied with intimidation and violence, not dissimilar to that which has occurred along racial or religious lines during darker eras of our history.

As people become stressed, they react emotionally, and look for a culprit to blame. And as they become more desperate, as many elderly workers with no savings often do, they'll resort to more desperate measures.

Broken Promises

And it's not all sunshine and roses for the pensioners, either. Being promised a pension and actually receiving one are two very different things.

Underfunded pension liabilities are a massive ticking time bomb, certain to explode over the next few decades.

For example, many pensions offered through multi-employer plans are bad shape. The multiemployer branch of the Pension Benefit Guaranty Corporation, the federally-instated insurer behind private pensions, will be out of business by 2025 if no changes in law are made to help. If that happens, retirees in those plans will get only 10% of what they were promised.

Moreover, research conducted by the Pew Charitable Trusts shows a $1.4 trillion shortfall between state pension assets and guarantees to employees. There are only two ways a gap that big gets addressed: massive tax hikes or massive benefit cuts. The likeliest outcome will be a combination of both.

So, many of those today counting on a pension tomorrow may find themselves in a similar boat to their pension-less neighbors.

No Easy Systemic Solutions, So Act For Yourself

There's no "fix" to the retirement predicament of the American workforce. There's no policy change that can be made at this late date to reverse the decades of over-spending, over-indebtedness, and lack of saving.

All we can do at this time is influence how we take our licks. Do we simply leave the masses of unprepared workers to their sad fate? Or do we share the pain across the entire populace by funding new social support programs via more taxes?

Time will tell. But what we can bet on is tougher times ahead, especially for those with poor income prospects.

So the smart strategy for the prudent investor is to prioritize building a portfolio of income streams in order to have sufficient dependable income for a sustainable retirement. Or for simply remaining afloat financially.

Sadly, accustomed to the speculative approach marketed to us for so long by the financial industry, most investors are woefully under-educated in how to build a diversified portfolio of passive income streams (inflation-adjusting and tax-deferred whenever possible) over time.

Those looking to get up to speed can read our recent report A Primer On Investing For Inflation-Adjusting Income , where we detail out the wide range of prevalent (and not-so-prevalent) solutions for today's investors to consider when designing an income-generating portfolio. From bonds, to dividends (common and preferred), to real estate, to royalties -- we explain each vehicle, how it can be used, and what the major benefits and risks are.

And in the interim, make sure the wealth you have accumulated doesn't disappear along with the bursting of the Everything Bubble. If you haven't already read it yet, read our premium report from last week What To Do Now That 'The Big One' Is Here .


RichardParker , 22 minutes ago link

Underfunding of public pensions is actually worse than it looks. They keep two sets of books.

https://www.nytimes.com/2016/09/18/business/dealbook/a-sour-surprise-for-public-pensions-two-sets-of-books.html

ardent , 1 hour ago link

It's not just retirement.

Americans need to wake up and realize

the country is under a DARK cloud.

rockstone , 1 hour ago link

I'd rather die broke like a dog in the street rather than have spent a single day of my life working with any of these people.

glenlloyd , 1 hour ago link

They can try and tax to fill pension buckets that are empty, but the population is more likely than ever to react negatively to this sort of thing.

People will not move to areas where the potential for extortion to satisfy pension promises exists. Nor will they move to any place where there's the possibility of a big tax increase to fill public coffers.

In my own area there's already the threat of a large property tax increase to cover 'social improvements' that are not really the responsibility of the local government, but you can't tell them that, they extend their tentacles into everything. The county is just as bad, with property tax increases and then handing out grants that no one monitors and no one knows about.

If govt's would go back to doing what they're supposed to do instead of the garbage they're involved in now we'd be better off and it would cost those who actually pay the taxes a lot less. It's one big reason people are moving to rural areas. My muni has voted several times now to increase local option sales tax, the people keep putting it down, the voting costs thousands to conduct, I wish they would give it up.

It's no wonder that Chicago loses 150 people every day...not a good thing.

Lost in translation , 2 hours ago link

Try telling a CA public school teacher that their pension will never be paid.

Hard as it is to believe, basic arithmetic will not convince them. Ever.

Cog Dis reigns supreme.

Lost in translation , 1 hour ago link

Then there's this:

"The list includes a married couple -- a police captain and a detective -- who joined DROP at around the same time and collected nearly $2 million while in the program. They both filed claims for carpal tunnel syndrome and other cumulative ailments about halfway through the program. She spent nearly two years on disability and sick leave; he missed more than two years ... the couple spent at least some of their paid time off recovering at their condo in Cabo San Lucas and starting a family theater production company with their daughter..."

https://www.latimes.com/local/lanow/la-me-drop-program-pension-reform-20180824-story.html

Let it Go , 2 hours ago link

Pensions in many ways they are the biggest Ponzi Scheme of modern man. Pension payouts are often predicated on the idea the money invested in these funds will yield seven to eight percent a year and in today's low-interest rate environment, this has forced funds into ever riskier investments.

The PBGC America's pension safety net is already under pressure and failing due to the inability of pension funds to meet their future obligations. The math alone is troubling but when coupled with the overwhelming possibility of a major financial dislocation looming in the future a nightmare scenario for pensions drastically increases. More on this subject in the article below.

https://Pensions Are The Biggest Ponzi Scheme Of Man.html

marcel tjoeng , 2 hours ago link

A Tobin tax on Wall Street is for the cerebrally challenged.

Apply a VAT on all stock market transactions, in the Netherlands VAT is 21%,

21% will generate a Quadrillion easy (1000 Trillion, 1.000.000.000.000.000),

BillyG , 3 hours ago link

84% of state and local public sector workers receive defined benefit pensions as do 100% of federal workers with little to no contribution on their part. After 30 years Federal workers receive 33% of their highest 3 consecutive years pay and state workers average benefits are $43000 with a range from 15000 (MS) to 80000 (CA). Private sector employees get to pay for this and have little if anything coming from their employers in the form of a pension. Instead, private sector employees get to gamble their savings in the stock and bond markets to secure a retirement. And don't thing government employees are paid less - they are usually paid very competitively with the private sector. Bottom line is private sector employees are slaves to federal, state, and local governments.

chippers , 3 hours ago link

Not only are government workers not paid that less, they get a slew of days off, sicks days, mental health days , every minor holiday is a day off. And because they never get laid off, the lower salary is worth more over the long term. then the private sector worker who gets fired every 5 years

nucculturalmarxists , 2 hours ago link

And guess how many nanoseconds fed and state workers worry about the stock market returns within their pension.

BendGuyhere , 2 hours ago link

Don't forget Public Safety, with their very sweet 20 year retirements.

Guaranteed retirement is foremost on EVERY cop's mind....

charlie_don't_surf , 3 hours ago link

A 401K is not a pension plan and if you don't put anything into the 401K then you get nothing out of the 401K. Plus, pensions can fail. The people that made no other arrangements for their retirement other than rely on SocSec will have more because they will qual for food stamps, housing subsidies, utility credits, etc. The picture is being distorted.

MK ULTRA Alpha , 4 hours ago link

There is not going to be the old American pension, it's the new America, where everything has been hollowed out. The new American economic conditions has created a vast underclass.

The growing underclass is because of being hollowed out. Social services for the underclass is costing hundreds of billions. The Trumpers want a massive cut in social funding.

The communist Democratic Socialist have a wedge issue of underclass causes which keeps the Democratic Socialist party growing. Clinton is their enemy as we now know from Clinton's out burst.

The only way out for Trumpers is an infrastructure build. This will draw in the masses as labor markets tighten, thus pushing wages up.

[Dec 06, 2018] Social Security benefits will go up in 2019. Find out now how big your check will be

Dec 06, 2018 | finance.yahoo.com

Social Security recipients will get a 2.8 percent increase in 2019, following a cost-of-living adjustment announced by the agency in October.

That marks the biggest hike since 2012, when the cost-of-living adjustment was 3.6 percent .

[Dec 05, 2018] Social Security Tips to Maximize Your Benefits

Notable quotes:
"... If I take Social Security at age 62 and then pay back the benefits within 12 months to erase the penalty for claiming early, is it true I get to keep the interest I earned while I had the money? ..."
"... I understand how delayed-retirement credits boost Social Security benefits by 8% for each year that one delays claiming between age 66 and age 70. But do cost-of-living adjustments during the years you wait amplify the advantage to more than 8% a year? ..."
Dec 05, 2018 | www.kiplinger.com

Social Security Social Security Tips to Maximize Your Benefits

Answers to real-life questions about Social Security claiming strategies.

iStockphoto

By the Editors of Kiplinger's Retirement Report
March 9, 2017

Q If I take Social Security at age 62 and then pay back the benefits within 12 months to erase the penalty for claiming early, is it true I get to keep the interest I earned while I had the money? SEE ALSO: 10 Things You Must Know About Social Security

A Yes, but don't get too excited. Prior to 2010, when Social Security imposed the 12-month limit for withdrawing an application and repaying benefits, it was often advised that people who didn't need the money use this "do over" procedure to get what amounted to an interest-free loan from the government. If you claimed benefits at 62 and repaid them at 66, you might be playing with $100,000 or more of "house money." The 12-month window restricts that opportunity. Also, note that if you receive benefits in one calendar year and pay them back in the next, you'll likely have to pay tax on the benefits in year one. You can recoup the tax, but it's complicated.

Q I understand how delayed-retirement credits boost Social Security benefits by 8% for each year that one delays claiming between age 66 and age 70. But do cost-of-living adjustments during the years you wait amplify the advantage to more than 8% a year?

A Yes. COLAs are built into benefits starting at age 62, the earliest age at which you can claim benefits, even if you don't claim at that time.

Here's an example worked up for us by Baylor University professor William Reichenstein, head of research for consulting firm Social Security Solutions. Let's say your benefit at age 66 is estimated at $2,000 a month, but you decide to wait until age 70 to claim. You'll get eight years of compounded COLAs based on the full retirement age benefit of $2,000 -- bringing the monthly benefit up to $2,533, assuming an average annual COLA of 3%. You'd also get four years of 8% delayed-retirement credits calculated on the $2,533 benefit. That extra 32% brings the total monthly benefit at age 70 to $3,343. (Yes, a 3% COLA may seem high considering 2016's 0% and 2017's 0.3%. But the annual average COLA since automatic adjustments started in 1975 is 3.8%.)

[Nov 08, 2018] One little discussed aspect of Social Security is the modest wealth redistribution resulting from disability benefits.

Nov 08, 2018 | www.moonofalabama.org

donkeytale , Nov 7, 2018 9:09:40 AM | link

One little discussed aspect of Social Security is the modest wealth redistribution resulting from disability benefits. The upward trend of disability in previous decades mirrors the decline in working class and lower middle class jobs and income.

SSDI has been a target of the cutters for years and puts Trump in the middle between his conservatives and his more lumpenproletariat base members, an increasing number of whom live off SSDI benefits .

The number of SSDI recipients has tripled since the 1980s.

Democrats should continue to exploit the divergence between GOP policy and the grim reality of a significant share of the Trumpist base.

[Nov 05, 2018] How Ronald Reagan and Alan Greenspan Pulled off the Greatest Fraud Ever Perpetrated against the American People Dissident Voi

Notable quotes:
"... Raiding the Trust Fund: Using Social Security Money to Fund Tax Cuts for the Rich ..."
Nov 05, 2018 | dissidentvoice.org

How Ronald Reagan and Alan Greenspan Pulled off the Greatest Fraud Ever Perpetrated against the American People

by Allen W. Smith / April 14th, 2010

David Leonhardt's article , "Yes, 47% of Households Owe No Taxes. Look Closer," in Tuesday's New York Times was excellent, but it just scratches the tip of the iceberg of how the rich have gained at the expense of the working class during the past three decades. When Ronald Reagan became President in 1981, he abandoned the traditional economic policies, under which the United States had operated for the previous 40 years, and launched the nation in a dangerous new direction. As Newsweek magazine put it in its March 2, 1981 issue, "Reagan thus gambled the future -- his own, his party's, and in some measure the nation's -- on a perilous and largely untested new course called supply-side economics."

Essentially, Reagan switched the federal government from what he critically called, a "tax and spend" policy, to a "borrow and spend" policy, where the government continued its heavy spending, but used borrowed money instead of tax revenue to pay the bills. The results were catastrophic. Although it had taken the United States more than 200 years to accumulate the first $1 trillion of national debt, it took only five years under Reagan to add the second one trillion dollars to the debt. By the end of the 12 years of the Reagan-Bush administrations, the national debt had quadrupled to $4 trillion!

Ronald Reagan and Alan Greenspan pulled off one of the greatest frauds ever perpetrated against the American people in the history of this great nation, and the underlying scam is still alive and well, more than a quarter century later. It represents the very foundation upon which the economic malpractice that led the nation to the great economic collapse of 2008 was built. Ronald Reagan was a cunning politician, but he didn't know much about economics. Alan Greenspan was an economist, who had no reluctance to work with a politician on a plan that would further the cause of the right-wing goals that both he and President Reagan shared.

Both Reagan and Greenspan saw big government as an evil, and they saw big business as a virtue. They both had despised the progressive policies of Roosevelt, Kennedy and Johnson, and they wanted to turn back the pages of time. They came up with the perfect strategy for the redistribution of income and wealth from the working class to the rich. Since we don't know the nature of the private conversations that took place between Reagan and Greenspan, as well as between their aides, we cannot be sure whether the events that would follow over the next three decades were specifically planned by Reagan and Greenspan, or whether they were just the natural result of the actions the two men played such a big role in. Either way, both Reagan and Greenspan are revered by most conservatives and hated by most liberals.

If Reagan had campaigned for the presidency by promising big tax cuts for the rich and pledging to make up for the lost revenue by imposing substantial tax increases on the working class, he would probably not have been elected. But that is exactly what Reagan did, with the help of Alan Greenspan. Consider the following sequence of events:

1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on Social Security Reform (aka The Greenspan Commission)

2) The Greenspan Commission recommended a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn down during the years after Social Security began running deficits.

3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.

4) As soon as the first surpluses began to role in, in 1985, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything. The surplus Social Security revenue, that was paid by working Americans, was used to replace the lost revenue from Reagan's big income tax cuts that went primarily to the rich.

5) In 1987, President Reagan nominated Greenspan as the successor to Paul Volker as chairman of the Federal Reserve Board. Greenspan continued as Fed Chairman until January 31, 2006. (One can only speculate on whether the coveted Fed Chairmanship represented, at least in part, a payback for Greenspan's role in initiating the Social Security surplus revenue.)

6) In 1990, Senator Daniel Patrick Moynihan of New York, a member of the Greenspan Commission, and one of the strongest advocates the the 1983 legislation, became outraged when he learned that first Reagan, and then President George H.W. Bush used the surplus Social Security revenue to pay for other government programs instead of saving and investing it for the baby boomers. Moynihan locked horns with President Bush and proposed repealing the 1983 payroll tax hike. Moynihan's view was that if the government could not keep its hands out of the Social Security cookie jar, the cookie jar should be emptied, so there would be no surplus Social Security revenue for the government to loot. President Bush would have no part of repealing the payroll tax hike. The "read-my-lips-no-new-taxes" president was not about to give up his huge slush fund.

The practice of using every dollar of the surplus Social Security revenue for general government spending continues to this day. The 1983 payroll tax hike has generated approximately $2.5 trillion in surplus Social Security revenue which is supposed to be in the trust fund for use in paying for the retirement benefits of the baby boomers. But the trust fund is empty! It contains no real assets. As a result, the government will soon be unable to pay full benefits without a tax increase. Money can be spent or it can be saved. But you can't do both. Absolutely none of the $2.5 trillion was saved or invested in anything. I have been laboring for more than a decade to expose the great Social Security scam. For more information, please visit my website or contact me.

Dr. Allen W. Smith is a Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books and has been researching and writing about Social Security financing for the past ten years. His latest book is Raiding the Trust Fund: Using Social Security Money to Fund Tax Cuts for the Rich . Read other articles by Allen , or visit Allen's website .

This article was posted on Wednesday, April 14th, 2010 at 9:00am and is filed under Economy/Economics , Social Security , Tax . 5 comments on this article so far ...

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  1. bozh said on April 14th, 2010 at 10:07am #

    Still, this is only symptom or really quite legal act by US. So, appears to me of the system. So, what's wrong-right with the system of which governing the country by laws is integral part? Apparently nothing; even to allen smyth.
    So, why bother complaining ab an a legal act? Beats me! Why not change the system that allows this? tnx

  2. Mike 2 said on April 15th, 2010 at 4:40am #

    I think politics is, has and always will be the problem and it seems to have creeped in to Dr. Smiths article.
    The American people through decades of political rhetoric have come to believe all the lies that have been told by politicians and duly reinforced by a compliant media.
    Reagan proposed cutting benefits to fix social security. On 5/12/81 HHS Secretary Richard Schweiker sent Congress the Administrations plan to rely on benefit cuts. You know what happened next – the Democrats pounced with the elderly lobbies not far behind. Reagan gave up and not unlike todays President, formed the commission mostly for political cover and to take the heat off. And remember Congress passes the law, the President does not get a vote.
    The reserve fund build up for the boomers is also a myth. That is if we can believe the Congressionsl Research Service:

    "In fact, it has become conventional wisdom that Congress deliberately intended to built up large balances in the trust funds, not just for the near term, but to help finance the benefits of the post World War II baby boomers and later retirees." "To the contrary, a review of the record of congressional proceedings would suggest that the goal was
    not to create surpluses, but to assure that the system would not be threatened by insolvency again in the event adverse conditions arose." ( CRS Report for Congress – Social Security Financing Reform: Lessons From the 1983 Amendments – 97-741 EPW )

    Or if we choose to believe Robert J Meyers:

    Q: As we look at it today, some people rationalize the financing basis by saying that it's a way of partially having the baby boomers pay for their own retirement in advance. You're telling me now this was not the rationale. Nobody made that argument or adopted that rationale?

    Myers: That's correct. The statement you made is widely quoted, it is widely used, but it just isn't true. It didn't happen that way, it was mostly happenstance that the Commission adopted this approach to financing Social Security.
    ( http://ssaonline.us/history/myersorl.html )

    Senator Daniel Patrick Moynihan may have become outraged but he was on the commission. He never realized that all cash surpluses have to be invested in debt – since Social Security began? I find that hard to believe, but he was right to recommend cutting the FICA tax, which of course went nowhere in CONGRESS.

    If this new commission comes up with a plan to "extend the life" of the trust fund, as happened with the new health care bill, it's just kicking the can down the road again. Let's let them use the "trust fund" and run it down to zero. How? cut spending elsewhere.

  3. perris said on April 15th, 2010 at 10:56am #

    this is a great article alan, you missed one of the most important things greenspan did to destroy the economy

    he went to war on what he termed "wage inflation"

    every time you see the prime go up that means there is upward pressure on wages and he is trying to keep businesses from having money to offer higher wage

    when you see wages go down it's because wage pressure is either stagnant or negative

    of course there are other factors that make the prime go up or down but wage pressure is the big reason you see it happening

    when greenspan said "the economy is heating up" what he meant is "people are asking for and getting a raise"

    important stuff and one of the main reasons the middle classes wages have been stagnant

  4. siamdave said on April 16th, 2010 at 12:00am #

    – the US was not alone – this scam was taking place in most if not all western faux-democracies. For the Canadian perspective – which has cost Cdn taxpayers some two trillion dollars over the last 30+ years in "debt service" whilst government after government claims 'no money!!' and slashes the social programs Cdns worked generations to establish – What Happened? http://www.rudemacedon.ca/what-happened.html . And thus it will continue until people catch on to this scam, this fraud, and put a lot of people in jail. ABout the same time I find my way out from behind the looking glass, I expect. We're all in cloud cuckooland now. Dorothy. The wizard is dead and the black witch rules.

  5. AaronG said on April 16th, 2010 at 4:39am #

    "Both Reagan and Greenspan saw big government as an evil, and they saw big business as a virtue. They both had despised the progressive policies of Roosevelt, Kennedy and Johnson"

    Republicans BAD ..Democrats GOOD.

    "When Ronald Reagan became President in 1981, he abandoned the traditional economic policies, under which the United States had operated for the previous 40 years"

    The 'traditional' economic policy of 'capitalism' (are economists allowed to utter that word in public, or is 'traditional' a better oxymoron?) was rampant before 1981 and was going about its destructive business. This article paints a picture of the pre-1981 world being the 'glory days'.

[Nov 05, 2018] Greenspan promoting "Entitlement" cuts as the necessary solution to the economy. 25% worth! by Daniel Becker

Notable quotes:
"... Here & Now ..."
Nov 05, 2018 | angrybearblog.com
Politics US/Global Economics From an interview on NPR's Here and Now comes:

"The official actuaries of the Social Security system say in order to get our Social Security and retirement funds in balance, they'd have to cut benefits by 25 percent indefinitely into the future," he says. "Do I think it's going to happen? Well I don't know, but this is one of the reasons why inflation is the major problem out there. So long as you don't do it, you're going to cause the debt overall -- the total government debt -- to rise indefinitely, and that is an unstable situation."

He adds: "In the book discussing what the long-term outlook is all about, we say that the issue of the aging of the population and its consequences on entitlements is having a significant negative deterioration over the long run. The reason for that is what the data unequivocally show is that entitlements -- which are mandated by law -- are gradually and inexorably driving our gross domestic savings, and the economy, dollar for dollar. And so long as that happens, we have to borrow from abroad, which is our current account deficit."

He also said:

"When you deal with fear, it is very difficult to classify," he tells Here & Now 's Jeremy Hobson. "But you can look at the consequences of it, and the consequence is basically a suppressed level of innovation and therefore of capital investment and a disinclination to take risks."

I agree with this, but not just as it relates to " a suppressed level of innovation " but instead as it relates to the 2005 World Bank report on what produces wealth in a developed economy like ours. It comes down to trust. Trust in your judicial system and trust in your education system. I discuss this in the following 3 posts: 2007, 2009, 2011

Human capital is where it's at!

Attention Republicans/Blue Dog Democrates: Tax cuts as stimulus work against your goal

It's not the tax and spending cuts, it's the destroyed trust that has doomed our eco

This election at it's core is about trust. Destroy that, and we have no democracy, we have no economy. It's that simple. That McConnell et al has decided he will not abide by the rules agreed to in conducting the business of the Senate means we have no currently functioning democracy. That is how fragile democracy in the US is. Our democracy comes down to two people, the leaders of each party in the Senate agreeing to the rules. When one decides not to, there is nothing that can be done other than vote.

You can hear the full interview here:

  1. Sandi , November 5, 2018 10:48 am

    Trust – I could't agree more. Thanks for shining this light.

    Paul Krugman has been pounding the drum for years about the GOP's repeated con game of creating deficits when they are in power, then running through the room with their hair on fire on how deficits are going to be our downfall and so we MUST, MUST, MUST cut entitlements. And yet we never seem to catch on.

    It seems to me we should make all income, not just wages, subject to FICA. Of course we could never touch what gets shipped off-shore anyway, so we'd just have to let that slide, I suppose ..still, as long only the 'wage slaves' are taxed, things will only get worse.

  1. Karl Kolchak , November 5, 2018 12:16 pm

    You still have trust? I gave that up after the Iraq War, the bailouts the Obama Betrayal and Citizens United. Now I just assume the worst, no matter who is in power, and rarely am I disappointed.

[Oct 18, 2018] Angry Bear " Cut Social Security, Medicare, and Medicaid McConnell Says

Notable quotes:
"... I have skipped the chest thumbing about the economy from Mnuchin and Mulvaney to focus on the stupidity ala CNBC . Real government spending barely kept pace with inflation, which is why outlays relative to GDP fell from 20.7% to 20.3%. Real tax revenues clearly fell in absolute terms and as a percent of GDP went from 17.2% to 16.5%. I guess this is what one gets when one lets Lawrence Kudlow become a chief economic adviser. But this kind of dishonesty is well known ever since Kudlow and his ilk tried to pull this intellectual garbage in the 1980's. Does anyone at CNBC not realize the Trump White House is playing the same games with numbers? ..."
Oct 18, 2018 | angrybearblog.com

Cut Social Security, Medicare, and Medicaid McConnell Says

run75441 | October 17, 2018 10:36 am

Hot Topics Politics Taxes/regulation After instituting a $1.5 trillion tax cut and after signing off on a $675 billion Defense budget, Senate Majority Leader Mitch McConnell said yesterday, Tuesday, October 16, 2016;

"The only way to lower the record-high federal deficit would be to cut entitlement programs like Medicare, Medicaid and Social Security1."

More McConnell: "It's disappointing but it's not a Republican problem." The deficit, grew 17 percent to $779 billion in fiscal year 2018. "It is a bipartisan problem and a problem of the unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future."

The deficit has increased 77 percent since McConnell became majority leader in 2015.

A new Treasury Department analysis on Monday revealed that corporate tax cuts had a significant impact on the deficit this year. Federal revenue rose by 0.04 percent in 2018 which is a nearly 100 percent decrease from the previous year's 1.5 percent. In fiscal year 2018, tax receipts on corporate income fell to $205 billion from $297 billion in 2017.

Still, McConnell insisted the change had nothing to do with a lack of revenue due to the tax break or increased spending resulting from new programs since 2015. Instead he insists the deficit increase is due to entitlement and welfare programs. Now he does the old switcheroo from the yearly deficit to the national debt.

McConnell said, the debt is very "disturbing and is driven by the three big entitlement programs that are very popular, Medicare, Social Security and Medicaid. There has been a bipartisan reluctance to tackle entitlement changes because of the popularity of those programs. Hopefully, at some point here, we'll get serious about this."

What McConnell does not tell you is 8 years out those tax decreases will go away for much of the population and many will see tax increases. McConnell and Republicans needed a way to keep the 60% of the total tax break going to the 1% of the Household Taxpayers making greater than $500,000 annually since this tax break was passed under Reconciliation rules (Democrats could not block it without 60 votes). Robert Reich has called this a Trojan Horse tax break.

Recently, Mitch McConnell has been considering his legacy. I think it would be adequate to paraphrase it as: "I saved the 2018 tax break for the 1 percenters. To hell with the rest of you."

1. PGL pointed out the variance is barely audible on scale of the deficits. " I have skipped the chest thumbing about the economy from Mnuchin and Mulvaney to focus on the stupidity ala CNBC . Real government spending barely kept pace with inflation, which is why outlays relative to GDP fell from 20.7% to 20.3%. Real tax revenues clearly fell in absolute terms and as a percent of GDP went from 17.2% to 16.5%. I guess this is what one gets when one lets Lawrence Kudlow become a chief economic adviser. But this kind of dishonesty is well known ever since Kudlow and his ilk tried to pull this intellectual garbage in the 1980's. Does anyone at CNBC not realize the Trump White House is playing the same games with numbers? "

I kept my post the same because it is just another ruse by McConnell to get something done for no reason what-so-ever. It is a lie by McConnell.


EMichael , October 17, 2018 11:00 am

And it will cost them exactly zero votes among the working class.

I wonder why that would be?

little john , October 17, 2018 12:02 pm

Maybe he'll get serious and endorse the NW Plan.

pgl , October 17, 2018 12:26 pm

A CNBC Federal spending SURGED. As in a 3.2% increase in NOMINAL spending, which means real spending barely went up. As I noted under that post of mine on the CNBC/Treasury dishonesty, Paul Ryan tried this same dishonest trick but the CBS guy nailed him. Well he tried to but Ryan cut him off and repeated the same line.

Now how many people are stupid enough to not realize that Paul Ryan lies 24/7?

run75441 , October 17, 2018 1:20 pm

PGL:

I read your post earlier and recognized your point of spending barely rising. It is a ruse of cut spending inside of a much larger ruse being precipitated by McConnell. If he can get them to cut spending now, then maybe, maybe, they do not increase taxes down the road as planned. I should have looked further and I did not.

I am thinking of adding your point in the text of my post. It is a great point and also reinforces my point of the lies the Republicans tell the public. Thanks!

run75441 , October 17, 2018 9:19 pm

Noted . . . Just added your comment. Thanks again.

Joel , October 17, 2018 12:28 pm

"Maybe he'll get serious and endorse the NW Plan."

Co-terminus with the first verified report of porcine aviation.

pgl , October 17, 2018 3:04 pm

Trump blames the rise in the deficit on hurricanes and forest fires:

https://www.mediaite.com/trump/trump-blames-record-deficit-spending-on-tremendous-numbers-of-hurricanes-and-fires/

Someone fact check this please. But let's humor the Idiot in Chief for a comment by assuming that the rise in the deficit is due to some temporary surge in FEMA spending. That undermines the call for permanent reductions in Social Security and Medicare.

Point made – these clowns cannot keep their lies straight!

Amateur Socialist , October 17, 2018 7:17 pm

McConnell: "It's disappointing but it's not a Republican problem."

Not as long as people keep electing these clowns. I guess we'll find out in 3 more weeks.

[Sep 15, 2018] Social Security Spousal Benefits What You Need to Know

Notable quotes:
"... Note: Taking a spousal benefit does not reduce or change the amount your current spouse, ex-spouse, or ex-spouse's current spouse may receive. ..."
Sep 15, 2018 | www.thebalance.com

By Dana Anspach Updated August 17, 2018 When a spouse dies, their Social Security benefits may become available to their current or former marital partner, depending on certain circumstances. A Social Security spouse benefit is called a "spousal benefit" and is available to:

Before applying for spousal benefits, you should understand how your spouse's benefit may be affected if you take your Social Security benefits early, and what happens upon the death of a spouse. Eligibility for a Spousal Benefit Current spouses and ex-spouses (if you were married for over 10 years and did not remarry prior to age 60) both have eligibility for the spousal benefit. You must be age 62 to file for or receive a spousal benefit. You are not eligible to receive a spousal benefit until your spouse files for their own benefit first. Different rules apply to ex-spouses . You can receive a spousal benefit based on an ex-spouse's record even if your ex-partner has not yet filed for his or her own benefits, but your ex must be age 62 or older. Note: Taking a spousal benefit does not reduce or change the amount your current spouse, ex-spouse, or ex-spouse's current spouse may receive. How Much You Get As a spouse, you can claim a Social Security benefit based on your own earnings record, or you can collect a spousal benefit that will provide you 50 percent of the amount of your spouse's Social Security benefit as calculated at their full retirement age (FRA). Check the Social Security website to determine your FRA, as it depends on your year of birth. If you file before you reach your own FRA, your spousal benefit will be reduced because you are filing early. You are automatically entitled to receive either a benefit based on your own earnings or a spousal benefit based on your spouse's or ex-spouse's earnings. Social Security calculates and pays the higher amount. If you were born on or before January 1, 1954, after you reach FRA, you can choose to receive only the spousal benefit by filing a restricted application. By doing this you delay receiving your own retirement benefits based on your earnings record, until a later date. For example, at age 70 you could switch from receiving a spousal benefit to receiving your own potentially higher benefit amount. Due to recent Social Security laws that went into effect Nov. 2, 2015, if you were born on or after Jan. 2, 1954, you will not be able to restrict your application and only receive spousal benefits. For anyone born on or after Jan. 2, 1954, when you file you will automatically be deemed to be filing for all benefits for which you are eligible.

[Sep 15, 2018] Social Security's Benefits for Spouses

Notable quotes:
"... If you have reached your full retirement age (and turned 62 before January 2, 2016), you may also elect to receive spousal benefits and delay taking your benefits, allowing your own delayed retirement credits to accrue, and switch to your own benefit at a later date. ..."
May 18, 2016 | www.elderlawanswers.com

If you could receive more from Social Security based on your own earnings record than through the spousal benefit, the Social Security Administration will automatically provide you with the larger benefit.

If you have reached your full retirement age (and turned 62 before January 2, 2016), you may also elect to receive spousal benefits and delay taking your benefits, allowing your own delayed retirement credits to accrue, and switch to your own benefit at a later date.

However, you cannot elect to receive spousal benefits below your retirement age and later switch to your own benefits.

Individuals who turn 62 on or after January 2, 2016, will not be able to choose to take spousal benefits at their full retirement age.

[Sep 15, 2018] Social Security Spousal Benefits in 2017 What You Need to Know by Matthew Frankel

Notable quotes:
"... The Motley Fool has a disclosure policy . ..."
Jan 29, 2017 | www.fool.com

However, spousal benefits should still be taken into consideration when planning your own retirement strategy.

For example, let's say you and your spouse are both 66 and are still working, so you are considering letting your Social Security benefit grow for another few years. However, if your spouse anticipates collecting a spousal benefit on your work record, you might be better off filing at your full retirement age instead of waiting.

As I mentioned earlier, there are no delayed retirement credits for spousal benefits. And one of the requirements for collecting a spousal benefit is that the primary worker must be collecting his or her own retirement benefit. Therefore, it rarely makes financial sense to delay Social Security beyond your spouse's retirement age, if they expect a spousal benefit.

This is just one example of how a spousal benefit can affect your overall retirement strategy. The bottom line is that Social Security spousal benefits will affect the retirement income of millions of American workers, so it's important to know what they are and how they work.

The $16,728 Social Security bonus most retirees completely overlook
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The Motley Fool has a disclosure policy .

[Sep 15, 2018] A cautionary tale of spousal benefits

Feb 05, 2013 | www.marketwatch.com

Many couples can significantly enhance their lifetime Social Security earnings by having one of the pair claim spousal benefits at 66 years and delay personal benefits until 70 years of age.

This claiming strategy, which we call free spousal benefits , has been discussed here and elsewhere as one of the best ways to avoid the otherwise inevitable trade-off between getting money sooner (early claiming) and a larger benefit later (delayed claiming).

Having drunk the free-spousal-benefit pool-aid, an inquisitive client asked if the claiming strategy would work in the reverse. Instead of claiming spousal benefits first and then switching to personal benefits later, Karen wanted to know if she should claim her modest Social Security retirement benefits early, say at 62 years of age, and then switch to claiming her husband's larger spousal benefits later on. On its face, her idea seems to make sense.

However, let's look at how this actually works for Karen and her husband Burt. They are both 62 and their full retirement age is 66. Karen's full retirement benefit is $400 a month and Burt's is $2,000. Karen's maximum spousal benefit is $1,000 at 66 (that is half of Burt's age 66 retirement benefits). Burt plans to file for retirement benefits at 66, at which point Karen will be eligible to claim spousal benefits. Karen knows that she can claim retirement benefits early at age 62 and get $300/month (75% of the $400 she could get at her full retirement age). She also believes that at 66 she can switch to her spousal benefits and get $1,000.

On this last point Karen is wrong. When getting supplemental spousal benefits at 66, her full retirement age, her benefit will be $900, not $1,000.

The reasons for this are very convoluted. (A more complete description of the issues can be found at socialsecuritychoices.com/blog/?p=391 .) While Karen was hopeful that the reduction in benefits from early claiming will be temporary, confined to benefits during her 62nd to 66th years of age, unfortunately this is not the case.

While claiming at 62 will provide Karen with income sooner, there is a cost. First, claiming at 62 means that she will receive only 75% of her retirement benefit. Secondly, the total benefit she will receive after getting the spousal supplement will be smaller than it would have been if she had waited until full retirement age to claim her retirement benefits. If she opts for this strategy, she will receive this smaller benefit for the rest of her life.

Approach the strategy of taking your own retirement benefits now and a supplemental spousal benefit later with caution. The rules here are especially complicated and Karen's example may not apply in your case.

It would be wise to consult an expert before pursuing such a strategy. The long-term benefit of claiming early might be lower than you expect.

[Aug 23, 2018] JAMES THOMPSON AUGUST 21, 2018 1,100 WORDS

Aug 23, 2018 | www.unz.com

REPLY RSS

You may remember my dictum: If you are fatter than you want to be, eat less.

http://www.unz.com/jthompson/diet-is-an-iq-test-part-23

http://www.unz.com/jthompson/eat-less

That post led to an outpouring of deeply lived personal experience, of almost French complexity, extolling the virtues of eating particular food types in particular combinations at particular times, and not paying too much attention to calories. Fine. If you wish to be befuddled, that is your perfect right.

So, with some trepidation, here is a summary of the current state of knowledge regarding intelligence and health. Indeed, it is my summary of a summary paper. A pointless redundancy, you may say, but I know you are busy, and I would not like to interrupt your lunch break.

Intelligent people lead healthier lives, and that is not just because they intelligently make healthy decisions, but also, it would appear, because they are inherently healthier. Spooky.

What genome-wide association studies reveal about the association between intelligence and physical health, illness, and mortality
Ian JDeary 1 Sarah EHarris 12 W DavidHill 1

1 Centre for Cognitive Ageing and Cognitive Epidemiology, Department of Psychology, University of Edinburgh, 7 George Square, Edinburgh EH8 9JZ, United Kingdom
2Medical Genetics Section, Centre for Genomic & Experimental Medicine, MRC Institute of Genetics & Molecular Medicine, University of Edinburgh, Western General Hospital, Edinburgh EH4 2XU, United Kingdom

https://doi.org/10.1016/j.copsyc.2018.07.005

https://ac.els-cdn.com/S2352250X18301027/1-s2.0-S2352250X18301027-main.pdf?_tid=e876491c-fa66-40a1-af56-edb83d79b887&acdnat=1534771280_efdf271baba57dca83f42bff5578c041

The associations between higher intelligence test scores from early life and later good health, fewer illnesses, and longer life are recent discoveries. Researchers are mapping the extent of these associations and trying to understanding them. Part of the intelligence-health association has genetic origins. Recent advances in molecular genetic technology and statistical analyses have revealed that: intelligence and many health outcomes are highly polygenic; and that modest but widespread genetic correlations exist between intelligence and health, illness and mortality. Causal accounts of intelligence-health associations are still poorly understood. The contribution of education and socio-economic status  --  both of which are partly genetic in origin  --  to the intelligence-health associations are being explored.

Until recently, an article on DNA-variant commonalities between intelligence and health would have been science fiction. Thirty years ago, we did not know that intelligence test scores were a predictor of mortality. Fifteen years ago, there were no genome-wide association studies. It was less than five years ago that the first molecular genetic correlations were performed between intelligence and health outcomes. These former blanks have been filled in; however, the fast progress and accumulation of findings in the field of genetic cognitive epidemiology have raised more questions. Individual differences in intelligence, as tested by psychometric tests, are quite stable from later childhood through adulthood to older age. The diverse cognitive test scores that are used to test mental capabilities form a multi-level hierarchy; about 40% or more of the overall variance is captured by a general cognitive factor with which all tests are correlated, and smaller amounts of variance are found in more specific cognitive domains (reasoning, memory, speed, verbal, and so forth). Twin, family and adoption studies indicated that there was moderate to high heritability of general cognitive ability in adulthood (from about 50–70%), with a lower heritability in childhood[4]. It has long been known that intelligence is a predictor of educational attainments and occupational position and success

In addition to mortality, intelligence test scores are associated with lower risk of many morbidities, such as cardiovascular disease, cerebrovascular disease, hypertension, cancers such as lung cancer, stroke, and many others, as obtained by self-report and objective assessment. Higher intelligence in youth is associated at age 24 with fewer hospital admissions, lower general medical practitioner costs, lower hospital costs, and less use of medical services, and intelligence appeared to account for the associations between education and such health outcomes. Higher intelligence is related to a higher likelihood of engaging in healthier behaviours, such as not smoking, quitting smoking, not binge drinking, having a more normal body mass index and avoiding obesity, taking more exercise, and eating a healthier diet.

All this work launched a new field: cognitive epidemiology. When studying health, factor in intelligence. If you read any research about a health problem, like for example obesity, always ask yourself the question: how much of this problem is associated with intelligence? Do they have early childhood data on ability and health? Without that, there is probable confounding.

The associations which are found between health and intelligence could be due to a direct genetic pathway shared by intelligence and health, and/or by better, more educated and wealthy intelligence choices.

Genome-wide association studies transformed the field. Box 1 summarises all the different statistical methods. This is a very good guide to the field. The main one is GWAS, which finds regions of the genome which are correlated with the trait in question and statistically significant at a P-value of <5 × 10−8 to control for the multiple comparison being made.

Here are all the correlations between the genetic code and health.
Table 1 here

Another part of understanding the genetic contribution to intelligence health correlations concerns other predictors of health inequalities, and intelligence's correlations with them. Intelligence is related to education and socio-economic status (SES), and those were known to be related to health inequalities before intelligence was known to have health associations. Although education and SES are principally thought of as social-environmental variables, both have been found to be partly heritable, by oth twin based and molecular genetic studies, both have high genetic correlations with intelligence, Mendelian Randomisation results show bidirectional genetic effects between intelligence and education, and both have genetic correlations with health outcomes

What does all this mean? It may mean that the underlying causes of health, happiness, morbidity and mortality are unequally distributed, and favour some people more than others. Evolution does not have to conform to our imaginings or our notions of fairness. If genetics is a significant contributor within a genetic group, it is plausible that it contributes to between group variance. Perhaps the Japanese live longer because they are Japanese. This remains to be proved, but is worth testing. If we ever achieve the noble ambition of creating healthy environments all over the inhabited world we may yet have a residuum of health differences due to purely genetic causes.

Meanwhile, you may be wondering what is the intelligent thing to do about your health. Don't smoke, don't get fat, and don't read too many health warnings.

[Jun 09, 2018] AP Exaggerates Social Security Problems by Barkley Rosser

Jun 08, 2018 | angrybearblog.com
Dean Baker at Beat-the-Press has pointed out (sorry, not able to link to it) that Associated Press put out a tweet that presents an essentially hysterical story about future prospects for Social Security following the recent release of the Trustees. This report says that as of 2026 Medicare and as of 2034 Social Security will face a "shortfall." However, the AP tweeted that what they face is "insolvency." Needless to say, "insolvency" is much more serious than "shortfall" and simply feeds the overblown hysteria that so many think about these programs, feeding political pressures to mess with them.

The new report provides the latest update on what would happen if the forecast happens and nothing is done. Given that the projection is that Social Security benefits are set to increase by about 20% by 2034, if somehow nothing were done and benefits were set to be reduced so that they could be paid by expected tax revenues, the benefit would be cut back by about that amount to about what they are now in real terms. In short, this is not the hysterical crisis AP suggested or that so many think is out there. We have seen this nonsense before.

Of course, Dean accurately points out that by law the benefits must be paid. This may also be a time to remind everybody that the US is really in much better shape demographically in terms of life expectancies, retirement ages, and expected population growth rates than most other high income nations, with such cases as Japan and Germany in much worse shape than the US. However, all these nations are making their public old age pension payments. In the case of Germany the payments are higher than in the US, but the payments are being made, and its economy is humming along very well. There simply is not basis for any of this hysteria in the US regarding the future of Social Security.

Barkley Rosser

[May 18, 2018] This is the worst investment advice you can get by Chris Mamula

Notable quotes:
"... "The main difficulty with choosing an investment adviser is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own." ..."
May 18, 2018 | www.marketwatch.com

My alternative advice

There is no substitute to self-education. Those unwilling to learn are destined to repeat these same mistakes. The financial-advice industry is too rife with conflicts of interest for you to enter without equipping yourself with knowledge.

Maybe the best summation is by Dr. James M. Dahle in his book " The White Coat Investor ." He says: "The main difficulty with choosing an investment adviser is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own."

You can find extensive information here to help you become a DIY investor. There are plenty of others dedicated to demystifying the process of investing as well.

Take time and educate yourself. Then, if you still think you still need help with your investments and financial planning, go out armed with knowledge and find a financial adviser that fits your needs.

Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. This was first published on the blog site Can I Retire Yet?

Also from Chris Mamula: You can retire early without adopting Mr. Money Mustache's extreme frugality

[Mar 07, 2018] The maximum monthly social security benefit is $3,538. caught my eye, though

Notable quotes:
"... The maximum monthly social security benefit is $3,538. caught my eye, though. ..."
"... The system was designed with psychological, political intent. The idea was that the program would be impossible for conservatives to eliminate because all wage earners would feel entitled to pensions that they themselves had paid for (though strictly speaking it is a pure tax and your taxes are paid to current retirees). ..."
"... I was in Hawaii recently and watching that was .well .interesting. You walk around and see extraordinary opulence, often gluttony really, and at the same time all those homeless. Yes, I do know the story about them, but, still Plenty of those, apparently, vets. ..."
Mar 07, 2018 | www.unz.com

peterAUS , March 5, 2018 at 7:07 pm GMT

@Thorfinnsson

... The maximum monthly social security benefit is $3,538. caught my eye, though.

Thorfinnsson , March 5, 2018 at 7:59 pm GMT

@peterAUS

That number, though, if correct, is a good one.

Social Security benefits are based on your lifetime contributions and what age you choose to begin taking them. So a higher earner will get more benefits (up to the cap, around $106k if memory serves) than a modest earner–simply because he paid more into the system.

You can elect to take benefits as early as 62, or as later as 70.5.

The system was designed with psychological, political intent. The idea was that the program would be impossible for conservatives to eliminate because all wage earners would feel entitled to pensions that they themselves had paid for (though strictly speaking it is a pure tax and your taxes are paid to current retirees).

In act early economists recommend the system be funded out of general revenues and said there was no need for a payroll tax. FDR said he wanted people to take ownership in the system so no one could ever destroy the system.

It is remarkably effective. It's remarkable effective and neither Ronald Reagan nor George W Bush lasted more than a few weeks when they tried to roll back the system.

The only wins conservatives have scored against it are taxing some of the benefits (began in the 80s) and making some changes to cost-of-living inflation adjustments in the 90s. It's called the third rail of politics here and every old person is outraged by any suggestion that benefits should be reduced. There is however a lot of propaganda about the alleged future unaffordability of the system, and it now strikes me that there is an elite consensus in favor of modifying the system to reduce benefits.

It's "known" that the US "social safety net" is the worst in West.

I mean, with that amount of available money provided by the State , how do we see all that visible homelessness and poverty in US? I know that drugs and alcohol, with general stupidity, can do that.

I guess my question is:

A family of four, breadwinner losing his/her job (offshoring, outsourcing, downsizing) getting on that "net", renting would they lose their accommodation and effectively have problem with food, shelter and medical help, while on that net while finding another job? And, how long can they be on that net?

I know I can read about that a lot, but condensed info from a person on the ground there would be much more helpful.

As a general rule of thumb the safety net is very weak for those in the middle class, whereas in many other Western countries there are universal social insurance systems intended to cover everyone regardless of income. Healthcare is an obvious one across the West, and much ink has been spilled about the outrageous cost of college in America. The government's safety net here is simply to allow young folks to go into unlimited state-guaranteed debt.

Something of a stealth middle class safety net is provided by the corporate sector in the form of health insurance, pensions, maternity leave, etc. This has been reduced since the 80s but still exist, and government tax policy encourages it. As an example if you leave your employer you have the right to keep your employer-sponsored health insurance through something called COBRA.

A number of programs also exist to provide tax-deferred investment accounts for various social purposes. These are available for retirement, healthcare, and higher education. The programs cost the government nothing in expenditures, but reduce tax revenue (probably by less than the public benefit however).

There is much more of a safety net for the poorer classes, but as a general rule of thumb many of these programs run through women since they're dependent on the number of children you have (and, of course, household income). If you're a single man or your baby mamma doesn't want you around anymore, tough luck.

Programs that exist for the poor include:

Additionally some of the states have additional welfare programs.

Actual cash transfers to the poor have largely been abolished since the 90s, though the Obama Administration revived them in stealth form by greatly expanding disability payments.

As far as the homeless go, if you see them in the winter in cold cities they're probably mentally ill.

If they're somewhere warm that's still possible, though then there are other factors such as a lifestyle choice, temporarily down on luck, single man unable to find any work or charity, etc.

iffen , March 5, 2018 at 8:46 pm GMT
@peterAUS

Table 2.
Social Security benefits, January 2018

Type of beneficiary
Beneficiaries
Total monthly benefits (millions of dollars)
Average monthly benefit (dollars)
Number (thousands)
Percent
Total
61,984
100.0
79,988
1,290.46 Average Benefit

The table format does not paste correctly. See the table here:

https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

peterAUS , March 5, 2018 at 9:15 pm GMT
@Thorfinnsson

Comprehensive and informative. Didn't know a couple of things.

there is an elite consensus in favor of modifying the system to reduce benefits.

Of course. It's the in their nature.

As a general rule of thumb the safety net is very weak for those in the middle class, whereas in many other Western countries there are universal social insurance systems intended to cover everyone regardless of income.

Interesting re former and true around here re later. The level of "assistance" depends on assessed needs of a person/family, not on their previous income.

There is much more of a safety net for the poorer classes, but as a general rule of thumb many of these programs run through women since they're dependent on the number of children you have (and, of course, household income). If you're a single man or your baby mamma doesn't want you around anymore, tough luck.

And

single man unable to find any work or charity, etc.

Interesting too. I will sound simplistic and naive, but it's really hard to reconcile those extremes in US. I mean, I have no problem with capable, talented, or just ruthless and greedy, or just lucky, having all those zillions. Good on them. But, at the same time, in the same place, people who are going through the trash cans. Yes, I've heard all the explanations, all sound very reasonable, some don't even understand (stupid me), but , still

I was in Hawaii recently and watching that was .well .interesting. You walk around and see extraordinary opulence, often gluttony really, and at the same time all those homeless. Yes, I do know the story about them, but, still Plenty of those, apparently, vets.

I haven't got the slightest how to fix that, or even is it possible, but, still ..something simply does not compute.

... ... ...

peterAUS , March 5, 2018 at 9:32 pm GMT
@iffen

Well, that's helpful.

Still, a couple of things are eluding me.
I'll use an example:

A man, single, late 20s, professional, worked in, say, corporate environment, got "restructured/downsized/outsourced". Salary at the time of being "let go" around 80K. Worked in similar capacity for, say, 6 years. Renting, of course. No savings (kid likes to travel).

So, where I am, well, he does get an "assistance" which will pay for a rent, 3 decent meals per day and he'll have a (state, not private, of course), medical help. Especially in emergencies. And this can last for quite a while, actually.

Bottom line, no need to be homeless, no need to be hungry, and he'll get the basic and emergency medical help.

All the rest, well, that's precisely the initiative to get a job, and do it fast. I mean, not much fun living like that. But, at the same time, no need to sleep rough, beg and go through trash cans.

So..the same guy in US, how would that look like?

Thorfinnsson , March 5, 2018 at 9:40 pm GMT
@peterAUS

I will sound simplistic and naive, but it's really hard to reconcile those extremes in US.
I mean, I have no problem with capable, talented, or just ruthless and greedy, or just lucky, having all those zillions. Good on them.
But, at the same time, in the same place, people who are going through the trash cans.
Yes, I've heard all the explanations, all sound very reasonable, some don't even understand (stupid me), but , still

It's a political choice, pure and simple. And some of the political choices are unrelated to the welfare state–some municipalities have statutes against vagrancy and enforce them. Others don't.

I was in Hawaii recently and watching that was .well .interesting.
You walk around and see extraordinary opulence, often gluttony really, and at the same time all those homeless. Yes, I do know the story about them, but, still
Plenty of those, apparently, vets.

Hawaii, for obvious reasons, is a place with a lot of voluntary homeless. The state has been trying to get rid of them by buying them tickets to the mainland.

Many other voluntary homeless are found in California, Colorado, and Las Vegas. The California ones may be quasi-involuntary as it seems many arrived from the Midwest to get into paid rehab programs, then after running out of money moved into tent cities. But they weren't homeless in the Midwest and panhandling enough for a Greyhound bus ticket is not hard (though embarrassing, or at least it would be for me).

Bear in mind that Americans also donate a lot to charity, both in absolute and per capita terms. So almost every community (besides rich-only suburbs) has a food bank which people donate to, even if there's no social need for it. My secretary for instance is a very kind person and as such is always trying to organize canned food drives for the food bank. The many users of the food bank are what Victorians would call the undeserving poor who are already on the federal SNAP program. The food bank lets them increase their purchases of marketable commodities (such as soda), which can then be traded for supplies not covered by the SNAP program (alcohol, tobacco, and illegal drugs).

Note that my community does not have homeless people as it's a rural small town.

Lots of churches, including here, will also do things such as offer free Thanksgiving and Christmas dinners to the indigent and purchase toys for their children.

Larger cities have a mix of public and private homeless shelters. There generally isn't enough capacity for all homeless, but that works as many homeless don't like the rules these shelters impose.

iffen , March 5, 2018 at 10:21 pm GMT
@peterAUS

So.. the same guy in US, how would that look like?

First, you are dealing with 50 different systems. Only Social Security is uniform throughout the country.

As a general rule an able-bodied male would receive no permanent assistance in a state like mine (Alabama).

He could get unemployment compensation for 26 weeks provided he complied with the job search rules.

Other than pregnant women, adults in Alabama do not receive Medicare so if he was unable to pay his Cobra insurance premiums he would have no insurance. There are public health clinics but the availability varies by county.

Many that are under 62 try to get approved for Social Security Disability. It is a bit of a racket. The rate goes up during times of high unemployment and is trending higher even though most jobs are less physically demanding. "Mental" disability is one of the best tickets available. This is the route most druggies take.

Playing it straight is a real disadvantage. As a general rule people lose assistance as they earn more. As was pointed out, the ones who do not work and have no "income," wink, wink, do best with regard to the available assistance.

Many of the "homeless" have mental, alcohol or drug problems (or all three) plus the charitable organizations devoted to providing services for the homeless are extensive. Around the cities free meals are widely available.

[Dec 17, 2017] Retiring abroad

Notable quotes:
"... Canada is as neoliberal as almost anywhere else in the Anglo developed world. You can think of us as being just like the USA or UK, but about a decade behind in the adoption of dumb and cruel ideas. In the Anglo neoliberal family, Canada is the slightly retarded little sibling. ..."
"... Ireland allows you to claim citizenship if you have an Irish grandparent (with some caveats). Many US and Canadians use this to work/settle in the EU. A Chicago friend who was working in London and HK got her Irish passport without ever bothering to visit Ireland. ..."
"... Yves, Sweden might take you, if you can take the winters the requirements for self-employed residence permits aren't too harsh. So far they've managed to not overdo it on neoliberalism, although there are forces that sure try to make it happen. ..."
"... I also live near San Miguel de Allende in a small, agricultural Mexican community perched on the side of an extinct volcano. I pretty much avoid the expat scene, shop in the mercados, hang with Mexican friends and am thoroughly enjoying soaking in this wonderful way of life. I made this move at age 70. ..."
"... When I'm in Mexico the feeling is of constantly hitting my head against a glass ceiling and biting my tongue. ..."
"... But for the love of God, stay on the beaten tourist path (SMA-Oaxaca City-Cholula etc.). Don't go into Guerrero except maybe Taxco. I was just in Chilpancingo for a professional event, taking every precaution, and the stories you hear first hand are horrifying. The security situation in Mexico is deteriorating badly. ..."
"... Even states like Puebla that used to be safe are seeing kidnappings and other extreme crime. If you speak Spanish, the issue of security it is utterly unavoidable, it creeps into many conversations and dominates the local news. ..."
"... 'According to Pew Charitable Trusts, only 13 percent of Baby Boomers still have [defined benefit pensions].' ..."
"... This 13 percent remnant overwhelmingly consists of government employees, whose defined benefit pensions are uniformly underfunded (and even understated as to HOW underfunded they are). ..."
"... I had a work colleague from Sweden. She had been a school teacher there and came to the U.S. to sell financial products, make a lot of money and avoid Swedish taxes. I asked her if she were going to become a U.S. citizen. She looked at me like I was crazy, laughed and said, "Hell no, I would never wish to be old in America." ..."
"... From my perch, if any Americans want to make the move, I would say over the next decade before that door closes. The regulations are already tightening up such as making sure that you owe no taxes or the like before you leave. More Americans are now renouncing their citizenship as America still want to tax them even when they have moved away. After this decade, I regret to say, that America will be no country for old people. ..."
"... And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street. ..."
"... By the way don't get me started on the cost of healthcare. It's cheap until you run into a major complication. I had surgery in Peru for something minor and the total bill was over $5000 USD. Imagine if it were heart surgery. My expat insurance paid it but you can't get that if you're over a certain age. ..."
Dec 01, 2014 | nakedcapitalism.com

Roland , December 14, 2017 at 6:39 pm

Canada is as neoliberal as almost anywhere else in the Anglo developed world. You can think of us as being just like the USA or UK, but about a decade behind in the adoption of dumb and cruel ideas. In the Anglo neoliberal family, Canada is the slightly retarded little sibling.

The cost of living is high in Canadian cities. In Vancouver and Toronto, the cost of living has soared out of any sort of proportion to employment incomes. Affordable rental housing is often infested with bedbugs or other vermin (Vancouver alleyways are strewn with stained mattresses and other abandoned furniture). Beggars are seen everywhere, while the Teslas and Lexuses roll past. Not a day goes by that I don't see elderly persons climbing in and out of dumpsters. Permanent shantytowns have arisen on the outskirts. We got almost the same opiates problem as the USA.

The province of Quebec used to be more social-democratic in orientation than other parts of Canada. But even the Quebecois seem to have caught the mental and spiritual diseases of the globalist bourgeoisie. I recently spent a month in Montreal, and was aghast to see the staircases of downtown Metro stations rendered almost impassable by the large numbers of homeless men and women trying to sleep there.

My younger relatives look at me very sceptically, when I tell them that as late as 1990, a beggar was an unusual sight in Vancouver. Of course, people born since that time would think that what you see today is normal .

Wukchumni , December 14, 2017 at 8:10 am

We were at a commercial hot springs somewhere in France about 15 years ago, and it cost around $5 to go in, and before entering, there was a doctor and nurse that checked your blood pressure, etc., for no extra charge. It was so over the top in terms of anything compared to here, in a delightful way.

artiste-de-decrottage , December 14, 2017 at 3:23 pm

In France, doctors make a lot less than in the US, particularly general practitioners. The GP doctors make on the order of what a senior manager or engineer makes.

There are good reasons for that (among them free education for doctors and a totally different societal attitude towards healthcare, based on SOLIDARITY – whose outcome is a more reasonable cost and coverage. Yes, they also do use that word a lot in general public discourse, in many European countries. Have you heard the word SOLIDARITY in the US in public discourse, ever?).

A good summary of that and meaningful comparisons with other nations' healthcare systems is provided in the book 'The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care' by T. R. Reid.

Larry , December 14, 2017 at 7:44 am

Don't worry, Marcon and Merkel are accelerating the crapification of France and the wider EU. The next generation will get to experience the joys of economic and health insecurity in abundance.

vidimi , December 14, 2017 at 8:05 am

the main project now is to gut the public pensions. the PIIGS countries have already had to slash theirs, so the plan now is to bring the rest of Europe to Canadian levels (retirement age at 67 or higher with a minimal state component).

JEHR , December 14, 2017 at 2:46 pm

Retirement levels were put back to 65 with our Trudeau Liberal government.

kukuzel , December 14, 2017 at 3:31 pm

By the way, it is not widely known for example that the retirement age in Russia is 60. And, judging by the tens of thousands of healthy and active Russian retirees (these are teachers and professional workers, "middle class" people, not oligarchs – those go to Monaco and Switzerland of course) living on the Black Sea coast of Bulgaria (mild winters, culturally and geographically close, inexpensive by developed world standards, gateway to the EU), their pensions cannot be that bad.

And no, they don't look like they are about to die at 65.

So, take that, dear future US retirees (myself in that number).

Robert McGregor , December 14, 2017 at 8:58 pm

Wikipedia says the retirement age in Russia is 60 for men, and 55 for women !!! My personal family practice physician is a Russian immigrant and pre-GFC she claimed, "Most Russian men die before 60. (Wikipedia now says 70.91) Next time I see her I may ask her about Russian retirement, and life expectancy etc. Another topic is the prevailing attitude of Russian immigrants when they came to America. They really expected to clean up! I'd be interested in what other NC readers think about this.

Certainly I can imagine the distress of Russian immigrants who through a lot to move to the US only to find by age 60–55 for women–they might have been better off being back in Russia.

OIFVet , December 14, 2017 at 10:19 pm

Indeed, the Black Sea coast is overran by Russkies, younger ones as well. The countryside is where the Brits move to to feel like country squires on the cheap. And Americans are concentrated in Sofia, doing the heavy lifting of pretending to be civilising the natives while securing staging areas for the future war against Russia. It's all one big happy international family :) Can't wait to move back there permanently in 30 months.

Jeff Mintz , December 14, 2017 at 3:30 pm

I believe that Medicare benefits cannot be used outside the US at all.

kazy , December 14, 2017 at 3:58 pm

You can't use Medicare anywhere other than the US

David Carl Grimes , December 14, 2017 at 5:19 pm

They should allow Medicare to be used outside the US, especially for low cost countries in the Third World. They are cheaper and just as good as the US for many medical services – maybe not for transplants but for heart bypasses, dialysis, etc., they are ok.

annie , December 14, 2017 at 7:01 pm

correct: medicare cannot be used outside the u.s.
we are retirees living abroad much of the year. our secondary insurance (which we are lucky enough to have from former teaching job) becomes our primary insurance. we submit bills to them and they pay (reimburse) fairly well.
we use local doctors and clinics at much lower rates than in the u.s.
emergency medical care in europe is nearly always free or all but free.

gardener1 , December 14, 2017 at 4:13 pm

We've been to Ecuador twice in the last 4 years exploring retirement there – and decided against it. For a combination of reasons.

1. In spite of what gets touted in the retirement media, for the most part Ecuador is a third world country with everything that entails.

2. The much ballyhood Cuenca is in an Andes plateau at 8,000 ft. elevation. Not a fan, and it's isolated, if you want to get out of Cuenca there's a lot of nowhere to go. Cuenca has been haggling with airlines to get some service providers since TAME cancelled its routes, that's been a constant and ongoing problem.

3. I liked Quito, It's at 9,000 ft. I really couldn't take it.

4. The coast is a very narrow strip of land at the bottom of the mountains, and outside of a couple of areas it's a backwater. Little infrastructure, few services, dirt poor. The north coast of Ecuador (we call it the mosquito zone) shook down in a 7.8 earthquake in 2016 that wrecked everything from Manta to the Colombian border.

5. Ecuador completely overhauled its visa laws in February of this year making it much more difficult to get any kind of permanent residency permit, and requiring all visa applicants to provide proof of personal health insurance to qualify for a visa.

6. Ecuador isn't cheap. They levy enormous taxes on almost everything that's imported, which is just about everything but food. Impossible to get packages and mail in or out.

'Studies' have shown that the majority of pensioners who retire there, leave and go back home or somewhere else within 5 years.

LifelongLib , December 14, 2017 at 2:14 pm

American individualism is a recent myth. I remember how my grandmother who grew up in rural Montana a century ago could rattle off the names of various second cousins, to say nothing of all the family stories. Life then was rugged but it was not individualistic.

MyLessThanPrimeBeef , December 14, 2017 at 2:48 pm

That's a key consideration for me.

Friends and relatives.

Perhaps one can acquire new pals at the age of 70, as as not to be a lonely old man/woman.

Or are you just a Yankee with money?

And hopefully the new country is so subdued by the super power that there is no need to liberate it. For example, Libya, a few years ago, would not have been a good choice, in this respect.

jackiebass , December 14, 2017 at 7:31 am

If you choose traditional medicare instead of a medicare advantage plan , I don't understand how it would narrow your network. Traditional medicare is universal in the US and accepted by most providers. I've been on traditional medicare for16 years and haven't had a provider that doesn't accept traditional medicare.

doug , December 14, 2017 at 9:42 am

I wonder if that is regional. Where I live(south), I never see a problem with that.

My PCP when I asked him as I approached 65, replied, that of course he accepted medicare, that there was little difference between it and other insurance, and that folks who did not accept medicare were immoral in his view.

Left in Wisconsin , December 14, 2017 at 1:18 pm

I think out here in flyover it is less common for doctors to not take Medicare patients. My elderly father moved out here 1.5 years ago and has made considerable use of the excellent resources of the UW health system. His secondary private insurance covers very little since he is out-of-network but Medicare has covered virtually everything and no expert has refused to see him (urology, throat/swallowing, dementia, macular degeneration, etc.) due to being Medicare insured. I am pretty sure the entire Mayo Clinic operation takes Medicare patients also.

It may be that independent docs are refusing Medicare patients but there are fewer and fewer of those out here.

Yves Smith Post author , December 14, 2017 at 7:53 am

A lot of doctors do not accept Medicare. My current MD does not. I think that is even more true of specialists.

And I am not in a network. I have an old-fashioned indemnity plan. I can see any doctor, anywhere in the world. I submitted claims for 2 years from Australia, and have also submitted claims from the UK and Thailand.

pretzelattack , December 14, 2017 at 11:09 am

it happens around this southern city . scary stuff, my first world problems may turn into third world problems. trying to imagine being 70, living in a van, queing up for a chance at a valuable temp gig in an amazon warehouse.

Rhondda , December 14, 2017 at 10:41 am

I would have thought so, too. Certainly the media I have read has lead me to believe that many doctors don't accept Medicare. I wondered what the percentages were so I did a search. Surprising to me. More nuance than one might think in the results -- seems you can "accept" at finer-grained levels than one might assume in a Federal program. Here's what seems to be a reasonably objective and recent appraisal: http://www.factcheck.org/2017/03/medicaids-doctor-participation-rates/

GF , December 14, 2017 at 1:40 pm

Anecdotal reply from the few doctors I have seen: They state they accept Medicare because it pays them quickly and there is less paperwork than with most insurance companies, which results in less office overhead. Even with the lower payments from Medicare for many procedures, the doctors do OK when the big picture is examined.

Jack G , December 14, 2017 at 2:57 pm

One of my docs accepts no insurance. But he will file the Medicare claim. I pay him and Medicare sends me a check. It's a little unwieldy but he's a good doc (in my completely unprofessional opinion) so I put up with it. Others don't and go to other docs.

Jer Bear , December 14, 2017 at 4:56 pm

Physicians in private practice often do not accept Medicare or Medicaid do to billing issues. These are usually older doctors with established practices. Younger physicians often end up working as employees of large chain hospitals to stay solvent, and they will accept any form of payment.

Tinky , December 14, 2017 at 7:32 am

I now live in Portugal. The quality of life is high, and cost of living quite low (though Lisbon has become pricey in terms of property).

A few months ago I sustained a cut that wasn't healing well, and decided to visit a private walk-in clinic. It was clean, modern, and there was virtually no wait. The nurse took care of me, as no doctor was required. She spent about twenty minutes cleaning and dressing the wound, and gave me some extra waterproof bandages to take home.

The cost? Six Euros. You read that correctly: Six Euros.

RabidGandhi , December 14, 2017 at 7:45 am

To the issue of cost of living, I was in Portugal last week and had a myocardial infarction upon seeing petrol prices at 1.55€/litre. Good thing is not only are there excellent public hospitals for such MIs, but the extremely relaxed recreational pharmaceuticals policy makes for good prevention as well.

Tinky , December 14, 2017 at 8:04 am

Petrol is expensive throughout Europe, but who really needs a car? Public transport in Portugal is largely excellent, and cheap.

Carolinian , December 14, 2017 at 10:04 am

Where I live a liter is about .48 euro if I have my conversion right. So retirees here do catch some breaks. Also there's no VAT although we do of course have sales tax. And finally many US retirees fully own their homes whereas in, say, Germany almost everybody rents. Indeed I'd say that so far the US elderly have it easy compared to the millenials who are the ones really getting screwed. Just reading an article the other day about the record number of millenials living with their parents or, undoubtedly, their grandparents.

And finally I've read Nomadland and should be said that many of those older people wandering around the country do so by choice. RVs are not cheap. A new one can cost as much as a house. Amazon prefers to hire these people for their work ethic and because they bring their own housing with them which is handy for a temporary workforce. Amazon even tries to sugarcoat the exploitation by making a kind of club out of it called CamperForce.

Pinhead , December 14, 2017 at 11:51 am

Home ownership in Germany is 52% and it is below 45% in Switzerland. It is 65-75% in almost all other rich countries including the US. It is actually around 85% in Russia and 90% in Cuba although the amenities are not quite the same.

jCandlish , December 14, 2017 at 12:01 pm

As a Swiss I can say that it does not pay to own your house outright. The way our taxes are structured you are cash ahead to carry your mortgage in perpetuity. It is a nice gift for our banks.

Anon , December 14, 2017 at 2:57 pm

Many 'Mericans say they own their home, but actually the bank (mortgage) owns the home. They're simply trying to improve their equity (and freedom to paint it whatever color they please) in the home.

I've owned (completely mortgage free) several homes, and between crazy neighbors, time involved in upkeep, and property tax the best hope is to sell them to a greater fool. (Price appreciation.) Spending over half of one's income on a home mortgage and hoping the next generation will buy it when it's time to move on is more risky than many other "investments".

MyLessThanPrimeBeef , December 14, 2017 at 5:03 pm

I'm in the middle of re-piping the whole house.

It's not cheap.

witters , December 14, 2017 at 5:18 pm

All them pipe-fitters gone to France?

oliverks , December 14, 2017 at 1:28 pm

I was in Italy this year, in a remote part where you really needed a car to get around. The diesel prices were shocking, but the small car efficiency actually balanced out the price. I don't think I spent any more per mile than I did in the US. For reference, I drive a 4 cylinder Toyota which is not exactly a gas guzzler here.

Larry , December 14, 2017 at 7:46 am

How would that visit go in Greece?

Wukchumni , December 14, 2017 at 7:46 am

My mom gave me her checkbook register from mid 1961-62 a few years ago, and for a family of 6, there was a total of $88 paid to Dr. Evers, our family physician. My coming out party was $190.

The checks were mostly $6 and $7, with one $14 whopper.

I asked my mom if we had health insurance, and she told me that aside from a few that had Kaiser, nobody had health insurance back in those days.

cojo , December 14, 2017 at 9:36 am

Health insurance was not as critical in those days. The low prices you quote for day to day purchases could also be found in the healthcare of the day. Not the inflated prices we have now. Same with education. I recall seeing old tuition receipts from my university that maxed out at a few hundred dollars per semester in the 1950's.

Eclair , December 14, 2017 at 10:47 am

My dad's brother was a physician, an old-fashioned family doctor whose office was in his home and who made house calls. This was in the 1940's and 50's. Many of his patients paid 'in kind;' although he lived in the city, people still had large gardens or lived on outlying small farms, and in August and September especially, my aunt would routinely find boxes of fresh fruits and veggies on their porch. She joked that she was kept busy canning and preserving for at least three months of the year.

Yves Smith Post author , December 14, 2017 at 7:55 am

Yes .but you are in Portugal. For someone old to get permanent residence in a foreign country is generally an insurmountable obstacle.

Tinky , December 14, 2017 at 8:02 am

Actually, there are some avenues available for some, depending on ancestry, but work is required.

My father was born in Europe, and, after three years and the help of an inexpensive lawyer, I was able to gain a second citizenship. That, in turn, allowed me to live in Europe.

I believe that Ireland has fairly liberal rules along these lines, but it is worth checking into it no matter what foreign country one's parents were born.

Yves Smith Post author , December 14, 2017 at 8:10 am

Won't even remotely work for me. I'm from old and undistinguished stock. All my grandparents were born in the US and three of my four grandparents have gene pools that go back to before the Revolution (two English, one bizarrely Hungarian).

vlade , December 14, 2017 at 9:45 am

If you could speak Hungarian (which would be a feat ), you could apply for Hungarian passport by ancestry (assuming you can track your Hungarian roots with sufficient documentation). That would open all of EU, and I think you might like Berlin

Yves Smith Post author , December 14, 2017 at 2:00 pm

No, my Hungarian ancestors have supposedly been here over 200 years, plus my mother was terrified of both her parents, in particular her Hungarian father, who was estranged from the rest of his family, and so she knows nothing about his ancestors. The claim was they came to help fight in the Revolutionary War and stayed. That's likely family urban legend, but my mother is pretty sure his parents were born here too.

PlutoniumKun , December 14, 2017 at 8:18 am

Ireland allows you to claim citizenship if you have an Irish grandparent (with some caveats). Many US and Canadians use this to work/settle in the EU. A Chicago friend who was working in London and HK got her Irish passport without ever bothering to visit Ireland.

PlutoniumKun , December 14, 2017 at 8:12 am

Easy enough within the EU of course – there are huge numbers of northern European retirees living on the Med and in Portugal. But plenty of Britons are finding out to their horror they are very vulnerable to both Brexit and a weakening sterling.

I've not looked into the visa side of things, but some Asian countries target retirees as a source of investment in rural areas. I don't know if it still does, but Taiwan used to market itself to Japanese retirees as a cheap place to move with your yen pensions. There are a lot of retirement developments in Thailand and elsewhere, marketed on cheap property and good quality health systems. They seem to aim mostly at Europeans and Japanese.

FreeMarketApologist , December 14, 2017 at 8:27 am

Mexico. I have friends (gay, married; a retired nurse and retired librarian), who moved there full-time 3 years ago after 30+ years in NYC, and nearly 15 years of periodic vacations all over Mexico, to consider possible locations. They moved to a medium-sized city about 3 hours by bus from Mexico City, somewhat off the beaten path of the usual expat communities. Very affordable, and permanent residency is not a problem. Mexico City is very affordable, very good subway system, and has lots of things to do if you're retired and need to fill up a day. Over their years of visits, they built up a network of friends and connections, and have found good local doctors and dentists. One is fluent in Spanish, the other not so much.

Alex V , December 14, 2017 at 7:48 am

To me, another thing that makes the US horrible and expensive for older people (among other groups) is the virtual requirement for a car. Outside of a few major metro areas you're basically screwed without one. Part of why I encourage my mother to move back to Germany after my father passed away (even though she drives now and has a car) she can get basically anywhere in Europe without needing to get behind the wheel.

Yves, Sweden might take you, if you can take the winters the requirements for self-employed residence permits aren't too harsh. So far they've managed to not overdo it on neoliberalism, although there are forces that sure try to make it happen.

Alex V , December 14, 2017 at 8:58 am

Here you go!

https://www.migrationsverket.se/English/Private-individuals/Working-in-Sweden/Self-employment.html

Wait times for decisions are long, but they're actually quite helpful and nice in general. Almost like they want people to move here

Mark Alexander , December 14, 2017 at 11:04 am

Thanks for the link. These bits from "Requirements for obtaining a residence permit as a self-employed" do seem a bit daunting, though: "show that you have established customer contacts and/or a network in Sweden", and "show that the business' services or goods are sold and/or produced in Sweden". This would be tough for us, since our main business now is fiber arts (weaving, etc.) and farming, all very local things. I do some part-time programming but that's also quite local.

Fifteen years ago, I qualified for NZ immigration, just barely. Now I'm too old (their points system penalizes you on age). Sad, really, since I spent a year in NZ as a child, went to school there, went on camping trips and adored the landscape, etc. I still consider it my first home.

OpenThePodBayDoorsHAL , December 14, 2017 at 3:34 pm

When Bush got appointed the second time in 2005 we made the move to Australia and boy are we glad we did.
The concerns about family and friends cited here are real but we have adjusted and Aussies are very easy and welcoming as new friends.

We recently dropped our "private health coverage" which is essentially an American-style system that sits atop the existing public system. So when my son recently had a non-serious health problem we were really astonished when, at 2 hours' notice, a doctor showed up at our house to treat him. Bill? Zero. All of the health care we've received here has been top-notch.

Not mentioned in the article is that many countries, especially in Asia, are not ageist . Employers actually value and respect the experience and wisdom older workers bring.

But my view is that the only hope is to hijack the politics of everything in the U.S., the richest country on Earth has more than enough money to solve its woes. So pick a single issue, a simple one that everybody can understand, one that is so destructive and hateful and wasteful that everybody can get behind it, and organize. Can I suggest Permanent War ? Maybe mention the $21 trillion that went missing at the Pentagon in the last decade? Maybe help people understand that the enemy (Osama, ISIS) is dead ? Show them a quick chart and ask them to pick which one they want to buy , an electronic gun that can shoot Middle Eastern goat herders from space, or 25 new hospitals.

Stop the War. It's what worked in the 60's, and it can work again. A New Peace Dividend that can be spent on the things people are crying out for like retirement and health care. Leave out all of the other divisive stuff like gender and race and abortions and green energy and net neutrality. The party platform has one item on it: Stop The War. Peace, Bread, and Land.

Paleobotanist , December 14, 2017 at 3:18 pm

Hi Yves

Think seriously about Montreal. It's one of the world's great cities. Great public transport. We don't own a car. Life is good here.

Yves Smith Post author , December 14, 2017 at 5:26 pm

Yes, the trick is getting to Canada and Quebec at my advanced age. I know the provinces have job categories where they are seeking workers, otherwise my impression is it's by points, and I fail on that. The only way in might be if I got some sort of teaching post at one of the unis for something where my background would add something they couldn't get locally.

mtnwoman , December 14, 2017 at 7:21 pm

What if one doesn't speak French? Would it be hard to live in Montreal?

Paleobotanist , December 14, 2017 at 9:22 pm

I speak French. The spousal unit is learning. The cats picked it up quickly ;^) They are quite happy being "minous", rather than kitties.
Actually in Montreal you can get by fine with English only in the West Island. I have anglophone colleagues who only speak English.

vidimi , December 14, 2017 at 8:10 am

this is so true. 2 or more cars per household, and the ridiculous quantities of meat in their diet, are probably the two main reasons why americans consume more than twice as much as the EU average.

el_tel , December 14, 2017 at 11:06 am

I lived in Sweden for 6 months (as an EU citizen). There is indeed a lot going for it but there are a lot of issues too that don't get media attention. As a Professor in Uppsala I was warned by a friendly local that "even if you were a Stockholm-based immigrant to here you'd find it difficult to integrate". This was not due to any latent racism or anything like that – merely that Swedes have quite an ingrained way of "putting down roots" (compared to, say, Denmark). So I was warned that socialising means many many weeks of doing the coffee and cakes thing, then, if things go well, you may get invited out for a drink in a bar, then again, if weeks of that work you may get an invite for a home visit.

It's tough – and I was someone who (unlike many anglos) was keen to learn the language so as to fit in better – though (of course) Swedes typically have brilliant English you can't expect them all to speak it exclusively in a social context just to accommodate you. So I witnessed Europeans (central, southern and western) tended not to integrate well and instead formed their own groups. Furthermore Swedish healthcare, although overall cheap and good, does not do well on the "integrated care" front – IIRC (don't have reference to hand) some "official" comparisons of industrialised countries bear this out and its ranking dropped several places due to this issue.

It was incredibly difficult (even with employer sponsorship) to get Aussie permanent residency .but the "final hurdle" of citizenship was a cinch (given that most of the "benefit" is accrued through PR, not citizenship) .I don't think any non-North American industrialised country is unequivocally "better" – you decide what you want most and what you'll compromise on and take your choice. I'm probably going to get citizenship of a 3rd country (Ireland – not cheap but I'm entitled to it via Irish mother and Irish paternal grandfather) to hedge my bets if my company stays afloat but I have enough relatives there to know it has its own set of issues.

Alex V , December 14, 2017 at 1:11 pm

Agree on the integration part, but if you know this going in I think it's a bit more manageable (you learn not to take it personally, that's just the way Swedes are, and it's definitely not universal). It also helps to join activity groups – they're into that in a major way.

rusti , December 14, 2017 at 2:26 pm

There are also large ex-pat communities in towns and cities of virtually any size. My circle of friends and acquaintances is a Sesame Street-like cast of people from all over Europe, the Americas, Africa, and Asia who have all moved here to study and work. Many of us speak Swedish with full professional fluency, hold dual-citizenship and regularly consume Swedish media but have found other transplants to be among the most welcoming and have gravitated towards each other for that reason.

Yves Smith Post author , December 14, 2017 at 2:03 pm

Oh, this is an entrepreneurial visa. That's; how I got into Oz but they shut that down. They typically require that you show sufficient net worth to fund a business and you need to generate a certain level of domestic revenues and/or employment to stay.

Alex V , December 14, 2017 at 3:07 pm

The way "in Sweden" is tacked on at the end regarding where you make money makes it a little vague as to which part of the and/or it applies to. I think they also do a reasonable job of looking at the whole case and would understand someone making a living online or remotely. They just want you to pay tax here. If you haven't done the conversion already, 200,000 SEK is around 25,000 USD at today's rate, which I think is pretty modest from my vague knowledge of this type of visa in other parts of the world.

But like I said, in my experience Migrationverket is quite polite, professional and even welcoming when you deal with them, so it de worth contacting them if you're interested.

And yes, I'm a bit of a shill for my adopted home

Alex V , December 14, 2017 at 3:19 pm

Alternatively, because I love NC quite deeply, we can commit visa fraud and get married ;)

Yves Smith Post author , December 14, 2017 at 5:28 pm

Aaw, that's really kind! And I am 1/4 Swedish if that at all helps, although my grandmother was born here (her father came over and then had kids here after he got established).

Matt , December 14, 2017 at 8:05 pm

I emailed one of our corporate attorneys today, he's been with the company since the early 1990s, and Outlook told me he resigned on 12/8. I asked someone about it, and they said, yeah, he's moving to Sweden. I'm dying to find out why, and what he's going to do.

Sam Adams , December 14, 2017 at 7:58 am

It's the tax and treasury account compliance that stops many and causes more to renounce US citizenship combined with many European banks refusing to do business with Americans that make expatriating very difficult. It's a feature and not a bug as Lambert would say

visitor , December 14, 2017 at 8:19 am

FATCA has been a source of unending critical trouble for expatriates from the USA but also bureaucratic hassle for non-US citizens who have strictly nothing to do with the USA.

Christine , December 14, 2017 at 8:04 am

I live 2 miles outside of San Miguel de Allende in the state of Guanajuato, Mexico. It's been voted the best tourist city in the world by several magazines a little Paris. Settling here was tough, and ultimately I had to become functional in Spanish to get the 13 year lease at $500/mo for a 4 bedroom 3 1/2 bath, needs work house, on 2 acres, since my landlord doesn't speak English. But I live far and away better than I could in the US, on 1/3d to 1/2 of the cost. I am living in the only sustainable place of my life pretty friendly, pretty clean, awfully nice a veritable garden of fireflies, butterflies, bird life, decent animal husbandry, up against the mountains, much in nature reserve. There is excellent medical care at reasonable prices. I am 8 hours from the US border if I have serious Medicare needs. Town offers wonderful food, luxuries, entertainment if I want to go in. Down here we say, thank god people in the US are afraid and ignorant of Mexico. It keeps them away.

david , December 14, 2017 at 9:05 am

Does Doc Severinsen still play at the club in town? great town San Miguel – huge art community

Joel , December 14, 2017 at 9:41 am

There is a lot of hand wringing in the Mexican press about how American and Canadian retirees have gentrified and de-Mexicanized San Miguel de Allende. If the shit ever hits the fan, at the very least I would want my immigration papers in order, but really I just would rather not be there.

Plus, quality major healthcare (the kind that a 65+ person may need suddenly at any time) is not cheap in Mexico and the Mexican government has made it much harder for new arrivals to get onto the Institute of Medicine and Social Security.

When you add in the very high levels of xenophobia in Mexico (just look at how the Central Americans and even Mexican Americans are treated) and deteriorating security situation in more and more states it is a risky proposition. I would not want my mom to move there.

Lee , December 14, 2017 at 9:46 am

We take their low wage huddled masses and they get our gentry who benefited from paying low wages. It's win win! Or a stupid circle jerk. Not sure which.

Joel , December 14, 2017 at 10:30 am

Unfortunately given escalating healthcare costs in Mexico, plus the same xenophobia as ever, they're much less keen on taking our huddled masses. Plus they have a big problem now with American retirees who are trying to live on less than $1000 a month in US social security, well under the approx $2500 month required to get a retiree visa, who can no longer return to the US for healthcare or family visits because they can't even afford the bus ticket and might not be let back into Mexico because of their massive immigration violations.

vidimi , December 14, 2017 at 11:27 am

I think that's part of the problem. America is more and more reluctant to take in the huddled Mexican masses which means that these huddled Mexican masses may begrudge more and more the privileged gringos who make the trip down south.

LaGringa , December 14, 2017 at 11:07 am

I also live near San Miguel de Allende in a small, agricultural Mexican community perched on the side of an extinct volcano. I pretty much avoid the expat scene, shop in the mercados, hang with Mexican friends and am thoroughly enjoying soaking in this wonderful way of life. I made this move at age 70.

Certainly, this required a major adjustment. It's not like moving from Boston to Tucson. It's more like moving to a different universe. But if a person is open, hangs loose and finds someone to help work through the ins and outs of the immigration process, it's not all that difficult.

My health insurance is free because of my age and health care here puts the emphasis on *care*. An acquaintance had a knee replacement and the total out-of-pocket cost to her was 3300 pesos – about 170 usd. The entire surgical team came into her room and introduced themselves before the procedure. The surgeon was top notch and she is fully functional with no pain for the first time in years.

I've taken road trips from Chihuahua to Oaxaca alone with my dogs and have never felt unsafe. There are certain roads in Guerrero, certain parts of Mexico City, etc that I avoid because it's just common sense. I did the same in parts of NYC and Albuquerque.

It was clear to me that I would outlast my savings if I'd stayed in the US. Here, I can afford to live here modestly but comfortably. I have a Spanish tutor and I can get by. I am obviously a gringa but when Mexicans speak English to me and I answer in Spanish, they smile and everything changes. People here are kind, polite and, if you don't behave like the proverbial "ugly American" (some expats do, unfortunately), you may find yourself treated like family. And the way of life, the quality of the food, so many things have had a hugely positive effect on my health. My borderline hypertension has given way to BP numbers I haven't seen since I was in my 20s – and I take no pharmaceuticals.

I lived all over the US before moving here. I have no intention of going back. I'm eligible to become a Mexican citizen soon and I will do so. Whether I renounce my US citizenship remains to be seen. I haven't been back to the US since moving here so .

Joel , December 14, 2017 at 2:14 pm

I speak Spanish at a near-native level (started learning as a child and lived years in Latin America).

My sincere advice is don't learn much more, if you're happy now, just keep being happy. If you're able to understand better the world around you, the glow will rub off and you'll likely find that you are not in fact being treated as family but as a guest. I once spent a year in South East Asia and made a conscious decision not to get too involved, and loved it. I pretty much had the same experience you're having in Mexico. When I'm in Mexico the feeling is of constantly hitting my head against a glass ceiling and biting my tongue.

The wonderful thing about not speaking the language is it's an automatic filter. Only people who like foreigners talk with you and you are constantly in the position of wonderful people helping you out, because you need help.

But for the love of God, stay on the beaten tourist path (SMA-Oaxaca City-Cholula etc.). Don't go into Guerrero except maybe Taxco. I was just in Chilpancingo for a professional event, taking every precaution, and the stories you hear first hand are horrifying. The security situation in Mexico is deteriorating badly.

Even states like Puebla that used to be safe are seeing kidnappings and other extreme crime. If you speak Spanish, the issue of security it is utterly unavoidable, it creeps into many conversations and dominates the local news.

jrs , December 14, 2017 at 2:04 pm

because there isn't a lot of evidence most labor gets a very good return for crossing borders (like maybe all the low paid mexican immigrant laborers with no rights for example?). Well yes and maybe it's better for them than staying put, but it isn't any kind of good life. Most labor, even most skilled labor, is a lot closer to that "dime a dozen" bucket than any kind of name your own price bucket. As individuals labor just doesn't have much power, now maybe labor movements need to cross borders have all the workers at whole companies emigrate even.

Alex V , December 14, 2017 at 2:50 pm

Yes, I agree that in many cases labor doesn't necessarily win by moving in the real world. My comment was more on philosophical level – and somewhat a spin on the NC concept of "because markets" – in an ideal world countries would compete on attracting labor by what they offer in concrete material benefits.

Jim Haygood , December 14, 2017 at 9:21 am

'According to Pew Charitable Trusts, only 13 percent of Baby Boomers still have [defined benefit pensions].'

This 13 percent remnant overwhelmingly consists of government employees, whose defined benefit pensions are uniformly underfunded (and even understated as to HOW underfunded they are).

On the back side of Bubble III, as pension sponsors' equity-heavy assets shrink like an ice cream cone in the Sacramento sun, a hue and cry will arise for massive tax increases on the hapless public to bail out public employees' rich pensions. (Not that they aren't already happening -- two towns near me just hiked their sales tax by 1 percent to bail out police and firefighter pensions.)

'Pension envy' will be the defining cultural war of the 2020s. Got ammo?

PrairieRose , December 14, 2017 at 10:57 am

"Pension envy" has been around for a long time, Jim. I'm in my late 50s and grew up in one of the reddest states in the country (North Dakota). For forty years I've heard many snarky remarks about public pensioners, not to mention those gawdawful Unions (AFL-CIO, et al.). It never occurred to these people to demand the same treatment from THEIR private employers instead of complaining about collectively bargained for benefits. Much easier to beggar thy neighbor, apparently. Sigh.

jrs , December 14, 2017 at 12:18 pm

yes just unionize and get a pension from your private employer – not all of which are big employers btw which might be the only plausible shot at a private sector pension -however most people work for small to mid-size companies. And then people wonder why people think public sector employees are clueless about reality when it's all "let them eat cake" all the time.

I say let's NOT pay much higher taxes to fund the public pensions but INSTEAD pay much higher taxes to fund expanded and improved SOCIAL SECURITY for all. It's only equitable, it's only just, there shouldn't be favored types of retirees, whoever we work for, we all get old if we live long enough. Btw those same private sector unions have often sold out younger employees and accepted tiered wages etc.. I'm not anti-union, I'm skeptical of non-radical unions being sufficient.

WobblyTelomeres , December 14, 2017 at 12:27 pm

Sounds like we need One Big Union. I wonder where we could find such an organization?

MyLessThanPrimeBeef , December 14, 2017 at 3:14 pm

For me, it's about merging all plans into one universal pension – Social Security, and defend it as hard as, or harder, as pension plans are defended now.

Left in Wisconsin , December 14, 2017 at 1:27 pm

government employees, whose defined benefit pensions are uniformly underfunded

They are not uniformly underfunded. The Wisconsin state and local employee pension system is fully funded. Even Scott Walker hasn't been able to undo that.

Whoa Molly! , December 14, 2017 at 9:30 am

The only way I could figure out how to retire in the US was to find a house in a semi rural community that is a 45 minute drive past gentrification.

Start by buying a lot (bare land) then put a cheap RV on it, later a manufactured home if possible. Or find a lot with an older decrepit -- but still livable single wide trailer. Buy it for a roof and grandfathered utilities.

Medicare, plus low price house, plus low-status address. We also looked for a county with a high percentage of over-65 residents and rudimentary senior services.

Still not optimal but workable. northern California is where we landed because of family. Look for cheap towns with collapsed logging, farming or fishing industries.

Investigate by taking vacations in community.

Downsides include car-dependent culture, dependence on Medicare system, poor public transit, 2 hour drive to land of decent coffee shops.

Canada was a serious thought experiment until I realized they dont want old people unless they bring large bags of money along.

Wukchumni , December 14, 2017 at 9:40 am

That's similar to what we've done, and we're an hour away from 'civilization'. Our difference being that we're still years away-Medicare wise.

Our plan mostly revolves around the idea of not getting sick, a common way to avoid costly medical bills, combined with ACA (for the time being) and costly deductibles that will put the hurt on us financially, but not devastate us, should push>meet<shove.

Whoa Molly! , December 14, 2017 at 10:51 am

Too busy with yoga and writing to set up hostel. We do host traveling yoga teachers who come through periodically to teach at county yoga studios.

The second part of the scheme outlined above is to bring a low cost avocation that gives your life meaning and connects you with others. For me it was photography, writing, travel, and yoga. As years go by travel and photography are diminishing, yoga and writing expanding.

Wukchumni , December 14, 2017 at 10:59 am

I traveled like the dickens when I was younger, and am content now to hang out and do stuff that costs a pittance, most of which doesn't involve a computer in any capacity, aside from this here ball & chain.

Inode_buddha , December 14, 2017 at 6:50 pm

Try doing any of that in NY state you'll be so tied up in red tape and fees that it'll never happen. Yeah I looked into it.

Lee , December 14, 2017 at 9:35 am

Yves, have you checked to see if you qualify for Canadian permanent residency? I did and don't qualify. I'm retired with a good income from pension, social security, and interest from retirement savings. If I sold my house I'd nearly be a millionaire, which around here isn't that big a deal. It's also not enough for the Canadians, which makes sense, given that I've never paid into their health system and my medical expenses are likely to increase as I age. My understanding is that, given I am not going to proved the Canadian economy with a scarce skill, I would have to invest $2 million in a business in Canada that created jobs for Canadians.

I had a work colleague from Sweden. She had been a school teacher there and came to the U.S. to sell financial products, make a lot of money and avoid Swedish taxes. I asked her if she were going to become a U.S. citizen. She looked at me like I was crazy, laughed and said, "Hell no, I would never wish to be old in America."

The Rev Kev , December 14, 2017 at 9:47 am

I'm laying this one down at the door of social Darwinism at work. If you're poor then you deserve nothing and if you are rich then obviously you deserve everything. That is why someone like Peter Thiel can waltz into New Zealand and buy himself citizenship in less that a fortnight there. Not everybody can get themselves into the Best Exotic Marigold Hotel in India. And that mention of Ayn Rand and her influence on American life through people like Paul Ryan?

Well, if so may Congressmen want to investigate Russian influence in American politics then I present you with Ayn Rand as proof positive. In spite of all her malignant opinions, it should be noted that it did not stop her from claiming Medicare and Social Security when she got old. She did not want to be bankrupted by illness in old age so registered under her married name.

From my perch, if any Americans want to make the move, I would say over the next decade before that door closes. The regulations are already tightening up such as making sure that you owe no taxes or the like before you leave. More Americans are now renouncing their citizenship as America still want to tax them even when they have moved away. After this decade, I regret to say, that America will be no country for old people.

Wukchumni , December 14, 2017 at 9:52 am

In the most excellent book "I Will Bear Witness" diarist Victor Klemperer is often writing about German-Jewish friends that are leaving the 3rd Reich for other shores, subject to a "25% Reich Flight Tax", and in reality it was more like a 50-75% tax. What's our going rate?

Alex V , December 14, 2017 at 10:58 am

23.8% but you need relatively significant wealth: https://www.forbes.com/sites/robertwood/2017/02/27/renounce-u-s-heres-how-irs-computes-exit-tax/#4abe3c07287d

Wukchumni , December 14, 2017 at 11:35 am

Wow, just 1.2% away from the friendly rates of der Fatherland.

Alex V , December 14, 2017 at 4:09 pm

Ironic historical tidbit – the US concept of citizenship based taxation is a consequence of the Civil War.

Lee , December 14, 2017 at 9:52 am

I had another friend, a real gem of a man. From privilege, a Harvard graduate, progressive activist, who worked for low pay in the non-profit sector. He described his future retirement plan as "homeless in Honduras."

Joel , December 14, 2017 at 9:57 am

Sorry, I was triggered by the introduction. I am an American in my late 30s and I've lived a large chunk of my adult life outside the US, Latin America mostly and East Asia. Already now I'm hoping not to live long-term outside the country again.

I just made a short trip to Mexico and thought dear God I'm too old for this.

If you speak the local language and are hooked into local issues, you quickly realize that there is an unbelievable (for urban Americans who are used to a mosaic international society) amount of xenophobia in almost every other country. Being an outsider everywhere I go, with all the constant microagressions (and ocasional more major aggressions) wears on me the way Lambert says that inequality wears on the body.

And if you don't speak the local language and try to isolate yourself among other retirees -- why even be alive at that point? I don't imagine commenters on this site of all people sitting at a bar all day arguing US and UK politics in English with some other retirees far away from the action.

And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street.

By the way don't get me started on the cost of healthcare. It's cheap until you run into a major complication. I had surgery in Peru for something minor and the total bill was over $5000 USD. Imagine if it were heart surgery. My expat insurance paid it but you can't get that if you're over a certain age.

JBird , December 14, 2017 at 5:06 pm

And speaking of inequality, most countries have far worse inequality than the US and it is savage and painful to watch when your security guard finishes a 12 hour shift and then starts another 12 hour shift across the street.

The obvious in your face OMFG inequality is often worse, but the absolute inequality in America is among the greatest in the world. Most countries, outside Latin America, and Sub-Saharan Africa specifically, have better income equality. We are one step up from El Salvador . I've been to El Salvador, and no offense to them, we really should be doing much, much better than that small, oppressed, corrupt, dirt poor country. Granted, we are overwhelmingly wealthier, so being poor here is often not as bad as there, but still.

With that rant done, the GINI coefficient, which is a quick dirty way of measuring inequality, and therefore the economic/social/political well being of a country with 1.0 meaning one person owns everything and 0.0 complete income equality. The figures change some depending on whose doing the figuring, but the GINI for income in the American paradise is around .47 compared to Mexico's 0.48 with the Swedish hellhole at 0.24. If you are counting wealth instead of income, the United States is 0.8. Also, our lowest, therefore our most equal GINI was 0.36 in 1968. A study was done showing Rome's GINI (income) was 0.44.

I really should check again, but I recall reading nobody, anywhere who did not have revolution, uprising, something bad once 0.59 was reached.

Eppur si muove , December 14, 2017 at 10:39 am

Come to Bangkok. The medical care here is superb.. very reasonably priced and absolutely state of the art. Yes, we pay out of pocket, but only for what we need. There's competition between health care providers and one can get a quote from multiple sources for any surgical procedure. The US, with its ever increasing costs which now are something like 17% of GDP, is on an unsustainable path. Combined with the pending pension crisis I am concerned about the future for my US colleagues.

After my first annual physical here my Dr. said, bluntly, no pills but lose 25 lbs and exercise daily and come back in 6 months. An honest answer to our metabolic issues.

The lifestyle is fantastic, food is superb, cheap direct flights to anywhere in the world, world class beaches and vineyards,which make a halfway decent red wine, with wonderful restaurants, are just two hours away. The occasional coup keeps everything interesting. I can honestly say my lifestyle has improved in my retirement by leaving the US.

Grumpy Engineer , December 14, 2017 at 10:47 am

" The U.S. Is No Country for Older Men and Women "?

Indeed, it isn't. But increasingly, it's no place for younger people either. The stagnant wages, rising housing costs, and rising medical costs impact younger people just like they do older people. And yes, I know that younger people's medical expenses tend to be lower that they are for older people, but today's youth are being socked with educational expenses that seem to know no bound: https://www.nakedcapitalism.com/2017/12/student-loan-defaults-approach-5-million-using-permissive-definition-default.html

Is the solution really to "strengthen" programs like Social Security, Medicare and Medicaid, or would it be better to tackle the monopolies and rent-seeking behavior that results in the need for ever more dollars to be supplied? Bob Hertz had some excellent ideas regarding medical costs in https://www.nakedcapitalism.com/2017/11/medical-cost-reduction-act-2017.html . I think this would be a better solution than to simply promise more money for the money-hungry beasts out there to consume on the behalf of seniors. Tackling rising costs at the source would benefit everybody .

Lil'D , December 14, 2017 at 12:15 pm

Yes

But strengthening social services can be done and will help many people. Fixing root causes looks politically impossible (today) and will be strongly opposed by powerful interests. I doubt anyone here would object but we are not in charge

jrs , December 14, 2017 at 12:25 pm

Yes, makes some sense. Fixing root causes would include things like fixing ever rising rents etc. (although sometimes seniors can get it cheaper). However, the reality is living on social security is hard at this point even for those who own a home, just because the old age benefits are so much less than almost any other industrialized country on earth. So just increasing those would help a lot.

OpenThePodBayDoorsHAL , December 14, 2017 at 3:49 pm

Stop The War. Now there's a "root cause" for you.

Louis Fyne , December 14, 2017 at 10:51 am

the loss of the family network is an important thing to consider for many. Someone from our family always goes with my aunt to her hours-long chemo sessions and doctor appointments. In the waiting rooms, I see all these other solo cancer patients. They often look sodden. Maybe they're always going to chemo alone? The last thing you want when battling illness is also battling a sense of isolation.

Jeff N , December 14, 2017 at 11:10 am

Seriously, all the centrists act like the US should welcome people from all over the world, while Canada hardly lets ANYONE in. Also, I just got the aforementioned "Nomadland" book from my library, which I'll start on as soon as I finish "The Big Rig" which is (so far) a fantastic book about the way the trucking industry screws its workers.

Siggy , December 14, 2017 at 11:36 am

My friend Max, the neurosurgeon left the US several years ago for Switzerland. His son Peter had a serious brain tumor and went to Switzerland for treatment. Max bankrolled the treatment with a $2 million gift. Max's son is now cancer free and is now working at CERN and is also in the process of immigrating. Max and his son at beneficiaries of a very substantial trust fund that is sited in Nevada. Max renounced his US passport and it cost 30% of his assets. Max's son is facing a similar cost. It was easy for Max and his son, both are extremely wealthy and Max's parents were Swiss. Lesson: portable skills that enjoy strong demand and loads of income.

freedeomny , December 14, 2017 at 11:54 am

I've often thought of moving abroad but see myself more as living in a different country for only part of the year. I'd love to hear more from those who are ex-pats.

Pinhead , December 14, 2017 at 11:55 am

Home ownership in Germany is 52% and it is below 45% in Switzerland. It is 65-75% in almost all other rich countries including the US. It is actually around 85% in Russia and 90% in Cuba although the amenities are not quite the same.

Altandmain , December 14, 2017 at 11:56 am

I think that it has become increasingly apparent that the rich have no sense of noblesse oblige. They are in it for themselves and nobody else.

I'd be very interested to see if they believe their own propaganda on things like Ayn Rand and Social Darwinism. I know that many libertarian types can be, but the more extreme Ayn Rand types? Or is this just a coping mechanism?

It may be like oil executives who for years publicly denied global warming, but knew the truth. I think that deep inside, many wealthy people know exactly how worthless they are to society and insecure. They will never admit the truth though in public.

But the only bargain "world city" I know of is Montreal.

Canadian here. Montreal has it's pros and cons. I have talked with a few people who are fed up with that city and left.

Pros:
+ Cheap rent (especially compared to any other large city)
+ Very cultured city, for lack of a better term (night life, arts, exotic places to eat that you can actually afford, that sort of thing)
+ For a while it was Canada's job creation capital due to our weak dollar
+ Cheap tuition for students compared to rest of Canada
+ Cheap hydro! Car insurance is also much cheaper.
+ Considered the best city in North America for cycling ( https://www.mtlblog.com/lifestyle/montreal-ranked-1-bicycle-friendly-city-in-north-america ). There's also lots of parks and green spaces.
+ Apart from NYC and if you live in the middle of the city, Montreal is one of the few North American cities where you probably don't need a car

Cons:
– Becoming increasingly unillingual (French), which is one of the reasons why one of my colleagues left Montreal
– Buddy of mine says healthcare is not very good by Canadian standards and being an English speaker will be a big disadvantage (the government is actively trying to get people to be French) and I believe there is mandatory French schooling for parents of English origin
– Quality of roads is pretty awful in Quebec I find and drivers can be aggressive. Infrastructure as a whole is aging.
– Winter isn't that cold (By Canadian standards mind you), but Montreal does get quite a bit of snow.
– Outside of the boom periods, it can be hard to find a good job or frankly, a job
– Wages in many jobs isn't as good (although often the lower cost of living makes up for it, so net you may not be that much worse off, and in some cases, even better off)
– Some of the worst traffic congestion in Canada
– Quebec separatism politics
– There are cultural issues you should be aware of: http://www.cbc.ca/news/canada/montreal/quebec-low-birthrate-immigration-1.3573966
– A lot of consumer goods aren't as available in Canada, although you can rent a US mailbox or use Kinek at the border (Expensive because our dollar is weaker and you have to pay for import taxes, US taxes, along with the mailbox fees). On the other hand, there are some items in Canada and especially Quebec that are not as available in the US.

On the fence:
– If you own a home, I have been told that many parts of Montreal are a "Buyers market" now so if you ever want to move out
– There are government services like affordable childcare, but they do have long waitlists. That said, child care is cheaper than in the rest of Canada as this still does drive the costs of the private sector down.
– The US is making it harder for Americans to renounce their US citizenship for those moving from the US ( https://www.theglobeandmail.com/news/politics/delays-costs-mount-for-canadians-renouncing-us-citizenship/article28688026/ )
– Taxes are higher, but the majority of payers (especially those not in the six figures and with children) will find themselves better off I'd say in Quebec due to the better services.
– A lot of folks in Quebec say that Montreal is expensive compared to the rest of the province, although for a city its size, it is fairly affordable

The big challenge though is that Canada's immigration system is pretty restrictive, and yes older immigrants are at a drawback (the purpose is to attract immigrants that are likely to pay more in the system over their life than take out).

The other big issue with Canada is that neoliberalism, although not as bad as the US, has very strong backers and I fear could get worse. We seem to be following the dark path the US has undergone. I just hope that a genuine left can come out, not this neoliberal identity politics stuff that really serves the rich.

Rates , December 14, 2017 at 1:28 pm

It's really not that hard to move to a third world country. It's practically a lateral move.
1. Bad public transport. Check.
2. Corrupt government. Check.
3. High wealth inequality. Check.
4. Increasingly bad infrastructure. Check.

I am sure there are plenty of areas where the US is ahead, but plenty where it's behind like affordable healthcare. But really at the end of the day, moving is not easy because of : language, and for active people scratching that itch to be productive.

tagio , December 14, 2017 at 1:54 pm

Yves, the US is also no place for young people. My wife and I have been visiting South America checking out possible retirement locations. In Ecuador, we found a young Swiss man (late 20s) with his Ecuadorian girlfriend who were running the Hacienda we stayed in near Cotacachi. The 80-year old owner had been in a car crash and had to have someone take over operations right away. The owner's daughter was friends with the young Swiss man and recommended him to her father. In the United States you would never see someone his age given this much responsibility. He had trained in the hospitality field and came to Ecuador a couple of years earlier because he would actually have the opportunity to own and operate his own business, which he considered an impossibility in Western Europe. He told us his Swiss parents were also seriously considering re-locating to Ecuador for a better quality of life in retirement (and presumably – my guess – to be near the eventual grandchildren). They were not wealthy but had sufficient funds to provide relatively small seed capital for their son's business in Ecuador.

In Montevideo, we met a young woman in her early thirties from Montana and her French husband, a chef, who had just opened the café we had stopped in for postres and tea some 8 months earlier. They left the U.S. about 6 or 8 years ago (can't recall exactly) because they concluded they had no opportunities there, and came to Montevideo after a friend recommended it. They now have two daughters in school there.

I spoke with a prominent immigration attorney in Montevideo who told me that it's not just Americans, many Western Europeans were also emigrating to Uruguay "because of social issues." I didn't press for an explanation.

It's a mistake – and implicitly demeaning to the country – to think of these places as retirement havens. A North American or European young adult might actually be able to build a life for themselves in these places because the capital investment hurdles are low, and there are opportunities.

anonn , December 14, 2017 at 2:00 pm

Every time I talk to my Boomer father he wonders how I could be so irresponsible as to not, like him, have "saved for retirement." He's got an Air Force pension, a local government pension, a pension from a private employer, and social security. There's a 0% chance I'll ever be able to pay off my student loans. I have less take-home money after 20 ostensibly successful years in my profession than I did when I was 15 years old and working in a deli.

For most people in my generation, our retirement plans are to hope to win the lottery, and if not, suicide.

jrs , December 14, 2017 at 2:13 pm

They often did have to pay out of their salaries into those pensions as well, so he has a tiny bit of a point, it wasn't all free money. But they were of course much better deals than the 401ks on offer now, that we are lucky to even be able to have purely for the tax benefits, which most employers aren't even contributing to.

HotFlash , December 14, 2017 at 8:31 pm

I remember my friend's mother, an RNA (Cdn equiv of an LPN) who religiously contributed to her voluntary pension plan. It was hard for her, single mother in the 50's and 60's, but she considered it the responsible thing to do. When she came to retire in the mid 70's she was disappointed (understatement) to find that the pension she had sacrificed to contribute to for all those years paid her a whopping $17 per month.

When I was planning for my retirement, in the 70's and 80's, I was looking at interest rates of 7 to 10 % -- truly! It is no accident that interest rates are now less than the rate of inflation, unless you are paying out, of course. We are being robbed in every possible way.

sharonsj , December 14, 2017 at 2:46 pm

I'm pre-baby boomer, with no pension because of the industry I worked in. But I do own my own home in rural Pennsylvania for how long, I'm not sure. 20% of my modest income goes to school and property taxes. I recently let a handicapped friend live in my other building; he gets $700 a month and $85 in food stamps. Currently both of us are struggling to deal with paying to heat our homes, so the last time he was bitching to me I said: "Why else do you think old people are living in trailers in the Arizona desert?"

I considered not only Arizona but Cuba. I know enough Spanish to get by. But I decided that I would stay in the U.S. I think everyone needs to downsize and simplify because, unless the American people wake up and revolt, things aren't going to get any better.

P.S. I tried to research bankruptcy and mortgage foreclosure rates in Pennsylvania. Nothing current, but I found that the rates continually increased every year, and this was well before the 2008 implosion. So I assume that the situation is probably dire by now.

Kate , December 14, 2017 at 2:59 pm

What's a second world country? And Montreal is inexpensive?

Anyway thinking from a young person's perspective it's even worse. Employment prospects are crap everywhere especially Europe where there is some inkling of a social safety net.

Yves Smith Post author , December 14, 2017 at 5:34 pm

As I said, it's an inexpensive world city. You missed that. It's even been rated that way. Rent is cheap. My costs would be 40% or so lower than in NYC.

Inode_buddha , December 14, 2017 at 7:11 pm

Yeah, but that's not a very high hurdle: almost *anything* is cheaper than NYC in particular, and NYS in general. Not to mention less stressful. I tend to recommend Buffalo and outlying suburbs/rural areas, but then again I'm biased, being a native of the area. Real estate differences can be dramatic even within NYS: I routinely compare prices and taxes in Erie county vs Wyoming county. Its a real eye-opener, especially compared to anything near Albany or NYC.

OpenThePodBayDoorsHAL , December 14, 2017 at 3:57 pm

This entire thread is simply heartbreaking, Americans have had their money, their freedom, their privacy, their health, and sometimes their very lives taken away from them by the State. But the heartbreaking part is that they feel they are powerless to do anything at all about it so are just trying to leave.

But

"People should not fear the government; the government should fear the people"

tagio , December 14, 2017 at 4:39 pm

It's more than a feeling, HAL.
https://www.newyorker.com/news/john-cassidy/is-america-an-oligarchy
Link to the academic paper embedded in article.

As your quote appears to imply, it's not a problem that can be solved by voting which, let's not forget, is nothing more than expressing an opinion. I am not sticking around just to find out if economically-crushed, opiod-, entertainment-, social media-addled Americans are actually capable of rolling out tumbrils for trips to the guillotines in the city squares. I strongly suspect not. This is the country where, after the banks crushed the economy in 2008, caused tens of thousands to lose their jobs, and then got huge bailouts, the people couldn't even be bothered to take their money out of the big banks and put it elsewhere. Because, you know, convenience! Expressing an opinion, or mobilizing others to express an opinion, or educating or proselytizing others about what opinion to have, is about the limit of what they are willing, or know how to do.

MyLessThanPrimeBeef , December 14, 2017 at 5:12 pm

I apologize if I missed them, but so far, no votes for

1. retiring to North Korea.

2. retiring to anywhere along the New Silk Road.

Kk , December 14, 2017 at 6:16 pm

100M US citizens in 1945; 200M in 1976; 320M in 2016. Population up and resources down. The politicians would give you anything to get a vote, the reason they don't is that the money is not there. Everything goes up in price and wages stagnant because that's how economies adjust to less resources to share. Canada and Australia and Europe are going the same way as the US, not because of nefarious politicians or greedy rich people, although they certainly exist, but because the sums don't add up any more. MMT is just one example of grasping at straws. I wonder what part of 'you are doomed' old people don't understand? Apart from the last 80 years or so, people got old and died; now they get old, get sick long term, go bankrupt and then die.

mtnwoman , December 14, 2017 at 7:10 pm

I have a very rare good, very old insurance policy.

I sure hope you can hold onto it Yves. I also had a really good private BCBS NC policy. This year they killed it and threw me onto ACA which is horribly expensive and crappy if you are single and make > $48200. 5 years to Medicare .if it's still there.

I have also lived internationally in my late 30's. It takes huge effort to liquidate here and to move. I believe it's risky to be an alien in a country if there is unrest -- and unrest is coming imo.

I'm scouting Panama this Feb but I also just read the central america will be ground zero for climate change and they are already having droughts.

Canada or NZ are likely the best choices for immigration if that were even possible.

Wukchumni , December 14, 2017 at 7:46 pm

My mom is a lapsed Canadian that became a Yanqui in the 1950's, and i've got oodles of relatives up over in the Gulag Hockeypelago

No real desire to relocate there, but am curious as to how easy/hard it would be to do it, based on my bonafides?

homeroid , December 14, 2017 at 9:05 pm

I live in Alaska. Can in no way think of living somewhere else. At sixty years of being. My body is a bit worn hard and put away wet. I have no property, no retirement, no substantial savings. What i do have is knowledge.

Now driving a cab for cash in a small city on the coast. I make furniture as my backup income. Was a cabinetmaker at a time. In fact i count on making furniture till i cannot.

Expecting to have SS is not something i count on. I know all the wild plants to forage, wild game to be had-small game. Fish of course, living on the coast.

But when i cannot pay rent i will have to rely on the generosity of friends to let me put up a shack on their property to get by, or squat on land. The woman who lets me live with her for the last twenty-two years will be able for retirement next year. We will set her up with something simple in town. I shall head for the woods. Am building a foot powered wood lathe. You may find me one day on the side of the road turning simple items for pittance + beer.

judy sixbey , December 14, 2017 at 9:16 pm

Getting a little tired of this leave the country stuff. Heard it from my dad in the 60's (Australia). Heard it from my husband this morning (Canada). I am 66 years old and intend to fight it out on this line, like Grant, until they carry me out of here in the funeral home van. This is my country, major f–ked as it presently stands.

[Jul 17, 2017] The Retirement Wealth Inequality Machine naked capitalism

Jul 17, 2017 | www.nakedcapitalism.com

Sluggeaux , July 13, 2017 at 1:52 am

More asset-shuffling through public-private partnerships will not solve the moral catastrophe of short-termerism and greed that prevents enterprises from investing in the human timeframe of a lifespan, that might support a proper social safety net. A sane government which had the interests of all citizens at heart would impose a confiscatory tax system on asset shufflers and short term greed. This is the opposite of the policies of our political class, who prefer voter suppression to the sort of democracy that would find the impoverishment of our elders intolerable.

Disturbed Voter , July 13, 2017 at 3:01 am

Wonderful insight, why I read comments.

Enquiring Mind , July 13, 2017 at 1:42 pm

Voters should say, en masse, "When I hear the phrase Public-Private Partnership, I reach for my gun."

Crazy Horse , July 13, 2017 at 3:24 pm

"A sane government which had the interests of all citizens at heart" In the One Exceptional Country? Not in my lifetime or that of my children.

Its all very fine to talk about how wonderful your favorite band-aid would be if only the Repugnant or Democon team would support it, but in the real world there is only one semi-valid retirement strategy.

Emigrate to a country that is sufficiently un-exceptional to not have to support an Empire and which is poor enough to allow you to live on whatever savings or pension you have accumulated.

Tomonthebeach , July 13, 2017 at 3:11 am

This larger role of government proposal overlooks the fact that is just creates more piggy banks for workers to raid to buy new cars, finance big ticket purchases, etc.

This human irrationality is common with today's IRAs. Congress has shown willingness to expand access to retirement savings in order for workers to raid their pots of gold. We have just seen this with legislation relaxing withdrawal in the federal TSP. Thus, how such programs are set up and administered is likely to merely expand financial asset management fees while collecting taxes and penalties to boost the treasury – with little improvement in retirement outcomes.

diptherio , July 13, 2017 at 1:10 pm

the fact that is just creates more piggy banks for workers to raid

Bad workers! Wanting to have nice things! Don't they know only their corporate task-masters get to raid banks (piggy or otherwise)?

As always, greedy workers are the problem. Brilliant analysis [/sarc]

Moneta , July 13, 2017 at 7:35 am

The first thing that government could do is guarantee an acceptable pension to all those who live past 80. Then we would not all have to save as if we will live to 95, bloating financial markets for nothing.

And it should be funded from current earnings, not through financial markets.

Dead Dog , July 13, 2017 at 12:56 pm

80? Most of us don't get that far, Moneta

Try 55? That's what it used to be for Australian women .

Now, it's 70

Moneta , July 13, 2017 at 4:36 pm

We just hit the peak of 5 workers per retiree. This number will be going to 2.5 over the next couple of decades.

I think you don't realize how low the standard of living has to drop to fund an age 55 retirement.

2/3 of boomers have less than something like 100k saved up so this means they will be asking the young to fund their retirement because I don't see the 1%ers doing it, without some huge transformation which would take a decade or two sidelining boomers anyway.

This situation should have been planned for 30-40 years ago but it wasn't because the general meme at the time was that the markets would save the boomers.

When a squirrel plans for winter, it stores nuts, meaning it does not eat them all.

In our economic system we've been eating all our nuts plus using millions of years of energy to eat even more than we needed. Our obesity epidemic is one blatant symptom. Even most of those with big investment portfolios have overindulged just think of how many joules of energy they have spent in their lifetimes yet they are still expecting their investments to represent claims on future resources.

I guess it can work out if our planet can support it and the US can force its way on the world for another few decades but I have trouble believing that a country with more than 30% of its population over 60 can cling to its reserve currency status while net importing.

I believe we can fund a 55+ retirement if most retirees accept to rent a room in their kids' house but the kids have to somehow get out of the basement of their parents' still mortgaged house and take possession of the main floor. That's the conundrum.

washunate , July 14, 2017 at 12:19 pm

Yeah, that's the question. Is retirement a universal human right or a privilege? This whole notion of focusing on the plight of the elderly as a group is bizarre. In the US context, older generations are significantly wealthier than younger generations.

If we are really talking about people living with dignity, then such a policy should apply to people of all ages, not just older Americans.

Moneta , July 13, 2017 at 7:42 am

Health care and retirement plans should not be through the employer because it promotes discrimination. These should be portable.

funemployed , July 13, 2017 at 8:19 am

How bout a UBI for the elderly and disabled, and free healthcare for everyone? Seems like the simplest solution to me.

Aside from the fact that it seems like the obviously right thing to do, as an oldish millennial, I'd prefer to have them out of the forced-labor market anyway.

funemployed , July 13, 2017 at 8:26 am

I've also long thought that providing care for the elderly, disabled, and children could go a long way toward filling the roles of a job guarantee for us relatively young and able-bodied.

Left in Wisconsin , July 13, 2017 at 7:46 pm

On the one hand, the job part of the job guarantee already exists almost everywhere in the U.S. The problem is the job stinks – low pay and often very hard work.

On the other hand, it is foolish, and inhuman, to think of these jobs as overflow job guarantee jobs in an MMT JG. We need an economy, and society, that values caring over (mostly idiotic) for-profit paid work.

cocomaan , July 13, 2017 at 9:07 am

How bout a UBI for the elderly and disabled,

Maybe we can put "social" in the name, because it's the social safety net. And since it's a source of financial security, we should also put "security" in the name.

Wait! Wait, I got it!

Moneta , July 13, 2017 at 9:13 am

But isn't it based on earnings? Which for tens of millions were based on 10$ an hour which is not a livable wage thanks to CEO wage inflation going from 30x lowest wage to over 300x?

katiebird , July 13, 2017 at 9:16 am

Actually laughing outloud!!! OMG.

Except that I have. Friend who is struggling on $759/mo Social Security . who can live on that?

funemployed , July 13, 2017 at 9:42 am

Love it. That was my thought too. Just convert social security to a UBI. Maybe even one not tied to a regressive payroll tax.

cocomaan , July 13, 2017 at 10:23 am

Just to respond to all of you, the Townsend Plan from back in the 1930's when Social Security was being devised, pledged to give out $200/month to people of age: https://www.ssa.gov/history/briefhistory3.html According to an inflation calculator I used, that's $3400/month per person.

They actually paid out more like $50/month. Which is more like $900 in our money today.

Ida May Fuller was the first person ever paid out: https://en.wikipedia.org/wiki/Ida_May_Fuller interesting story.

jrs , July 13, 2017 at 2:06 pm

Social Security is fine, it just needs to be increased, and the age lowered (to at least what it used to be). Calling it a UBI, although it is one, will just lead to people trying to tie it to costs of living which varies widely across the country, it just needs to be increased a lot to be on par with what much of the rest of the world offers.

washunate , July 14, 2017 at 12:23 pm

And how about expanding this odd and surely un-American idea of providing security and care to people of all ages? Ridiculous, right?

rjs , July 13, 2017 at 8:47 am

coincidentially, i just read
" In 2016, California residents 62 and older took out more payday loans than any other age group, according to industry data compiled in a new report from the Department of Business Oversight. Seniors entered into nearly 2.7 million payday transactions, 18.4% more than the age group with the second-highest total (32 to 41 years old). It marked the first time that the DBO report on payday lending, published annually, showed seniors as the top payday lending recipients. The total transactions by the oldest Californians in 2016 represented a 60.3% increase from the number reported for that age group in 2013. The fees can bring annual percentage rates that top 400%. In 2016, the average APR was 372%, according to the DBO report. Customers typically take out multiple loans in a year, ending up in what critics call a "debt trap." .. The average payday loan borrower 62 years or older took out almost seven payday loans last year, compared with the average of 6.4 loans for all customers"

https://www.americanbanker.com/opinion/no-one-should-have-to-rely-on-payday-loans-in-retirement?utm_campaign=regulation%20reform-jul%2012%202017&utm_medium=email&utm_source=newsletter&eid=969759b033715b3e2ccac996e9e27347&bxid=57449de4e9328b2d608b4d55

Jim A. , July 13, 2017 at 8:48 am

It is simply the case that with an ageing populace, we will in total be spending more on Cumadin, nursing home beds and depends than we used to. Pensions, public or private don't buy warehouses of this stuff to use later. A larger amount of our current GDP will be spent on this than on health club memberships and daycare than if our population wasn't ageing. Those who are currently working will have a greater percentage of the wealth that the create devoted to purchases of these goods and services than used to be the case when there were fewer elderly. Some of this may be paid for with higher payroll taxes, some with higher income taxes (because bonds in the SS trust fund) and some because the value of equities goes down as pensions become net sellers rather than purchasers of assets. The more people are looking for a magic and relatively painless solution, the further we are from actually figuring out how to do this.

Moneta , July 13, 2017 at 9:19 am

The thing is that many with underfunded guaranteed pensions will be getting good pensions while those with no guaranteed pensions will be getting peanuts.

Not to mention those with pensions based on 10$ per hour while others were making much more. Those who made more feel entitled to their money by they refuse to see how social, fiscal and monetary policies contributed to the wealth disparity. Many of the winners were not better but just at the place at the right time.

There has to be a redistribution within the older population first before we skim the pay checks of the young still working.

Middle Class , July 13, 2017 at 6:35 pm

So your solution includes taking money from those who saved and invested, and re-distribute it to those who spent everything they earned? As someone in the "saved and invested" category, I find that plan to be a non-starter.

When I was setting aside 15% of my income for savings and investments, paying extra on my mortgage, and driving older cars, I have friends who (at the same income level as my wife and I) literally spent everything they earned. They had lots of fun, and lots of new stuff that I didn't.

Fast forward 30+ years, and now – in my late 50's – I'm planning my retirement (before my 60th birthday). My friends? None of them are even thinking of retiring, and one couple has said they will need to work into their 70's.

We made different choices, and ended up in different places – but that doesn't obligate me to hand them what I have.

Yves Smith Post author , July 13, 2017 at 8:37 pm

What a bunch of total nonsense.

If you've been able to work on a consistent basis at decent enough paying jobs that you could save, it is substantially due to luck: being born into a stable middle to upper middle class family, being white and male, being born at a time when there was enough growth in the economy that you could land good jobs early in your career, which is critical for your lifetime earnings trajectory. Oh, and not having you or a spouse or a child get a costly medical ailment that drained your savings. And not winding up in a job where you were being ethically compromised and stood up against it, resulting in career and earnings damage.

Did you miss that college grads had a worse time that high school grads and even dropouts in landing jobs in 2008-2010? And getting no or crap jobs then set them back permanently? And this includes graduates in the supposedly more "serious" STEM fields, where contrary to DC urban legend, there aren't a lot of entry level jobs. You do well if you find employment, but save in a few niches like petroleum engineering, the unemployment rate is actually worse for STEM college grads overall than liberal arts grads.

Sluggeaux , July 13, 2017 at 9:17 pm

Yves, I think that Middle Class would acknowledge the "luck of the draw" on pension or not. It's just that neo-liberalism would only redistribute within the laboring classes, not from the looting .01 percent responsible. The Arnold Family Foundation cronies in Rhode Island are making your argument. Those who lucked into wage-earning with a pension shouldn't be the first redistribution.

flora , July 13, 2017 at 9:40 pm

If almost all the increase in productivity and income over the past 30 years had not gone to the top 1%, where it is essentially exempt from SS taxes, there wouldn't be a problem.
If the Middle and Working Classes still earned the same share of national income they earned before Reaganomics there wouldn't be a problem. Lots of people with good incomes; those incomes almost all subject to SS deductions.

Sluggeaux , July 13, 2017 at 10:45 pm

The cap on Social Security tax is an inverted welfare benefit. One of many Reaganite cons adopted by the Clintonites/Obots.

Heraclitus , July 13, 2017 at 11:09 pm

I don't think the cap was invented by Reagan:

https://www.ssa.gov/planners/maxtax.html

Heraclitus , July 16, 2017 at 7:05 am

Your response to Middle Class puzzled me. It is undoubtedly true that there is luck involved in his success. However, he was comparing himself to peers that seemingly had most of the same luck but made different life choices. I think one can recognize his luck and his thrift and appreciate them both.

Moneta , July 13, 2017 at 11:26 pm

It's not my solution. It's how the cookie will probably crumble. I'm in my late 40s and I'm in the category who saved but I also realize that I was in the lucky group with extra income and chances are I'm going to pay for that luck.

I am planning my future around those odds.

AnnieB , July 13, 2017 at 7:55 pm

"There has to be a redistribution within the older population first before we skim the pay checks of the young still working."

Increased taxes on the social security of wealthy people has been proposed, so has increased Medicare premiums for wealthy people. These ideas were part of the "grand bargain" proposed by some Republicans and Democrats, including Hilary Clinton.

What is considered "wealthy" in these proposals has yet to be determined. I don't think that the "grand bargain" specified that the increased revenue would be used to help impoverished seniors either. Anyway, how much of a surplus would these increased taxes generate ? Enough to give poor retirees a meaningful cost of living rebate on their tax returns?

I'm not necessarily against proposals such as these, but
a better and more certain solution would be to rein in the military/security complex, stop all the wars for oil, and get the government back in the business of working for the citizens of this country. I bet we could find a few extra dollars that way.

Moneta , July 13, 2017 at 11:32 pm

If you stop investing in the MIC you will send the signal that you are weakening and renouncing being the "protectors" of the planet. This means potentially losing your reserve currency status. That means you would lose your easy money printing and net importing advantages.

Mel , July 13, 2017 at 1:17 pm

The currency issuer can create new spending with the constraint being generating too much inflation.

I worry about leaving this statement to stand alone, because The Market is an independent thing, and it's in The Market that inflation is created or not. Players out there are capable of creating inflation on their own. Abba Lerner's article on Functional Finance (linked here a month or so ago) tells us that the remedy is taxation. I.e. spending to generate well-being shouldn't be blamed for inflation. Applying the taxation remedy will take some political backbone.

Yves Smith Post author , July 13, 2017 at 8:45 pm

No, inflation is created in the real economy due to any of commodites inflation (cost-push inflation), wage-pull inflation (created by too much demand, or in MMT terms, too much net government spending) and more recently and not sufficiently acknowledged, by monopolies and oligopolies (see pricing of cable services and drugs, which have monopolies via patents) . Interest rates are a different matter and are controlled by the central bank. We've had risk-free interest rates below the inflation rate for years now thanks to the ministrations of the Fed.

Central banks have the power to kill the economy (raising interest rates so high that it induces inflation) but not much/any power to stimulate (save goosing asset prices, which only trickles down a bit to the real economy). The cliche is "pushing on a string".

flora , July 13, 2017 at 9:33 pm

I'm a great supporter of Social Security. There's nothing inherently wrong with Social Security. The problem has been the politicians. In the mid-1980s the Reagan admin with Dem support changed CPI price calculations (and have been doing so ever since) in order to make any cost-of-living inflation adjusted increase in SS be less than the true CPI inflation numbers. They also made something like the first $25,000.00 of retiree income (all sources) tax exempt . but did not index that number to inflation. They were clever in hiding the time erosion aspects of that "grand bargain." They also raised the retirement age. They used the "saved" monies these changes to pay for tax cuts for the well off.

I think adding another mandatory paycheck deduction for private savings accounts controlled by others would simply be another pot of money for politicians and Wall St firms to rummage. Fees? Churn? "Special" tax treatment? I appreciate the good intentions of the proposal. However, I'd rather see proposals for stronger protections and honest CPI accounting for existing Social Security.

adding: the number of workers to retirees is less important than the productivity per worker, which has been going up steadily for the past 40 years. If workers were still earning the share of income from productivity and profits that they earned up until Reagonomics there wouldn't be a problem. Since Reaganomics, however, almost all the gains in productivity and income have gone to the top 1-2%. Meaning that most of the productivity gains are not reflected in SS taxes. The top 1% pay SS security tax on only a tiny, tiny bit of their income. So less and less national total income is subject to SS tax. Falling SS tax receipts are less a function of fewer-workers-to-retirees than to less nation total earned income subject to SS tax. imo.

Chris , July 13, 2017 at 10:28 pm

Is no one talking about just abolishing the income cap on social security taxes anymore? I thought I read somewhere that would largely fix any holes in the program and allow retirees to get the COLA that they need to keep up with inflation

DumbDave , July 13, 2017 at 10:55 pm

"The currency issuer can create new spending with the constraint being generating too much inflation".

The problem with this is money. Money >> currency. As we have seen, the market can create its own money independent of the currency issuer, making inflation/deflation difficult for the monetary authority to control, e.g. the Eurodollar market.

Ep3 , July 16, 2017 at 1:10 pm

Does anyone know anyone who has retired and lived solely on their 401k, just like a pension? And this person did not inherit any large chunk of money to assist in providing retirement funding. I want an example of a factory worker, McDonald's worker, etc where they were part of the working class.

Why not just expand social security? I understand she advocates in addition to SS we have this mandatory investing thru public/private partnerships.

But when you have that, doesn't the govt have to establish guaranteed rate of return? Because when people invest, there has to be a winner and a loser, always. Otherwise, some people's investments may not make a return enough to support them financially.

[Apr 12, 2017] Expand Social Security, don't revive 17th century tontines

Apr 12, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron , April 11, 2017 at 03:38 AM
RE: Expand Social Security, don't revive 17th century tontines

http://www.epi.org/blog/expand-social-security-dont-revive-17th-century-tontines/

...Tontines, like Social Security, traditional pensions, and life annuities, insure against the risk of living longer than expected in retirement. The problem of outliving one's savings has gotten worse as Social Security benefits have been trimmed back and private sector employers have replaced traditional pensions with 401(k)-style savings plans. In theory, 401(k) savers can insure against longevity risk by purchasing life annuities, but few actually do. There are several reasons for this, starting with the fact that few have significant savings to begin with-a problem exacerbated by current low interest rates that lock annuitants into low annual payments. In addition, potential buyers must navigate complex and tricky insurance markets and face prices driven up by adverse selection and asymmetric information, the classic problem of markets for individual insurance whereby people at greater risk (of living longer, in this case) are more likely to purchase insurance and have an incentive to conceal information to avoid higher risk-adjusted premiums, leading to higher prices for all consumers and a shrinking market

Potential annuity buyers also behave in ways are hard to square with fully-informed and rational behavior, such as overvaluing lump sums relative to their equivalent in annuitized benefits and exhibiting loss aversion-in this case, the tendency to dwell on the potential financial losses associated with dying prematurely rather than the potential gains from living a long life. Could tontines at least counter these behavioral challenges? One psychological hurdle for would-be annuity buyers is the fact that insurance companies profit from annuitants' early death, which puts people in a pessimistic and suspicious frame of mind. Advocates say tontines could be structured so that only investors-not issuers-would benefit from the deaths of others in the pool, which might or might not alleviate these concerns. (Tontine murders were once a common melodramatic plot device in plays and murder mysteries)...

*

[A fairly thorough discussion of the pros and cons of various investment and private insurance options for retirement security are discussed concluded by the obvious solution.]

*

...Unlike a tontine scheme, where payments simply increase in inverse proportion to the share of surviving investors, such longevity and return-smoothing adjustments are complex and require trust in the system, so may be better suited to government-sponsored plans than private sector ones. The simplest solution, of course, is simply to expand Social Security, an increasingly mainstream idea among Democrats but not one that is likely to fly in the current Congress.

Gerald Scorse , April 11, 2017 at 10:57 AM
Re "Expand Social Security..."

"The problem of outliving one's savings has gotten worse as Social Security benefits have been trimmed back and private sector employers have replaced traditional pensions with 401(k)-style savings plans."

Social Security benefits have been trimmed back? When did this happen? (Are you referring to the changes made back in 1986, which gradually lengthened the full-benefit retirement age to 67? It would have been helpful to say so.)

And it's not entirely accurate to say that 401(k)-style retirement plans have worsened the problem of outliving one's savings. For millions of retirees, the opposite has been true; with the cooperation of the stock market (we're in the second-longest bull market in 85 years), they're withdrawing tens of thousands every year and seeing their total holdings *increase* at the same time. Traditional defined-benefit plans do provide greater security, but they're no match for 401(k)s, IRAs and other similar plans at actually increasing in value.

This aspect of defined-contribution retirement plans hasn't gotten nearly the exposure that the negative aspects have. It's just as true though.

sanjait -> Gerald Scorse... , April 11, 2017 at 01:54 PM
"we're in the second-longest bull market in 85 years"

Sure ... after the biggest crash in 80 years. And since when is the length of time a bull market lasts, rather than long term compound annual returns, the important metric?

You're attempt to describe the upside of retirement savings in at-risk equity investments seems to be built on a shaky and selective view of recent history.

[Apr 04, 2017] Big Companies Shake Fingers at Employees for Raiding 401K accounts

Notable quotes:
"... If I had a 401K, I would not be trusting those jackals with my money. My ex lost pretty much everything after he had contributed for 12+ years. ..."
"... As far as cutting off Wall Street from the teat of the Fed, this is a virtual impossibility. Wall Street, the Fed, and the Federal Government, and particularly the National Security State, are all just different faces of the same entity. It would be like trying to separate the front and the back of a dollar bill. You can't do it without destroying the whole thing. ..."
"... "Companies are worried about their employees retirement prospects" Gotta love the language. Maybe they should pay their employees more ..."
"... this is why I don't read the news anymore. The ongoing casual lies are embedded within a broader tapestry of falsehood. ..."
"... Even of the boomers I bet many of them don't have pensions. Why? They didn't work for government or fortune 500s, and it was probably never that many people with lifetime at careers at small companies that got pensions. But much of the employment is small businesses. ..."
"... "The great lie is that the 401(k) was capable of replacing the old system of pensions," No kidding. There are so many great lies with 401(k)'s, the biggest being that it is now expected that people should be able to save enough for their own retirement if they would only assume some personal responsibility. ..."
"... Over the years, I have been astonished at how little many executives understand about finance, taxes, and business. I have always wondered what they actually do in their cocooned meetings. Generally speaking, those meetings result in hilarious memos re-organizing people that don't appear to have anything to do with the normal business while cutting costs that are essential to executing the business. ..."
"... So it is not a surprise to me that a high-level executive would be unaware that a 401k is tax-deferred, not tax-exempt. He probably also thinks that a hedge fund is guaranteed to outperform the S&P 500 and has already moved his money into one, which means he will have less money to pay his taxes with. ..."
"... I'm curious: If you pay the interest on the 401k loan with already-taxed money, is that interest taxed again upon withdrawal from the 401k? ..."
"... Yes it is a 35% tax savings, even if not in the highest bracket. Say in the 25% fed bracket (income of $37,950 to $91,900). Then California income taxes for that income can come to nearly 10%. ..."
"... many 401k accounts tend to have higher costs for equivalent funds than one can get in a rollover IRA. Buyer gots to do their research. ..."
"... No, he's correct. 401(k)s have TONS of hidden fees. You can't even get full disclosure of the full fees. You are guaranteed to have lower fees and more choices at Vanguard. ..."
Apr 04, 2017 | www.nakedcapitalism.com
Michael Fiorillo , April 3, 2017 at 7:21 am

Soylent Green is people!

cnchal , April 3, 2017 at 7:29 am

Since American companies are run by the greediest psychopaths on the planet, the real reason for the objection to 401K withdrawals might as well be that selling overpriced stock and using the cash to pay bills, reduces the opportunity of the chief corporate psychopaths to cash out on their stock options.

It's personal. How dare a peasant beat a corporate bigwig by cashing out early, and reduce the bigwig's monetary takings by even a penny.

Tapping or pocketing retirement funds early, known in the industry as leakage, threatens to reduce the wealth in U.S. retirement accounts by about 25% when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College's Center for Retirement Research.

That's 25% less available funds that Wall Street can steal from customers. Starve the beast? How do we cut them off from the teat of the FED?

Bernie Sanders: The business of Wall Street is fraud and greed.

Portia , April 3, 2017 at 12:23 pm

precisely. If I had a 401K, I would not be trusting those jackals with my money. My ex lost pretty much everything after he had contributed for 12+ years.

Helix , April 3, 2017 at 4:32 pm

Re: " American companies are run by the greediest psychopaths on the planet "

I have a quibble with this point of view. Greed takes many forms, and greed for power is just as motivating as greed for wealth. So I'm of the opinion that corporate psychopaths have plenty of company in the halls of government, particularly in the National Security arena. These people have shown that killing hundreds of thousands and destroying the lives of millions more is not enough to satisfy their lust for power and control. Oh no, not nearly enough. The beast you speak of must eat every day.

As far as cutting off Wall Street from the teat of the Fed, this is a virtual impossibility. Wall Street, the Fed, and the Federal Government, and particularly the National Security State, are all just different faces of the same entity. It would be like trying to separate the front and the back of a dollar bill. You can't do it without destroying the whole thing.

And if I was Marc Jones, I wouldn't be crying "ovens" too loud. It's happened before, and by people who may not have been all that much further along the psychopath curve than the ones we are dealing with now.

Larry , April 3, 2017 at 7:52 am

I have friends who are just past their mid-30s and borrowed against their 401k to make a house purchase. A promotion lead to a desire for a bigger home in a nicer town (i.e. schools) and when they sold their current house a combination of real estate transaction fees and being slightly underwater on mortgage (I thought housing prices always went up!?) meant the only place they could go for excess savings was their retirement accounts. Now that's something I would never do, but I understand the motivation. And from their perspective, things are still on the upswing in terms of their age and career expected earnings.

I have another colleague who has been at our large company long enough to still have a pension plan, while our U.K. colleagues are still in a union. Instead of wondering why our older colleagues have it so good with regards to benefits and time off, they just joke about the days of a pension being gone and make with the old man cracks.

Quanka , April 3, 2017 at 8:10 am

"Companies are worried about their employees retirement prospects" Gotta love the language. Maybe they should pay their employees more

If you actually believe that's what companies are concerned about but seriously this is why I don't read the news anymore. The ongoing casual lies are embedded within a broader tapestry of falsehood.

Moneta , April 3, 2017 at 8:51 am

They can't pay more they need to maximize their eps or stock price for the big pension plans who own them.

The irony is that they need to minimize the pay of their workers to maximize the pensions of workers not necessarily in their firm.

jrs , April 3, 2017 at 12:22 pm

Well they could just make contributions to the 401ks for employees themselves without even requiring the employee to put anything in (without requiring matching). Some companies do do this. Probably better than just paying them more if they are really worried about their retirement funds, because if they just paid them more there's a good chance it wouldn't go to retirement. I'm not opposed to more pay, just realistic about how much might go to retirement. A pension of course is better but small companies aren't going to manage that financially even if they wanted to.

Even of the boomers I bet many of them don't have pensions. Why? They didn't work for government or fortune 500s, and it was probably never that many people with lifetime at careers at small companies that got pensions. But much of the employment is small businesses.

KYrocky , April 3, 2017 at 8:29 am

"The great lie is that the 401(k) was capable of replacing the old system of pensions," No kidding. There are so many great lies with 401(k)'s, the biggest being that it is now expected that people should be able to save enough for their own retirement if they would only assume some personal responsibility.

But the math has never worked. According to Reaganomics, personal responsibility is the solution to retirement needs, medical costs, education costs, child care costs, unemployment, etc. No one has ever been able to produce a household budget for a family in the lower half of income that would ever come remotely close to fulfilling the conservative's fantasy of personal responsibility. It. Can't. Be. Done.

The great lie that is the 401(k) and Reaganomics serves the same purpose as so many other conservative lies: it allows more money to flow to Wall Street and the richest Americans. It also is used to justify tax cuts for the rich and cuts in social programs. It is about the greed of the few against the living standards of the rest of our society.

The 401(k) was intended to be a supplemental income to a pension, but those pensions no longer exist and are never coming back. In the face of what has happened, particularly the graft Wall Street and financial managers have imposed on 401(k)'s and other retirement investments, what is needed is a much more muscular Social Security system for retirement.

jrs , April 3, 2017 at 12:28 pm

Does anyone know what percentage of boomers (or even older boomers) have pensions? I'm guessing it's not all that high (even if it's 50%, that means half would be relying on SS and other savings etc.).

jfleni , April 3, 2017 at 8:33 am

It's a good reaon to increase SSI, as Bernie and friends say; lock it up so the plutocrat thieves won't plunder it first!

Moneta , April 3, 2017 at 8:40 am

So if all benefited from well funded DB plan wouldn't the economy be smaller from less spending and markets even more overvalued?

Oh no, the economy would have been smaller so there would have been less money to save

My head hurts thinking about all those what ifs!

It just seems to me that the cost of living for the vast majority will always equal disposable income because there is alway someone out there younger, willing to work longer hours, willing to take a pay cut or pay extra for a house. Arbitrage rules.

Moneta , April 3, 2017 at 9:10 am

Asking everyone to save for 30 years of retirement is a farce and sure to fail. And we are currently witnessing its failure. There are just too many variables.

All it takes is for someone out there to plan using a life expectancy of 80 while another with the same income uses 95. This gives them way more cash flow during their working years to increase the price of everything screwing up the plans of those using more conservative assumptions.

And this is just one variable

Moneta , April 3, 2017 at 9:44 am

And if every American saved for retirement owning part of the equity index, wouldn't that be approaching communism?

Interesting that capitalists would have thought up such a pension system. Lol!

PhilM , April 3, 2017 at 10:19 am

Pension funds own about 1/6th of equities as it is.

m , April 3, 2017 at 9:09 am

Since companies don't care if you survive after you leave them and I bet in many of these big box stores newbies and old timers probably earn about the same amount 10-15/hr. What is the real reason they want to stop leakage? That 25% drop in gambling money & earnings for fund managers.
I am guilty moved on to new job and cashed it out. I didn't put any money in, don't care and don't see this as a real way to ?retire.
After 2008 it seems like 401ks are just a place to dump garbage. What do I know, I am young & dumb.

Moneta , April 3, 2017 at 9:15 am

Older workers = higher health care expenses and higher matching contributions.

phemfrog , April 3, 2017 at 9:17 am

Question:
So my spouse has changed jobs 4 times in the last 5 years. Each time we have to cash out the old 401k and deposit it in the new one. Some times this rollover was done by direct wire transfer from old to new, but one time they sent us a check, which we signed over to the new 401k account. Are these somehow being counted as "cashing out"? We though these are really rollovers? Just curious

jrs , April 3, 2017 at 12:40 pm

is there a reason you aren't just depositing it in an IRA when she leaves?

Billy-Bob , April 3, 2017 at 12:55 pm

If you move monies from one 401k into another, or transfer it into a rollover IRA it is not considered as a taxable event, I.e., you did not cash out.

oh , April 3, 2017 at 9:21 am

The Wall Street crooks through the governments they own have convinced the majority of the people that 401(k)s are good because of (1) tax deferral and (2) company contributions. Americans are obsessed with paying lower taxes that they let the Wall Street Banksters get their claws on their savings. The laws dictate that only the banksters/brokers can keep and handle your savings. Each trade results in a commission. Add to this mix the myriad of so called financial consultants who churn the account for their own benefit. When Wall Street crashes, Good Bye!

m April m , April 3, 2017 at 10:25 am

Exactly! And they dump sub prime this and that in there. No fiduciary obligation=garbage.

Octopii , April 3, 2017 at 9:23 am

BIL (high-level TV executive mostly unemployed for two years) withdrew his entire 401k without understanding the tax consequences. April 15 a very large number is due to the Feds. Oops.

DH , April 3, 2017 at 9:40 am

Over the years, I have been astonished at how little many executives understand about finance, taxes, and business. I have always wondered what they actually do in their cocooned meetings. Generally speaking, those meetings result in hilarious memos re-organizing people that don't appear to have anything to do with the normal business while cutting costs that are essential to executing the business.

So it is not a surprise to me that a high-level executive would be unaware that a 401k is tax-deferred, not tax-exempt. He probably also thinks that a hedge fund is guaranteed to outperform the S&P 500 and has already moved his money into one, which means he will have less money to pay his taxes with.

DH , April 3, 2017 at 9:35 am

Borrowing against your 401k is only an issue if you are saving in it at a low rate. The really big issue with 401ks is that companies generally do not put much in matching funds in – typically far less than their old pension fund contributions would be. Instead, those funds have been going to pay for exorbitant healthcare insurance plans in the vastly over-priced US healthcare system.

I have borrowed against my 401ks over the years. However, I also save at a pretty high rate, generally at the highest rate that the company permits. So I get the tax savings (been in some of the highest tax brackets for over 20 years and live in a high income tax state, so about 35% or so tax deferral) while building an asset base.

Occasionally, something comes up that needs some cash, so I take a loan against the 401k (generally the value is less than a year's worth of contributions) and set up a schedule to pay it back over a couple of years. Some years the interest rate on the loan (that you are paying to yourself) is higher than the portfolio returns and other years it is lower. In the end, I have come out ahead because I am not trying to save those chunks of money after tax in a bank savings account that pays little or not interest.

Mr. P , April 3, 2017 at 11:10 am

I'm curious: If you pay the interest on the 401k loan with already-taxed money, is that interest taxed again upon withdrawal from the 401k?

jrs , April 3, 2017 at 12:44 pm

Yes it is a 35% tax savings, even if not in the highest bracket. Say in the 25% fed bracket (income of $37,950 to $91,900). Then California income taxes for that income can come to nearly 10%.

Ernesto Lyon , April 3, 2017 at 11:14 am

You almost never want to roll your 401k into a new employers plan. Shift it to your own IRA.

When you roll to your employer's plan you lose flexibility and can even put your pre-existing funds at risk in certain cases.

Billy-Bob , April 3, 2017 at 1:04 pm

Mostly true, but it depends. If the new 410k has good, low cost investment options that one wishes to utilize then it's probably fine. That said, many 401k accounts tend to have higher costs for equivalent funds than one can get in a rollover IRA. Buyer gots to do their research.

Yves Smith Post author , April 3, 2017 at 1:24 pm

No, he's correct. 401(k)s have TONS of hidden fees. You can't even get full disclosure of the full fees. You are guaranteed to have lower fees and more choices at Vanguard.

susan the other , April 3, 2017 at 11:27 am

Not just the corporation investing in equities or stock buybacks, or workers investing in equities, but also the corporations turn themselves into finance/insurance businesses (Westinghouse, etc.) It's funny that they can't see how they have defeated themselves – and they are blaming leakage when spending the money is the antidote to stagnation as the system now works. It's hard to imagine that the corporations want to retire the old workers to make room for new – I don't believe that for a second because they'll gladly retire 4 olds and hire 1new. It's "flexibility" they are looking for.

Stephen Hemenway , April 3, 2017 at 11:44 am

If they want people to retire earlier maybe they could lower the age at which social security pays out.

[Mar 10, 2017] Michael Hudson: Retirement? What Social Obligation?

Notable quotes:
"... This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won't have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's pay check, right off the top. ..."
"... The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich. ..."
"... So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds "in their sleep." That's how the five percent have basically been able to make their money. ..."
"... The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn't. The pretense is that nobody could have forecast this! ..."
"... In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell. ..."
"... We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you're going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You'll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money to do what social democracies are supposed to do. You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... "Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired 'conclusions', to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion." ..."
"... "Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory." ..."
"... "Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system." ..."
"... it insults the intelligence of the audience, ..."
"... we would now call ..."
"... totally insupportable on its face. ..."
"... as a corporate, spiritually mandated obligation, ..."
"... You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation. ..."
"... Henry Ford II: Walter, how are you going to get those robots to pay your union dues? Walter Reuther: Henry, how are you going to get them to buy your cars? ..."
"... "You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy." ..."
"... "The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus. ..."
"... The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation. " ..."
Mar 10, 2017 | www.nakedcapitalism.com
Posted on March 9, 2017 by Yves Smith Yves here. This Real News Network interview is from a multi-part series about Michael Hudson's new book, J is for Junk Economics. And after a lively discussion by readers of the economic necessity of many to become expats to get their living costs down to a viable level, a discussion of the disingenuous political messaging around retirement seemed likely. Among the people in my age cohort, the ones that managed to attach themselves to capital (being in finance long enough at a senior enough level, working in Corporate America and stock or stock options) are generally set to have an adequate to very comfortable retirement. The ones who didn't (and these include people I know who are very well paid professionals but for various reasons, like health problems or periods of unemployment that drained savings, haven't put much away) will either have to continue working well past a normal retirement age (even charitably assuming they can find adequately compensated work) or face a struggle or even poverty.

https://www.youtube.com/embed/cdv9EvWxkdc

SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore. I'm speaking with Michael Hudson about his new book J Is For Junk Economics: A Guide to Reality in the Age of Deception.

Thanks for joining me again, Michael.

MICHAEL HUDSON: Good to be here.

SHARMINI PERIES: So, Michael, on page 260 of your book you deal with the issue of Social Security and it's a myth that Social Security should be pre-funded by its beneficiaries, or that progressive taxes should be abolished in favor of a flat tax. Just one tax rate for everyone you criticize. We talked about this earlier, but let's apply what this actually means when it comes to Social Security.

MICHAEL HUDSON: The mythology aims to convince people that if they're the beneficiaries of Social Security, they should be responsible for saving up to pre-fund it. That's like saying that you're the beneficiary of public education, so you have to pay for the schooling. You're the beneficiary of healthcare, you have to save up to pay for that. You're the beneficiary of America's military spending that keeps us from being invaded next week by Russia, you have to spend for all that – in advance, and lend the money to the government for when it's needed.

Where do you draw the line? Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society. You had the first public pension (social security) program in Germany under Bismarck. The whole idea is that this is a public obligation. There are certain rights of citizens, and among these rights is that after your working life you deserve to live in retirement. That means that you have to be able to afford this retirement, and not have to beg in the street for money. The wool that's been pulled over people's eyes is to imagine that because they're the beneficiaries of Social Security, they have to actually pay for it.

This was Alan Greenspan's trick that he pulled in the 1980s as head of the Greenspan Commission. He said that what was needed in America was to traumatize the workers – to squeeze them so much that they won't have the courage to strike. Not have the courage to ask for better working conditions. He recognized that the best way to really squeeze wage earners is to sharply increase their taxes. He didn't call FICA wage withholding a tax, but of course it is. His trick was to say that it's not really a tax, but a contribution to Social Security. And now it siphons off 15.4% of everybody's pay check, right off the top.

The effect of what Greenspan did was more than just to make wage earners pay this FICA rake-off out of their paycheck every month. The charge was set so high that the Social Security fund lent its surplus to the government. Now, with all this huge surplus that we're squeezing out of the wage earners, there's a cut-off point: around $120,000. The richest people don't have to pay for Social Security funding, only the wage-earner class has to. Their forced savings are lent to the government to enable it to claim that it has so much extra money in the budget pouring in from social security that now it can afford to cut taxes on the rich.

So the sharp increase in Social Security tax for wage earners went hand-in-hand with sharp reductions in taxes on real estate, finance for the top One Percent – the people who live on economic rent, not by working, not by producing goods and services but by making money on their real estate, stocks and bonds "in their sleep." That's how the five percent have basically been able to make their money.

The idea that Social Security has to be funded by its beneficiaries has been a setup for the wealthy to claim that the government budget doesn't have enough money to keep paying. Social Security may begin to run a budget deficit. After having run a surplus since 1933, for 70 years, now we have to begin paying some of this savings out. That's called a deficit, as if it's a disaster and we have to begin cutting back Social Security. The implication is that wage earners will have to starve in the street after they retire.

The Federal Reserve has just published statistics saying the average American family, 55 and 60 years old, only has about $14,000 worth of savings. This isn't nearly enough to retire on. There's also been a vast looting of pension funds, largely by Wall Street. That's why the investment banks have had to pay tens of billions of dollars of penalties for cheating pension funds and other investors. The current risk-free rate of return is 0.1% on government bonds, so the pension funds don't have enough money to pay pensions at the rate that their junk economics advisors forecast. The money that people thought was going to be available for their retirement, all of a sudden isn't. The pretense is that nobody could have forecast this!

There are so many corporate pension funds that are going bankrupt that the Pension Benefit Guarantee Corporation doesn't have enough money to bail them out. The PBGC is in deficit. If you're going to be a corporate raider, if you're going to be a Governor Romney or whatever and you take over a company, you do what Sam Zell did with the Chicago Tribune: You loot the pension fund, you empty it out to pay the bondholders that have lent you the money to buy out the company. You then tell the workers, "I'm sorry there is nothing there. It's wiped out." Half of the employee stock ownership programs go bankrupt. That was already a critique made in the 1950s and '60s.

In Chile, the Chicago Boys really developed this strategy. University of Chicago economists made it possible, by privatizing and corporatizing the Social Security system. Their ploy was to set aside a pension fund managed by the company, mostly to invest in its own stock. The company would then set up an affiliate that would actually own the company under an umbrella, and then leave the company with its pension fund to go bankrupt – having already emptied out the pension fund by loaning it to the corporate shell.

So it's become a shell game. There's really no Social Security problem. Of course the government has enough tax revenue to pay Social Security. That's what the tax system is all about. Just look at our military spending. But if you do what Donald Trump does, and say that you're not going to tax the rich; and if you do what Alan Greenspan did and not make higher-income individuals contribute to the Social Security system, then of course it's going to show a deficit. It's supposed to show a deficit when more people retire. It was always intended to show a deficit. But now that the government actually isn't using Social Security surpluses to pretend that it can afford to cut taxes on the rich, they're baiting and switching. This is basically part of the shell game. Explaining its myth is partly what I try to do in my book.

SHARMINI PERIES: If the rich people don't have to contribute to the Social Security base, are they able to draw on it?

MICHAEL HUDSON: They will draw Social Security up to the given wage that they didn't pay Social Security on, which is up to $120,000 these days. So yes, they will get that little bit. But what people make over $120,000 is completely exempt from the Social Security system. These are the rich people who run corporations and give themselves golden parachutes.

Even for companies that have engaged in massive financial fraud, the large banks, City Bank, Wells Fargo – all these have golden parachutes. They still are getting enormous pensions for the rest of their lives. And they're talking as if, well, corporate pensions are in deficit, but for the leading officers, arrangements are quite different from the pensions to the blue collar workers and the wage earners as a whole. So there's a whole array of fictitious economic statistics.

I describe this in my dictionary as "mathiness." The idea that if you can put a number on something, it somehow is scientific. But the number really is the product of corporate accountants and lobbyists reclassifying income in a way that it doesn't appear to be taxable income.

Taking money out and giving it to the richest 5%, while making it appear as if all this deficit is the problem of the 95%, is "blame the victim" economics. You could say that's the way the economic accounts are being presented by Congress to the American people. The aim is to popularize a "blame the victim" economics. As if it's your fault that Social Security's going bankrupt. This is a mythology saying that we should not treat retirement as a public obligation. It's becoming the same as treating healthcare as not being a public obligation.

We have the highest healthcare costs in the world, so out of your paycheck – which is not increasing – you're going to have to pay more and more for FICA withholding for Social Security, more and more for healthcare, for the pharmaceutical monopoly and the health insurance monopoly. You'll also have to pay more and more to use public services for transportation to get to work, because the state is not funding that anymore. We're cutting taxes on the rich, so we don't have the money to do what social democracies are supposed to do. You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation.

You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary "financial/real estate/public enterprise" class that is transforming the economy.

SHARMINI PERIES All right, Michael. Many, many, many things to learn from your great book, J Is For Junk Economics: A Guide to Reality in the Age of Deception. Michael is actually on the road promoting the book. So if you have an opportunity to see him at one of the places he's going to be speaking, you should check out his website, michael-hudson.com

So I thank you so much for joining us today, Michael. And as most of you know, Michael Hudson is a regular guest on The Real News Network. We'll be unpacking his book and some of the concepts in it on an ongoing basis. So please stay tuned for those interviews.

Thank you so much for joining us today, Michael.

craazyman , March 9, 2017 at 10:10 am

It's 10 bagger time for sure. A house in the tropics with servants at your beck and call. Breakfast on the veranda. Lunch at the club. An afternoon sail. Dinner at the house of a famous author. Or some native woman who cooks spicy food and is hotter than the sun. No shuffleboard and pills! You need to stay buff if you wanna live like this. You can't be flabby and short of breath.

j84ustin , March 9, 2017 at 10:21 am

Thanks for this.

flora , March 9, 2017 at 11:47 am

+1. Yes. Great post. Very clear explanation of Greenspan's SocSec bait-and-switch.

PhilM , March 9, 2017 at 10:32 am

Yves's remark on retirement by sector is apt. I laugh bitter tears when I see that a financial CEO contract always includes a "pension," as if the tens of millions of dollars in salary and bonuses weren't enough.

A "pension" is for those who, broken by a life of hard physical labor, finally can't work any more for their crust of bread. It's not another revenue line-item that's barely enough to refuel the yacht.

There was a time when people "saved for retirement." With real rates of return being negative, and all assets priced arbitrarily at the whim of the central bank's policy du jour, I am perfectly frank when people ask "what should they invest in": nothing. Pay down your debt, and spend whatever you have beyond an emergency cushion right now, while you can enjoy it. Savings will inevitably be wasted, by inflation, the "health-care system," or financial-sector scammers. Do not ask for whom the bell tolls; if you have to ask, you can't afford it.

This is all in the context of the Federal Government already spending 20% of GDP, a number that was never designed to happen. It is the States that were supposed to be in charge of the people's welfare, not the national authority. So the argument that we should increase Federal taxes to somehow redistribute wealth is also wrong, because that wealth will simply be wasted, spent by people who are responsible to no one.

At moments like this there are no good choices. Most Europeans have long learned to live with governments that were hostile to them, and that is where we stand now.

Tocqueville's Democracy In America is tough going in spots, but my gosh, what a beautiful world he depicts, when the average Pennsylvanian's tax liability beyond his township was $4 a year.

a different chris , March 9, 2017 at 12:56 pm

I won't argue too hard about your "Federal vs State" argument, but note that if the state is in charge of most taxation then Richy Rich can live in a low tax state next door and employ the well-educated, healthy (single-payer) people in your state.

Sound of the Suburbs , March 9, 2017 at 10:38 am

Just got my copy of "J is for Junk Economics"

Other people are on the same wavelength.

Professor Werner moving from reality to fantasy:

"Classical and neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular 'results'. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired 'conclusions', to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and 'axioms'. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion."

"Progress in economics and finance research would require researchers to build on the correct insights derived by economists at least since the 19th century (such as Macleod, 1856). The overview of the literature on how banks function, in this paper and in Werner (2014b), has revealed that economics and finance as research disciplines have on this topic failed to progress in the 20th century. The movement from the accurate credit creation theory to the misleading, inconsistent and incorrect fractional reserve theory to today's dominant, yet wholly implausible and blatantly wrong financial intermediation theory indicates that economists and finance researchers have not progressed, but instead regressed throughout the past century. That was already Schumpeter's (1954) assessment, and things have since further moved away from the credit creation theory."

"A lost century in economics: Three theories of banking and the conclusive evidence" Richard A. Werner

http://www.sciencedirect.com/science/article/pii/S1057521915001477

Even the BoE has quietly come clean about money.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Leaving Paul Krugman looking rather foolish

" banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" Paul Krugman, 2015.

No, it doesn't work like that Paul.

Sound of the Suburbs , March 9, 2017 at 10:46 am

The facts tell all.

Francis Fukuyama talked of the "end of history" and "liberal democracy" in 1989.

Capitalism had conquered all and was the one remaining system left that had stood the test of time.

With such a successful track record, everything was being changed to a new neo-liberal ideology and globalization was used to test this new ideology everywhere.

The Great Moderation seemed to indicate that the new ideology was a great success.

"Seemed" is the operative word here.

A "black swan" arrives in 2008 and nothing is the same again, the Central Bankers pump in trillions to maintain the new normal of secular stagnation.

Sovereign debt crises erupt, the Euro-zone starts to disintegrate, austerity becomes the norm., no one knows how to restore growth and the populists rise.

A new ideology comes in that is rolled out globally and seems to work before 2008.

What happened in 2008?

This is the build up to 2008 that can be seen in the money supply (money = debt):

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

Everything is reflected in the money supply.

The money supply is flat in the recession of the early 1990s.

Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan's loose monetary policy.

When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands (money = debt).

The theory.

Irving Fisher produced the theory of debt deflation in the 1930s.

Hyman Minsky carried on with his work and came up with the "Financial instability Hypothesis" in 1974.
Steve Keen carried on with their work and spotted 2008 coming in 2005.

You can see what Steve Keen saw in the graph above, it's impossible to miss when you know what you are looking for but no one in the mainstream did.

The hidden secret of money.

Money = Debt

From the BoE:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

If you paid off all the debt there would be no money.

Money and debt are opposite side of the same coin, matter and anti-matter.

The money supply reflects debt/credit bubbles.

Monetary theory has been regressing for over 100 years to today's abysmal theory where banks act as intermediaries and don't create and destroy money.

The success of earlier years was mainly due to money creation from new debt (mainly in housing booms) globally feeding into economies leaving a terrible debt over-hang.

Jam today, penury tomorrow.

This is how debt works.

Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions (Michael Hudson and Steve Keen are on the list of 12).

They all saw the problem being excessive debt with debt being used to inflate asset prices (US housing).

The Euro's periphery nations had unbelievably low interest rates with the Euro, the risks were now based on common debt service. Mass borrowing and spending occurs at the periphery with the associated money creation causing positive feedback.

Years later, it was found the common debt service didn't actually exist and interest rates correct for the new reality.

Jam today, penury tomorrow.

Why doesn't austerity work? (although it has been used nearly everywhere)

You need to understand money, debt, money creation and destruction on bank balance sheets and its effect on the money supply. Almost no one does.

Richard Koo does:

https://www.youtube.com/watch?v=8YTyJzmiHGk

Ben Bernanke read Richard Koo's book and stopped the US going over the fiscal cliff by cutting government spending.

Sound of the Suburbs , March 9, 2017 at 11:20 am

Alternative and I would say much more accurate realities:

1) Michael Hudson "Killing the Host", "J is for Junk Economics"

The knowledge of economic history and the classical economists that has been lost and the problems this is causing. Ancient Sumer had more enlightened views on debt than we have today.

2) Steve Keen "De-bunking Economics"

His work is based on that of Hyman Minsky and looks into the effects of private debt on the economy and the inflation of asset bubbles with debt.

3) Richard Werner "Where does money come from?"

The only book generally available that tells the truth about money, I don't think there are any other modern books that do and certainly not in economics textbooks

4) Richard Koo's study on the Great Depression and Japan after 1989 showing the only way out of debt deflation/balance sheet recessions.

https://www.youtube.com/watch?v=8YTyJzmiHGk

Sound of the Suburbs , March 9, 2017 at 11:55 am

The BoE:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

The BoE have made a mistake.

"Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system."

The limit for money creation holds true when banks keep the debt they issue on their own books.

The BoE's statement was true, but is not true now as banks can securitize bad loans and get them off their books.

Before 2008, banks were securitising all the garbage sub-prime mortgages, e.g. NINJA mortgages, and getting them off their books.

Money is being created freely and without limit, M3 is going exponential before 2008.

Dead Dog , March 9, 2017 at 1:02 pm

Thanks SOS, agree. We're at that 08 point now, in fact it's worse.

Pensions should just be a click of the computer, no borrowings, savings or taxes needed and they need to be sufficient to live on.

No, we aren't 'winning'

In Australia, we used to give people the 'aged' at 60 for women and 65 for men. Now its 67 for both, the woman's aged cut in was raised for 'equality' reasons, and it going up to 70 for my kids.

Politicians, judges, CEOs and the c-class, all those 'shiny bums', they can often work well into their 60s. The rest of us experience age discrimination in a tight job market and are forced into menial jobs just when society should be funding their well earned retirement.

diogenes , March 9, 2017 at 10:41 am

The whole "there aren't enough workers to support retirees" meme is risible.

Example: Jane funds an IRA for 30 years. For those 30 years, there is one person paying in, and zero taking out. When Jane retires, the IRA flips to one person taking out, and zero paying in.

Disaster, or working as advertised?

That Serious Thinkers, elected officials and the SSA themselves advance this trope to explain why SS is hopeless is proof of willful mendacity.

Now if these folks admit, well yuh, you paid in over all of these years, but the money ain't there no more, then first, that's an admission of mismanagement (unsurprising), and second, bail us the fuck out like you did Wall Street.

inhibi , March 9, 2017 at 11:48 am

Most every purported "help" by the government is the exact opposite: your paying into a black hole.

Look around you. What around you was paid for by the government? The answer is none of it was. Taxes are a way to keep the bureaucratic structure afloat. What is very clear is that once government reaches a certain size it begins to massively leach off of those that work and gives it to those that "manage".

Look at any industry today and you will find, in the private sector, declining or stagnant wages for the "drones". Then look at the public sector: expanding, better benefits, better wages, less work etc. Thinking about it makes my blood boil. I see truckers making less now then 10 years ago, yet, the industry keeps crying that they "don't have enough workers". Yeah, sorry no one wants to work 25/8 driving around in the day time, sleeping in a truck at night, getting tracked through GPS & get penalized for going above speed limits when they can work for the DMV, make the same amount, and sit at a desk for 7 hours a day with plenty of benefits and vacation time.

Its about time for this system to implode. I see globalization and government expansion as a huge force that will eventually cause a revolution in the States.

Art Eclectic , March 9, 2017 at 12:12 pm

Globalization and the government are simply red herrings meant to distract Trump voters while shareholder value driven corporate overlords continue looting.

a different chris , March 9, 2017 at 1:09 pm

Look around you . The government employs less people than pretty much for my whole life. Please get informed before you go off on a multi-paragraph rant.

http://historyinpieces.com/research/federal-personnel-numbers-1962

If you want a job join the military. Do you think that's a good option?

jrs , March 9, 2017 at 7:01 pm

maybe noone should work in trucking, freight trains are much more energy efficient as far as a means of transporting goods over long distances. Nah I'm not faulting truckers, just saying it makes no societal sense is all except maybe for the last few miles, but then neither do a lot of things. I doubt many people want to work at the DMV, but then maybe the benefits are enough to make a distasteful job seem worth it.

Arizona Slim , March 9, 2017 at 12:37 pm

ISTR reading that the creators of the 401k saying that they never intended it to be a replacement for a pension.

PhilM , March 9, 2017 at 11:05 am

As usual, the abuse of history is the outstanding credibility-buster in this piece. When an author says this,

Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.

why should I believe anything else that he has to say?

The sole instance given is of Bismarck's Germany, actually ground-breaking in its social welfare policies, which came only in the last part of the 19th century.

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

Indeed, retirement in past centuries had a different denotation. Its common use was among the aristocracy, when one of that number determined to remove himself from active (urban) social or political life and withdraw (hence the etymology, "re-tirer"), usually to the country.

Haygood had to resuscitate "rusticate" for the other day, to achieve a modern equivalent of that.

All of this is common knowledge. In case you don't think so, spend five minutes with any book of demographics or social history; and that's just for Europe. Don't let's even ask what "nobody expected to pay for their retirement" meant in early nineteenth-century Alabama.

By the way, Hudson does this all the time. When I can fact-check offhand, from my fund of common knowledge, he is often casually abusing the truth. I can be pretty sure that the rest of what he says is just as unreliable.

Arizona Slim , March 9, 2017 at 12:39 pm

Didn't Bismarck create those social welfare programs in order to prevent unrest in a recently unified Germany?

MBC , March 9, 2017 at 12:52 pm

You may be correct about the 19th century, but it is 2017. And his points about the US tax system, the banks, the wealthiest 1% and our gov't deceiving the middle and lower class are solid. A very basic retirement and healthcare should be provided to all in any decent marginally successful society. Not to mention a supposedly "great" one.

Rick Zhang , March 9, 2017 at 7:21 pm

I think this is where some progressive get tripped up and don't understand why their policies aren't more popular to the wide swaths of America outside of their bubble.

Often times, these people (I use this term loosely to include working class whites in Appalachia as well as Silicon Valley libertarians) like to provide a fair and wide safety net. However, most policies that are advanced are strictly means tested. This causes significant resentment among those just outside of the cutoff lines. Think: Social Security has essentially blanket coverage. Yes, there's some redistribution going on behind the scenes, but if I pay in for 30 years I will get most of my money back. It's wildly popular, while welfare programs are not.

The same applies for health care – Medicare is popular and Medicaid is not. If I pay in for a government program, I want to be able to take advantage of it. Save me the crap about not wanting to subsidize the lifestyles of the 1%; they pay in far more than they would take out of the program. It's a small price to pay to have universal coverage and buy in from all segments of society. So extending Medicare down to everyone is a better political strategy than extending Medicaid upwards to encompass higher income levels.

More reading: https://www.nytimes.com/2017/03/07/business/economy/trump-budget-entitlements-working-class.html

Rick Zhang @ Millennial Lifehacker

Hans Suter , March 9, 2017 at 12:57 pm

why don't try to educate yourself, you may start here https://eh.net/encyclopedia/economic-history-of-retirement-in-the-united-states/

a different chris , March 9, 2017 at 1:12 pm

You read a great deal into a statement that you didn't at all prove was untrue. Not impressive.

The question is, did society believe that it had a responsibility of care for people that got too old to work? You didn't even address that. Yes we know life was "nasty, brutish and (most often) short. That doesn't invalidate what he said.

Dead Dog , March 9, 2017 at 1:13 pm

PhilM 'I can be pretty sure that the rest of what he says is just as unreliable.'

No mate, he speaks truth and may have exaggerated, but the point remains that here, the UK, most of Europe – then the state funds your pension if you need one. It is now a social obligation. Only in the US, do you have this class of people (the working class) who don't deserve retirement and must fund their own meagre pensions, and if the 'pool which funds the pensions' becomes insufficient, well you know the rest.

Taxes see, they fund things, or more often don't, because it's a widely accepted lie to keep the private bank money creation bullshit going forever.

PhilM , March 9, 2017 at 1:41 pm

That's the problem, Dog, I generally agree with his point, and with the responders to my comment, on policy grounds. My point is that leading with something that is provably false, and even probably false to common knowledge, is not a winning tactic; some would say it insults the intelligence of the audience, even.

To me this site, if it's about anything, is about filtering out the BS that is used by people with an agenda to "enhance" their arguments. Lambert does this with a Lancelot-sized skewer. And part of the beauty is the crowd-sourced fact-checking from an extraordinarily informed, and sceptical, community.

I may not have much to add to their expertise, but one thing I do know is some European history, and it drives me berzerk to see people just misuse history as if it strengthens their argument. If they don't know that what they are saying is true, they should not say it. And by "know it is true," I mean, know the source, and the source of the source, and be able to judge its reliability. That is what scholarship is all about: seeing how far down the turtles go.

So when someone just tosses out an assertion about "what the past thought was right," as if that created a moral obligation or not in 2017 (which as MBC quite rightly observed it does not, at least not without a clearer argument), they should be critiqued. When their assertion is based on sloppy cherry-picked facts and wrongly generalized, they should be called out as either uninformed or malicious, in hopes they will be less so in the future.

That's all I was saying; I did not have a point to make about pensions, because I agree with Hudson's viewpoints almost all the time, which is why it is so sad to see him turn out to be so cheesy, so often.

My personal experience of pensions is this: they are a total scam to lock people into exploitive, nearly intolerable working conditions on the flimsiest of promises in the private sector; and in the public sector, they are a way of adding to the debt burden of generations yet to come without the assent of the people: taxation without representation, in effect.

I have seen professionals crumble morally thanks to the force of the pension. It is despicable corporate oppression at the subtle level, because it looks as if they are doing a good thing, which of course they are not. It's more subtle than their obvious screaming cruelties to people and animals and the land, which, it must also be said, nobody does anything about either.

Dead Dog , March 9, 2017 at 2:37 pm

Thanks for replying Phil. Good points.

Yes pension systems aren't perfect, but some people don't have family or money to fall back on when they get old. I am seeing more and more of my own friends in their 60s struggling to earn money through work. They want to stop, but can't afford to.

And, I am dismayed and disheartened of seeing people on the sidewalks that could be my parents. Or, shit, me

Rick Zhang , March 9, 2017 at 7:25 pm

I have no sympathy for these people. Read Hillbilly Elegy and see the perspective from the white working class. More often than not, people who are "struggling" in mid life are those who made bad choices. They abused drugs, had kids out of wedlock, or didn't make a career for themselves. Often, they spend poorly – on luxury items and consuming excessively.

I live now just like how I did when I was a poor student – with a carefully limited budget and spending within my means (more on experiences than products). I save 80% of my income and plan to retire early. More people can do the same.

My mentor/hero bought a fixer upper house that she repaired by herself. She bikes to work every day in the snow, and buys her clothes from thrift stores. She makes a six figure salary.

Save for an uncertain future, folks, and you won't find yourself in dire straits later on in life.

– Rick Zhang @ Millennial Lifehacker

Moneta , March 9, 2017 at 7:52 pm

If everyone saved like you did, the economy would be smaller so there would be even more unemployment and no money for savings

Rick Zhang , March 9, 2017 at 8:26 pm

Tragedy of the commons, eh?

If everyone saved more, we'd reach a happier and more balanced equilibrium. Plus, money that's saved is recycled into the economy through lending.

Or maybe you're arguing that the poor should save more and the wealthy should consume more and keep the economy humming.

– Rick Zhang @ Millennial Lifehacker

Jagger , March 9, 2017 at 1:18 pm

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

I suspect your children or your extended family, were your retirement if you lived long enough pre-20th century times. Also I cannot imagine there was any sort of defined retirement prior to 20th century for the masses. People simply did whatever they could within their families until they couldn't. Work loads probably just decreased with the fragility of old age.

Also many people did live long lives. IIRC, heavy mortality was primarily concentrated in children and childbirth and maybe the occasional mass epidemic or bloody war. Dodge those and you could probably live a fairly long life.

PhilM , March 9, 2017 at 3:38 pm

Quite right; there was a bimodal or multimodal curve, which is why mean averages of life expectancy are not all that enlightening. But the fact is that most people who worked or fought, worked or fought their whole lives, until they were incapacitated; then there was their family, or the Church, or the poorhouse, or starvation, usually leading to mortal illness, if it had not done so before then.

The other side of that story is that the old folk were there as part of the social and economic unit: helping to pick the harvest with the very youngest; sharing skills and knowledge across four or five generations, century after century-rather than being shuffled off to die in some wretched cubby, doing "retirement" things. There's a terrific little book, Peter Laslett's The World We Have Lost, that gives a well-sourced and interesting picture of pre-industrial family life that pushes people to overcome some of their self-satisfaction about this kind of thing.

watermelonpunch , March 9, 2017 at 5:39 pm

I remember reading where they found a Neanderthal remains that showed that this guy was definitely disabled to the point where he couldn't have survived alone. Which means someone else helped him live longer.
That's what humans have always done pretty much, before money. People paid in by being part of society, and then their community helped them later. Social insurance is just the money big civilization version of it isn't it?

I'm just thinking of the people with aging parents and children with parent cosigned student loans And what if they were responsible for paying the $90,000+ / year nursing home payment and all the medical bills, instead of Social Security, Medicare, Medicaid On top of trying to help their kids get through college.

The whole scenario is a bad joke and getting worse.

Moneta , March 9, 2017 at 1:19 pm

There wasn't 15-20% of the population expecting to live 30 years in retirement and the next generations to pay for their still mortgaged McMansions and trips to the tropics.

I have no issues paying for retirees. I have issues with asking the younger generations to pay for lifestyles that are bigger than theirs. The Western retirement lifestyle is too energy and resource intensive.

jrs , March 9, 2017 at 2:48 pm

I don't think most people collecting a social security check actually have a big lifestyle, much less trips to the tropics, that's a Charles Schwab commercial, not a reality for most people. What Social Security has done is mostly reduce the number of old people living in poverty. Ok so young and middle age people are still living in poverty, making everyone live in poverty including people that are old and frail and sick is not an improvement. Are retired people's lifestyles actually shown to be more energy intensive, I think in many ways they would be less so, ie not making that long commute to the office everyday anymore etc..

polecat , March 9, 2017 at 2:58 pm

This -- Without adequate resources and, most importantly, energy, there are no pensions -- indeed, there is no middle class as well !!

Anonymouse , March 9, 2017 at 4:04 pm

Sorry, but your comment is delusional. It is impossible for someone retired on only Social Security to "pay for their still mortgaged McMansions and trips to the tropics". In what universe is that possible on a MAXIMUM annual income of less than $32,000? Googling "maximum social security benefits" generates the following info:
"The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years. Depending on when you retire and how much you made while working, your benefits may be considerably less. The estimated average monthly benefit for "all retired workers" in 2016 is $1,341."

jrs , March 9, 2017 at 6:51 pm

I suspect a lot of people (younger than boomers) might be still mortgaged to a small degree when they retire as housing costs have gone up so that people can't afford a mortgage when they are young, so if they buy real estate at all it's at middle age, buy the first home in their 30s or 40s or 50, for a 30 year mortgage. But McMansions have nothing to do with that.

Moneta , March 9, 2017 at 9:01 pm

First of all I did specify that a 15-20% group is doing quite well.

– Debt in retirement is increasing
http://www.investopedia.com/financial-edge/1012/boomers-staying-in-debt-to-retire-in-comfort.aspx

-Average/median square footage house 1973 vs. 2010. https://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf

-Social Security represents half of retirement income for half of retirees. https://www.fool.com/investing/general/2016/02/28/how-much-of-my-income-will-social-security-replace.aspx

-Income distribution (see page 9)
https://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf

************

The income distribution table shows that the younger retirees 65-75 are not suffering when compared to the working population they seem to have a good thing going for them

Merging all these data points, it becomes quite apparent that there is a large percentage of retirees who still carry debt while collecting social security.

Increasing social security to some group means making another group pay

PlutoniumKun , March 9, 2017 at 1:59 pm

As usual, the abuse of history is the outstanding credibility-buster in this piece. When an author says this,

Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society.

why should I believe anything else that he has to say?

The sole instance given is of Bismarck's Germany, actually ground-breaking in its social welfare policies, which came only in the last part of the 19th century.

For most of the 19th century, just about everywhere, nobody who worked for a living expected to live long enough to retire.

Indeed, retirement in past centuries had a different denotation. Its common use was among the aristocracy, when one of that number determined to remove himself from active (urban) social or political life and withdraw (hence the etymology, "re-tirer"), usually to the country.

Historically, he is right and you are entirely wrong, which is not surprising as Michael Hudson is originally a philologist and historian and has specialised in economic history.

The modern conception of retirement is mostly a 20th Century invention, but throughout history, there are many versions of 'retirement', and they were almost always paid out of current expenditures. Roman soldiers were paid lump sums and frequently given land on reaching retirement age through the Aerarium Militare. Militaries throughout ancient and medieval history had similar schemes, and not just for officers, but again, these were rarely if ever paid out of a contribution scheme – it was considered an obligation of the State.

In many, if not most societies, it was accepted that aristocratic employers and governments had obligations to elderly staff – for example, fuedal workers would keep their homes when they were no longer capable of working, and this extended well into the 19th Century. Organised religions would almost always have systems for looking after retired religious members, again, always paid out of current revenues, not some sort of investment fund. The concept of a fixed retirement age (outside of the military) is a relatively modern one, but the concept of 'retirement' is not modern at all.

PhilM , March 9, 2017 at 5:40 pm

This is the worst strawmanning bull**** I have seen in a while; it is simply infuriating. I don't have the time to put all of what follows into perfect order, but here's what I can tap out in a minute or two.

If, PK, you are trying to prove that some people in the past have stopped work and still gotten paid, as part of their lifetime compensation for the work they have done, and that this is, de facto, compensation during what we would now call "retirement," you win. Straw man knocked over.

So let me again quote what Hudson says, just so your argument can be demonstrated as the pointless distraction that it is:

"Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society."

That couldn't be clearer. "Nobody anticipated," as in "nobody." Meaning it was a generally accepted social value that . what follows. What follows is "people," as in "people"; not just soldiers, or priests, or servants; "people," ie, Gesellschaft; and then, "their own retirement," (which can only imply a period when they were old enough still to do something productive that earned money, but chose not to, instead; because otherwise it would be called "disability," right?). "That was viewed as an obligation of society," meaning, it was a right, not a privilege or gift or compensation, and it was universal, because it applied to "people," and "nobody" thought otherwise.

There is just nothing there that is justifiable in any way based on the history of the nineteenth century. The only exception is Bismarck's Germany, which is adduced as proof of the statement, which is totally insupportable on its face.

If you stand by that, and are trying to suggest that "retirees," meaning as a group everyone in society beyond a pre-defined age, as opposed to the disabled, were ever perceived as having a societally based right to welfare support before the very late nineteenth or early twentieth century, and that only in a very few, very advanced places, you fail three times over.

You do this in classically ahistorical ways: you conflate Gesellschaft with Gemeinschaft; you adduce the military of the ancient world, which is just hilariously anachronistic, but even those prove you wrong when examined closely; you completely misconstrue the rules of the corporately organized ancien regime, which by the way was ancient history as far as the post-Dickensian industrializing Europe that Hudson speaks of; you adduce the military and the priesthood as if they were representatives of "society" as a whole, which they were not–they were adherents of the body that made the rules, and liked to keeps its friends close, and could reward them. The same, while you are at it, was true of some different varieties of public servants–but not many, and again, not before the late nineteenth century, and certainly not in the US:

"Like military pensions, pensions for loyal civil servants date back centuries. Prior to the nineteenth century, however, these pensions were typically handed out on a case-by-case basis; except for the military, there were few if any retirement plans or systems with well-defined rules for qualification, contributions, funding, and so forth. Most European countries maintained some type of formal pension system for their public sector workers by the late nineteenth century. Although a few U.S. municipalities offered plans prior to 1900, most public sector workers were not offered pensions until the first decades of the twentieth century. Teachers, firefighters, and police officers were typically the first non-military workers to receive a retirement plan as part of their compensation."

https://eh.net/encyclopedia/public-sector-pensions-in-the-united-states/

Your ad hominem appeal to Hudson's authority as a historian is amusing: it is actually not surprising that Hudson is wrong, and I am right; because he is an economic historian, with a special faculty, apparently, for conducting contemporary policy polemics; and I would be happy to give you my professional authority, except that this is the internet, so appeals to professional authority don't mean anything at all, but I'll just put it to you that it is more than sufficient; but leaving that aside, I am without a polemical agenda, except just this one: that the past needs to be respected in its totality, and that even when being used to score points in contemporary policy arguments. I know which of us has more credibility here just by reading Hudson's sentences, which are devoid of historical meaning or sensitivity; and I know that I, as a historian, would never knowingly misuse the past to make a point about the present, because that is being a bad, bad doctor.

You bring up three cases: military, clergy, and servants. Those are exactly not what Hudson is talking about when he mentions Bismarck, or the nineteenth century, or retirement and its old age provisions as a whole, so you basically proved my point just by failing to address the actual argument. What Hudson is referring to-because he says so with his one example-is the Bismarckian "Gesellschaft" obligation to what had in previous centuries been called the the third estate in generic terms. Not, mind you, the first and second estates and their servants and adherents. If Hudson were talking about pensions for the military, he would have said so, and his argument would have ended there, in a paragraph, because they are fully protected in that regard and have been, at least more than the average citizen, since the GI Bill. Pensions for the military is not part of some kind of "social obligation" for retirees; it is a reward for long service, and therefore not some kind of "right of social welfare," but a kind of compensation, and it was not much, at that, in the 19th century.

The regular clergy, which made up most of the clergy until the dissolutions, did not retire: their jobs were for life, because they lived a life of prayer, and that was not something that ever ended. The Church supported all clergy as a corporate, spiritually mandated obligation, not as a generalized "social obligation" like social security, or what Bismarck instituted. If your point is that certain corporate groups took care of their privileged members when they no longer worked, that is one thing; if your point is that "retirement" as a condition that merited social welfare, in general, the clergy don't make that for you. They were exceptions to the general rule that people had to fend for themselves, a rule that applied to the entire third estate by definition from time immemorial.

Lastly, servants: those who "retired" in the nineteenth century very often did not have the same treatments as servants in the ancien regime, many of whom died in harness in any case. But, if their employing families did continue to provide for them, they did so not out of a sense they were meeting the "obligation of society to the retired," but as a matter of family or community duty, noblesse oblige. It was completely at the mercy and discretion of the family involved. It was a matter of personal honor, and still is, when servants have been your friends and companions and have prepared and eaten the same food you have, and cleaned your mess and watched your back and brushed your horses and trained you to ride, and seen your youthful foolishness, sometimes for generations. Those are not "obligations of society"; they are personal and family and moral obligations. So Cato the Elder took some heat for his recommendations on discarding old and broken down slaves, but nobody suggested it was up to the Republic to pay for them instead. Since you're going to the ancient world, you might better have used that example than that of the soldiers.

And so all that is what Hudson is not talking about. He's talking about Bismarck's social security as a moral precedent, reflecting a widely held belief in the popular right to a social safety net after a certain age.

So of course some people were "pensioned." They were called "pensioners," and many of them were not at all "retired," but had gone on to work at other things, like soldiers who opened up fish-and-chips shops (q.v.). That does not mean that there was ever a Gesellschaft-like concept of "retirement" as a condition that brought the right to support by the commonwealth; not before Bismarck. That's what Hudson's reference tries to imply, that such a concept was common in the 19th century, at a widespread societal level in Western Civilization, and it is provably, demonstrably, obviously wrong. If it weren't, why would the Old-Age Pensions Act 1908 have ever been passed?

"Nobody anticipated in the 19th century that people would have to pay for their own retirement. That was viewed as an obligation of society."

You simply cannot construe that to have any truth, given the facts of the century. You can straw-man me about the concept of "retirement" all you like, although you are still wrong there, because the groups you name aren't people who "work for a living," which is the third estate; they are the first and second estates, and their adherents: those who fight for a living, and pray for a living, and those who obey them.

So the fact remains that Hudson's statement was just polemical fluff, and no historian worth the name should have uttered it. I guess I'll sit here and wait for his response, because yours, well .

fresno dan , March 9, 2017 at 11:05 am

"He didn't call FICA wage withholding a tax, but of course it is."

This just drives me to apoplexy. 1, that it is not called a tax, and 2, that wage taxes are never ever reduced.
Incessant yammering about "incentives" – but doesn't a wage tax disincentivise both employers and employees with regard to wage work? – – Endless talk about how CEO's can't do ANYTHING unless their taxes are REDUCED!!!!!!! But somehow .that just goes out the window when it comes to wages – TAXES MUST GO UP.
Cheney – deficits don't matter .except apparently with regard to social security ..

The other scam about FICA and its "separate" funding is that social security being in balance is OH SO IMPORTANT – deficits will be the death of it. Yet the general fund is in deficit (see Mish today for a bunch of stuff on the hypocrisy of repubs on the deficit) and ever more deficit and nobody seriously cares about it or worries about it. MONEY can always be found for invading for Iraq, and paying for invading anybody is NEVER a problem. Feeding old folks, on the other hand, sure strains the resources
Its like it is as important to keep a reserve army of the impoverished as it is to keep the empire.

Dead Dog , March 9, 2017 at 1:22 pm

FD -'This just drives me to apoplexy' Breathe, buddy.

Yes, mate, feeding old folks – looking after the oldies so they have health care, decent food and a home.

How well each country does it reflects their views on whether it's a social obligation. For many countries, there is no safety net and families provide the care, if they can.

It's becoming that way in the west too. I don't see many governments increasing welfare for our poorest people, benefits are being gutted and those that did save for retirement are seeing their funds looted and zero interest paid

Hemang , March 9, 2017 at 11:17 am

Life in Indian joint family is great- no retirement work- food for life for a member- great lack of boredoms and lonely depressions- life, life ,- exquisite vegetarian food fit for Gods- low tech human scale towns- GREAT TO BE ALIVE ON 3 dollars a day! This talk of retirement and working and senior junior savings is so pathetic that my sex drive just evaporated into thin air reading it! Get a life.

Disturbed Voter , March 9, 2017 at 12:51 pm

Destruction of the family by public and private corporations, with the assistance of disruption by multiple industrial revolutions is key.

Sluggeaux , March 9, 2017 at 11:25 am

It's good to read Michael Hudson's call-out of FICA as a mechanism to crush workers and transfer wealth to the already rich.

FICA is indeed the worse sort of deductive reasoning. It is based on the premise that the rich are entitled to be rich, and that the masses want to take their money from them. In America in particular, wealth has historically been based on grants from the sovereign to loot the commons (timber, agriculture, mineral extraction, railroads, military procurement, data mining, etc.). These grants to loot the commons have nearly always been based on corrupt practices of cronyism and bribery. Alchemists like Greenspan simply provide theo-classical mumbo-jumbo after-the-fact justification for their piracy.

Ironically, I was just reading about impending failure of the Oroville Dam, a prime example of America as the seat of greed. It was well-known that the spillways were inadequate and crumbling due to 50 years of use. However, the Reagan-ites of Southern California refused to tax themselves in order to save Oroville and Yuba City, 450 miles away.

It's sad that everyone, especially the rich, think that they can blow-up the United States and then fly to their bolt-hole in New Zealand or Australia - or if you're not so rich to a shack in Panama or Thailand. I suspect that we will soon find ourselves to be unwelcome pariahs in those places.

Arizona Slim , March 9, 2017 at 12:41 pm

And, if you're a freelancer like I am, you get to pay both sides of the FICA tax, employee and employer. Fun, fun!

Dead Dog , March 9, 2017 at 1:24 pm

They may be unwelcome by the masses, but money still talks and, if you haven't got any, well you just stay right where you are.

mk , March 9, 2017 at 1:25 pm

200,000 people (even if they all voted) is not a political threat to the state and feds.

Rick Zhang , March 9, 2017 at 8:30 pm

How is FICA a redistribution to the wealthy? If anything, what you pay in buys you a share of the distributions when you retire. That means the output is roughly proportional to the input you contribute. The wealthy stop contributing after roughly the $120,000 limit, but that doesn't mean they take an outsized distribution. They take home exactly the same (pre-tax) as someone who only made $120,000 per year.

If anything there's a bit of redistribution behind the scenes that favours the poor. See my earlier post. If you make too many changes to Social Security such that it becomes another welfare program, it will lose its popular backing and eventually get axed.

– Rick Zhang @ Millennial Lifehacker

MMT is the Key , March 9, 2017 at 12:30 pm

Neoliberalism is OUT-DATED. Rather, for the past four decades, it's been fiat currency for the .01% and gold standard straitjacket ideology for everyone else.

"The mainstream view is no longer valid for countries issuing their own non-convertible currencies and only has meaning for those operating under fixed exchange rate regimes,

'The two monetary systems are very different. You cannot apply the economics of the gold standard (or USD convertibility) to the modern monetary system. Unfortunately, most commentators and professors and politicians continue to use the old logic when discussing the current policy options. It is a basic fallacy and prevents us from having a sensible discussion about what the government should be doing. All the fear-mongering about the size of the deficit and the size of the borrowings (and the logic of borrowing in the first place) are all based on the old paradigm. They are totally inapplicable to the fiat monetary system' (Mitchell, 2009).

We might now consider the opportunity afforded by the new monetary reality, effectively modelled by MMT. A new socio-political reality is possible which throws off the shackles of the old. The government can now act as a currency issuer and pursue public purpose. Functional finance is now the order of the day. For most nations, issuing their own fiat currency under floating exchange rates the situation is different to the days of fixed exchange rates. Since the gold window closed a different core reality exists – one which, potentially at least, provides governments with significantly more scope to enact policies which benefit society.

However, the political layer, in the way it interacts with monetary reality, has a detrimental effect on the power of democratic governments to pursue public purpose. In the new monetary reality political arrangements that sprang up under the old regimes are no longer necessary or beneficial. They can largely be considered as self-imposed constraints on the system; in short the political layer contains elements which are out-of-date, ideologically biased and unnecessary. However, mainstream economists have not grasped this situation – or perhaps they cannot allow themselves to- because of the vice-like grip that their ethics and 'traditional' training has on them.

MMT provides the best monetary models out there and highlights the existence of additional policy space acquired by sovereign states since Nixon closed the gold window and most nations adopted floating exchange rates. We just need to encourage the use of the space to enhance the living standards of ordinary people."

Heterodox Views of Money and Modern Monetary Theory (MMT) by Phil Armstrong (York College) 2015

https://www.youtube.com/watch?v=d57M6ATPZIE

PhilM , March 9, 2017 at 2:08 pm

Hear, hear!

A new socio-political reality is possible which throws off the shackles of the old. The government can now act as a currency issuer and pursue public purpose. Functional finance is now the order of the day. For most nations, issuing their own fiat currency under floating exchange rates the situation is different to the days of fixed exchange rates. Since the gold window closed a different core reality exists – one which, potentially at least, provides governments with significantly more scope to enact policies which benefit society.

What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda: to undermine the mores underlying centuries of private-property-based liberal capitalism. Those mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something, and so representative democracy and property rights, which are the keys to a functioning productive civil society and underlie all human progress for eight hundred years, can survive a bit longer.

The very real and useful core of MMT, which describes what we see happening since the gold standard fell, and is therefore unimpeachable from a certain objective turn of mind, is Janus-faced. On the one hand, it acknowledges what the Framers knew intuitively when they gave the Federal government the power of issuing money: the sovereign makes the money. On the other, as often used here, and especially in your comment, it is a rationale for a government unrestrained by property rights and representative constraints on its power of expenditure. That will not end well, simply because it will not last long, and it will end in a military despotism or landed aristocracy (if you're lucky). Because it always has, and you are not going to change that, are you?

Jim , March 9, 2017 at 4:25 pm

In one of the recently discovered lectures (1940) by Karl Polanyi, in referring to post-war Europe (post 1918) he argued:

"The alternative was between an integration of society through political power on a democratic basis, or if democracy proved too weak, integration on an authoritarian basis in a totalitarian society, at the price of the sacrifice of democracy."

It is still the same issue today which PhilM nicely illuminates when he states: "..What I especially like about your post is that it finally takes the mask off and openly admits what everyone who tries to learn about MMT has realized at once: that for all of its utility in understanding money systems, it is designed and propounded with an agenda to undermine the mores underlying centuries of private-property-based liberal capitalism. These mores, which remain more than illusions despite the encroachments of central banks, are the last barrier to prevent state capitalism from becoming completely authoritarian, because as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something "

The national security state already has a potentially totalitarian hold on us and in the future the MMT scenario "as a rationale for a government unrestrained by property rights and representative constraints on its powers of expenditure" might nicely finish us off.

It would no longer be the neo-liberal present where the whole of society must be subordinated to the needs of the market system, but the other extreme, where the whole of society must be subordinated to the needs of the state supposedly working in the "public interest."

PhilM , March 9, 2017 at 5:48 pm

Thank you for your reply. You said it better than I did, especially with the citation of Polanyi, one of my personal heroes.

Grebo , March 9, 2017 at 7:27 pm

it is designed and propounded with an agenda: to undermine the mores underlying centuries of private-property-based liberal capitalism.

You say that like it's a bad thing :-)

the last barrier to prevent state capitalism from becoming completely authoritarian

State capitalism? If this is supposed to be a topical reference I don't get it.

as long as "taxation" is, at least theoretically, the limit on state spending and therefore power, then "representation" actually means something

How so? Did "taxation" restrain Bush from spending trillions on invasions? Can't you have representation without taxation?

representative democracy and property rights, which are the keys to a functioning productive civil society and underlie all human progress for eight hundred years

I thought that was the Catholic Church
"Property rights"-the private monopolisation of the gifts of nature-at least in their traditional form, seem to me to be the third fundamental flaw in our political economy, along with Capitalism (narrowly defined) and our bogus monetary ludibrium. We need a new Church.

Allegorio , March 9, 2017 at 2:20 pm

MMT: great stuff. With you 100%. The issue is corruption and this culture of privilege and corruption we live in. You better believe the government will be issuing currency for other than the public interest. The fact is we live in an MMT economy now, it's just that the currency created by the government is being passed out to the ethnically privileged .001%. The talk of deficits and national debt is all a smoke screen to cover up this fact. It is way past time to educate the masses on this theme, kudos to Michael Hudson & Steve Keen.

Katy , March 9, 2017 at 12:31 pm

J is for Junk Economics: Amazon's "#1 New Release in Business & Professional Humor." Facepalm.

Sluggeaux , March 9, 2017 at 1:02 pm

OMFG, you're not making this up!

Bezos really is a contraction of Beelzebub

Disturbed Voter , March 9, 2017 at 12:54 pm

One part of society parasitical on the productive part .. starts small. $1 per $1000, then $10 per $1000 until it gets to $1000 per $1000. Neither bought politicians, nor bought citizens, stays bought.

Of course we shouldn't expect women and children to work that is destructive of reproduction and child raising. Some women should work some children should work but only a few. Otherwise obvious system dynamics will reduce the net population in quality and quantity.

djrichard , March 9, 2017 at 1:13 pm

You're going to privatize the roads, so that now you're going to have to pay to use the road to drive to work, if you don't have public transportation.

This is a zero-sum game for the elite. They're already soaking us. If they soak us on tolls, they'll have to take less money soaking us another way.

In contrast, Fed Gov reducing spending is not a zero-sum game for the elite. That means less money to be soaked up from the public. Unless of course, the public compensates by taking out more private debt. In which case, ka ching for the elite again.

That said, I don't think the mind-set really is to reduce Fed Gov spending. Rather, the mind-set is to reduce entitlements so that other Fed Gov spending can be increased, namely on defense, intelligence communities, etc. And I really don't think the elite have much of a dog in that fight. After all, the elite suck up all the money regardless of how it's spent by the Fed Gov. So my guess is that this campaign to reduce entitlement spending is being waged by the other agencies in the Fed Gov and the eco-system that feeds off them.

susan the other , March 9, 2017 at 1:28 pm

In the 1980s Greenspan pushed for massive increases in FICA. And Reagan spent it on Star Wars. Recently I've read that that wasn't really a missile shield project but a cyber technology project. Today we read that the CIA has disseminated all this accumulated and obsolete technology; leased it out to private contractors; or variously bribed the Europeans with it. Etc. Fast-back to the 1930s and FDR took the same SS money for WW2. In the 60s, JFK agonized about the budget and the value of the dollar and could see no reason to go into Vietnam, but oops. LBJ bulldozed through Congress our Medicare plan, which upped SS contributions, and he went promptly into Vietnam, spending it all and stuffing the retirement funds with treasuries. Shouldn't we all be looking at how transitory these achievements (or disasters) have been. Maybe nothing more than boosting the economy for a few years every other decade or so. Money could achieve much more than this if we accepted as fact the fleeting benefits of misspending it and instead concentrated on a steady economy benefiting all. Hubris rules, but it doesn't ever make things better.

Jim Haygood , March 9, 2017 at 1:34 pm

'it's a myth that Social Security should be pre-funded by its beneficiaries' - Sharmini Peries

If it's a myth, it's one that's incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.

After about a century of experimentation, we know how to fund pensions securely: estimate the present value of the future liability using an appropriate discount rate, and then keep it funded on a current basis.

Social Security grossly violates this model in three respects. First, it is only about 20 percent funded, headed for zero in 2034 according to its own trustees.

Second, because Social Security does not avail itself of the Capital Asset Pricing Model developed in the 1960s, it invests in low-return Treasuries, which causes required contributions to be cruelly high. Had Soc Sec been invested in a 60/40 mix of stocks and bonds, FICA taxes could have been half their current level and funded higher benefits.

Third and finally, Social Security is treated as an off balance sheet obligation in the Financial Report of the United States. Unlike the legally enforceable obligation of private pension sponsors to make good on their promises, the government refuses to take responsibility and put itself on the hook. The Supreme Court has ruled that Social Security essentially is a welfare program, which Congress can cut back or cancel at will. So much for "security" - there isn't any.

Social Security is part of a general pattern of government taking a sleazy, second-rate approach to its social promises, by exempting itself from well-established prudential rules mandating best practices. Frank Roosevelt wanted his constituents to be forever dependent on the kindness of perfidious politicians. He got his wish.

a different chris , March 9, 2017 at 4:18 pm

>we know how to fund pensions securely: estimate the

C'mon Jim you can do better than that. Here is dictionary.com, do you see the problem with your statement?

know:
verb (used with object), knew, known, knowing.
1. to perceive or understand as fact or truth; to apprehend clearly and with certainty:

estimate
verb (used with object), estimated, estimating.
1.to form an approximate judgment or opinion regarding the worth, amount, size, weight, etc., of; calculate approximately:

ajea , March 9, 2017 at 8:15 pm

If it's a myth, it's one that's incorporated in the Social Security Act of 1935, as well as (for private pensions) the ERISA Act of 1974.

You're incorrect.

Read Luther Gulick's memo to FDR. Read to the end:
https://www.ssa.gov/history/Gulick.html

Jim A , March 9, 2017 at 2:10 pm

When you lend money to the profligate, they are happy. When you ask to be repaid, they are furious. It turns out that is just as true when workers who payroll taxes on their whole income "lend money" to the wealthy by paying excess amounts to the SS trust fund which in turn, enabled tax cuts for the wealthy. The wealthy are incensed that the SS trust fund, which has "lent" trillions to the treasury is now demanding to be "repaid" with interest.

Tim , March 9, 2017 at 2:40 pm

That's the trick about S.S. that gets me. You cannot pay in 15% of your income with some amount of reasonable compounding interest for your entire career and not have a massive nest egg at the end. But the math is done straight up such that there never was interest on the payments, so we are entitled to very little, despite every other form of investing on the planet returning some kind of interest.

It's one of the reasons I argue for a Sovereign Wealth Fund to retain and manage all SS recepts, so at least the contributions and return on investment are accounted for in plain sight, so nobody can bait and switch.

And heaven forbid the Sovereign wealth fund could also be used as government bank that loans (our) money direct to citizens, without private banks getting a cut.

It ain't utopia, but it is a way of playing their game and still winning results and the pr war even in the face of the most anti-sociailst conservative.

Tim , March 9, 2017 at 2:33 pm

We need to keep up with the Feudalism 2.0 Moniker.

We continue to refine society towards only 4 classes of people:
Warlords/Politicians
Productivity Owners
Rent Extractors
The Oppressed

Over the last 35 years the productivity owners have been making a run, vacuuming up all the productivity improvements leaving everybody else stagnant, before considering inflation, but with the robotic age coming, they are just getting warmed up.

a different chris , March 9, 2017 at 4:23 pm

>but with the robotic age coming, they are just getting warmed up.

Hmmm.

Henry Ford II: Walter, how are you going to get those robots to pay your union dues?
Walter Reuther: Henry, how are you going to get them to buy your cars?

Apparently not an actual quote, but one Reuther certainly endorsed.

You know "they" are just planning to kill 2/3 of us off, don't you? The elite are evil and sure many of them are stupid, but far from all of them.

ChrisAtRU , March 9, 2017 at 4:07 pm

"You're turning the economy into what used to be called feudalism. Except that we don't have outright serfdom, because people can live wherever they want. But they all have to pay to this new hereditary 'financial/real estate/public enterprise' class that is transforming the economy."

Spot.On.

From Marx's "Capital", Chapter 26 (The Secret of Primitive Accumulation):

"The industrial capitalists, these new potentates, had on their part not only to displace the guild masters of handicrafts, but also the feudal lords, the possessors of the sources of wealth. In this respect, their conquest of social power appears as the fruit of a victorious struggle both against feudal lordship and its revolting prerogatives, and against the guilds and the fetters they laid on the free development of production and the free exploitation of man by man. The chevaliers d'industrie, however, only succeeded in supplanting the chevaliers of the sword by making use of events of which they themselves were wholly innocent. They have risen by means as vile as those by which the Roman freedman once on a time made himself the master of his patronus.

The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation. "

[Jan 24, 2017] One of the simplest ways to commit a political suicide for Trump is to touch Medicare or Social Security.

Jan 24, 2017 | economistsview.typepad.com
pgl : , January 24, 2017 at 09:03 AM
Trump's nominee to head OMB is Mick Mulvaney - someone who sees as a high priority slashing Social Security and Medicare:

http://talkingpointsmemo.com/dc/watch-live-mick-mulvaney-confirmation-hearing

One would think progressives would make it a high priority that this appointment does not go through.

libezkova -> pgl... , -1
One of the simplest ways to commit a political suicide for Trump is to touch Medicare or Social Security.

[Jan 21, 2017] The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

Notable quotes:
"... Wasn't there a recent discussion about how 401(k)s are a sham? ..."
"... Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers. ..."
"... from Miles Kimball the supply-sider ..."
"... how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more. ..."
Jan 21, 2017 | economistsview.typepad.com
Peter K. : , January 20, 2017 at 04:26 AM
"As I explained in my May 14, 2015 column "How Increasing Retirement Saving Could Give America More Balanced Trade":

I talked to Madrian and David Laibson, the incoming chair of Harvard's Economics Department (who has worked with her on studying the effects of automatic enrollment) on the sidelines of a Consumer Financial Protection Bureau research conference last week. Using back-of-the-envelope calculations based on the effects estimated in this research, they agreed that requiring all firms to automatically enroll all employees in a 401(k) with a default contribution rate of 8% could increase the national saving rate on the order of 2 or 3 percent of GDP."

Wasn't there a recent discussion about how 401(k)s are a sham?

Progressive neoliberals....

Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers.

Peter K. -> Peter K.... , January 20, 2017 at 04:26 AM
from Miles Kimball the supply-sider
Peter K. -> Peter K.... , January 20, 2017 at 04:41 AM
how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more.
Peter K. -> Peter K.... , -1
The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

[Jan 05, 2017] How 401K screw american people

Jan 05, 2017 | economistsview.typepad.com
Fred C. Dobbs : January 04, 2017 at 08:41 AM , 2017 at 08:41 AM
Sorry about that whole 401(k) mess
http://www.bostonglobe.com/opinion/2017/01/03/sorry-about-that-whole-mess/thg2cxOBY7dnbnnpLVyS4L/story.html?event=event25
via @BostonGlobe - Dante Ramos - January 3

In the nondescript world of public policy, oopsies don't get any bigger than this.

In a remarkable story (#) in Tuesday's Wall Street Journal, several early champions of 401(k)s, the now-ubiquitous tax-deferred plans that help workers sock away retirement funds, expressed regrets for what their efforts later yielded: Private pensions have withered. Individual workers now shoulder risks that large corporations once bore. Investment fees chip away at account owners' returns. The typical American worker is badly underprepared for old age.

"I helped open the door for Wall Street to make even more money than they were already making," said benefits consultant Ted Benna - sometimes known, according the Journal's Timothy W. Martin, as the "father of the 401(k)." "We weren't social visionaries," said former Johnson & Johnson human-resources executive Herbert Whitehouse, who helped popularize the plans. "The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, the former head of the American Society of Pension Actuaries.

Whoops.

Older Americans' fear of leaving the workforce with nothing saved surely added to the economic unease that Donald Trump channeled in his campaign. ...

Instead, a Republican Congress and the incoming Republican president are preparing to repeal Obamacare and replace it with individual health savings accounts, or something else, or perhaps nothing at all. At the least, the new regime in Washington should heed a lesson from the 401(k) debacle: When you fiddle with the safety net, you should consider how people and corporations behave in real life. ...


#- The original champions of
the 401(k) lament the revolution
they started http://www.wsj.com/articles/the-champions-of-the-401-k-lament-the-revolution-they-started-1483382348
via @WSJ - Timothy W. Martin - January 2

Herbert Whitehouse was one of the first in the U.S. to suggest workers use a 401(k). His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life.

Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start.

What Mr. Whitehouse and other proponents didn't anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979.

"We weren't social visionaries," Mr. Whitehouse says.

Many early backers of the 401(k) now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save. Some say it wasn't designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days.

Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.

"The great lie is that the 401(k) was capable of replacing the old system of pensions," says former American Society of Pension Actuaries head Gerald Facciani, who helped turn back a 1986 Reagan administration push to kill the 401(k). "It was oversold."

Misgivings about 401(k) plans are part of a larger debate over how best to boost the savings of all Americans. Some early 401(k) backers are now calling for changes that either force employees to save more or require companies to funnel additional money into their workers' retirement plans. Current regulations provide incentives to set up voluntary plans but don't require employees or companies to take any specific action. ...

The advent of 401(k)s gave individuals considerable discretion as to how and even whether they would save for retirement. Just 61% of eligible workers are currently saving, and most have never calculated how much they would need to retire comfortably, according to the Employee Benefit Research Institute and market researcher Greenwald & Associates.

Financial experts recommend people amass at least eight times their annual salary to retire. All income levels are falling short. For people ages 50 to 64, the bottom half of earners have a median income of $32,000 and retirement assets of $25,000, according to an analysis of federal data by the New School's Schwartz Center for Economic Policy Analysis in New York. The middle 40% earn $97,000 and have saved $121,000, while the top 10% make $251,000 and have $450,000 socked away.

Savings gap

And the savings gap is worsening. Fifty-two percent of U.S. households are at risk of running low on money during retirement, based on projections of assets, home prices, debt levels and Social Security income, according to Boston College's Center for Retirement Research. That is up from 31% of households in 1983. Roughly 45% of all households currently have zero saved for retirement, according to the National Institute on Retirement Security.

More than 30 million U.S. workers don't have access to any retirement plan because many small businesses don't provide one. People are living longer than they did in the 1980s, fewer companies are covering retirees' health-care expenses, wages have largely stagnated and low interest rates have diluted investment gains.

"I go around the country. The thing that people are terrified about is running out of money," says Phyllis C. Borzi, a U.S. Labor Department assistant secretary and retirement-income expert.

Some savers underestimate how much they will need to retire or accumulate too much debt. Lucian J. Bernard is among those wishing he had a do-over. The 65-year-old lawyer from Edgewood, Ky., doesn't have much savings beyond a small company pension and Social Security. He cashed out a 401(k) in the 1980s to fund law school and never replenished it. He implores his daughter to start saving.

"It's a little easier saying it than doing it," he says.

Defenders of the 401(k) say it can produce an ample retirement cache if employers provide access to one and people start saving early enough. People in their 60s who have been socking away money in 401(k)s for multiple decades have average savings of $304,000, according to the Employee Benefit Research Institute and Investment Company Institute.

"There's no question it worked" for those who committed to saving, says Robert Reynolds, who was involved in Fidelity Investments' first sales of 401(k) products several decades ago.

He considers himself among the success stories. At 64, he could retire comfortably today after saving for three decades. "It's a very simple formula," he says. "If you save at 10% plus a year and participate in your plan, you will have more than 100% of your annual income for retirement."

The 401(k) can be traced back to a 1978 decision by Congress to change the tax code-at line 401(k)-so top executives had a tax-free way to defer compensation from bonuses or stock options.

At the time, defined benefit-pension plans, which boomed in popularity after World War II, were the most common way workers saved for retirement.

A group of human-resources executives, consultants, economists and policy experts then jumped on the tax code as a way to encourage saving. Ted Benna, a benefits consultant with the Johnson Companies, was one of the first to propose such a move, in 1980, leading some in the industry to refer to him as the father of the 401(k).

Selling it to workers was a challenge. Employees could put aside money tax-free, but they were largely responsible for their own saving and investment choices, meaning they could profit or lose big based on markets. They also took home less money with each paycheck, which is why 401(k)s were commonly called "salary reduction plans."

Traditional pension plans, on the other hand, had weaknesses: Company bankruptcies could wipe them out or weaken them, and it was difficult for workers to transfer them if they switched employers.

Companies embraced the 401(k) because it was less expensive and more predictable to fund than pensions. Company pay-ins ended when an employee left or retired.

Employees, for their part, were drawn to an option that could provide more than a company's pension ever would. Two bull-market runs in the 1980s and 1990s pushed 401(k) accounts higher.

Economist Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis, says she offered assurances at union board meetings and congressional hearings that employees would have enough to retire if they set aside just 3% of their paychecks in a 401(k). That assumed investments would rise by 7% a year.

"There was a complete overreaction of excitement and wow," says Kevin Crain, who as a young executive at Fidelity Investments in the 1990s recalled complaints about some of its funds underperforming the S&P 500. "People were thinking: Forget that boring pension plan."

Two recessions in the 2000s erased those gains and prompted second thoughts from some early 401(k) champions. Markets have since recovered, but many savers are still behind where they need to be. ...

run75441 said in reply to Fred C. Dobbs... , January 04, 2017 at 10:42 AM
Yeah, I saw that too.

"An oops, you are screwed moment. We are sorry!"

sanjait said in reply to Fred C. Dobbs... , January 04, 2017 at 12:39 PM
Well, they could probably take some small solace in the fact that traditional pensions were going to die off anyway.

We no longer live in a world where lifetime employment is typical. The majority of workers change jobs multiple times in life.

Fred C. Dobbs -> Observer... , January 04, 2017 at 02:58 PM
'People don't use them.'

That seems to be the point of the article. People find easy excuses/good reasons/ essentials require them to pull out their 401k funds. That is sooo wrong!

But, also, that's life.

ilsm -> Observer... , January 04, 2017 at 04:24 PM
Folks under forty ought to invest in Soylent Green stock.
Libezkova -> Observer... January 04, 2017 at 10:18 PM

Yes it is possible to create a sizeable retirement fund if you have a stable job with 401K plan. But many people don't and changing companies create difficulties for them (and associated losses).

Also you intimately depend on the stability of dollar during retirement as your holdings are not indexed to inflation as for Social Security and a typical pension. As well on the stability of bond and stock market. Then there is such phenomenon as inherent instability of financial sector under neoliberalism (aperiodic market crashes).

Also you do not have the time to follow the market so you either use index funds (where returns can be wiped out due to sharp recession and associated market crush close to your retirement) or you run unbalanced portfolio and eclectic trading strategy with oversize risks. Especially if your investing is fashion/sentiment driven.

Getting something like 2008 events on your first year of retirement can cut your funds almost in one third if not more, if you panic and sell at low point.

I think you do not understand the most despicable part about 401k: It offload all the risk to individual and remunerates (wildly) Wall Street, which became the middleman between the man and his money, charging an annual fee.

This offloading of all the risks to individual is an immanent feature of neoliberalism, so we have what we have. In this sense 401K is a perfect neoliberal invention, perfect for redistribution of wealth up.

Also many people are not trained to distrust all wealth management and fund manager types and get into various types of traps, when fool and his money are soon parted.

Let me remind you what happened with 401K accounts in 2008 -- they dropped for a year around 30%. And similar volatility you can experience several times during your lifespan, on average probably once is a decade, or even more often. And quick recovery like in 2003 or 2009-2010 is not guaranteed at all.

There is also element of adverse selection in many if not most 401K plans companies providing 401K plan often hire intermediaries which handle 401K for some other services, and as a result 401k provide limited selection of expensive and inappropriate for retirement funds which are not suitable for balanced portfolio. Usually 401K are overloaded with stock funds, some with high fees and risky strategy (international stock market, emerging markets, etc).

A good example here is Wall Mart which behaves as for 401K as a real predator hunting its pray in a pack with another predator (Merrill Lynch)

If all 401K participants are allowed to invest in 30 year government bonds without any financial change (but not via evergreen bond funds, who are in reality money vampires) that will be a slight improvement over the current situation were bond funds provided are often real financial sharks (say 0.5% annually on 2% return or 25% of nominal return). Which is somewhat true even for Vanguard (to say nothing about Fidelity). These ghastly, lazy, incompetent predators don't care much about 401K investors.

401K also created that whole parasitic branch of financial industry, with a lot of people employed. But to manage a sizable mutual fund is not a very exiting job either, if you try to do it honestly. There are way too many variables beyond your control.

Employee pensions funds can do the same staff more economically (but they require higher participation from the companies -- around 10% instead of 3-4% matching in 401K). So along with offloading of risk switching to 401K also confiscated a part of your retirement fund.

401K funds are also not free from fraud (hidden fees) and mismanagement. The 401K plans typically promote neoliberal "Cult of equities" which benefits Wall Street and large speculators, like Goldman Sacks. As well of day traders and HFT as they create daily volume.

And last but not least 401K created those huge companies like Fidelity and Vanguard which dominate the boards of most publicly trading companies, making the USA a classic case of rentier capitalism (monopolization of holding of stocks). They also create a perfect playing field for shorting shocks and facilitating derivatives such an options.
And this "greed is good" manta is corrupting even better of them such as Vanguard, which now started offering some shady services and such.

[Jan 04, 2017] The switch to 401k impoverished most pensioners, benefitted only few at the top

Notable quotes:
"... I helped open the door for Wall Street to make even more money than they were already making ..."
"... "The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, the former head of the American Society of Pension Actuaries. ..."
Jan 04, 2017 | economistsview.typepad.com
Fred C. Dobbs : , January 04, 2017 at 08:41 AM
Sorry about that whole 401(k) mess
http://www.bostonglobe.com/opinion/2017/01/03/sorry-about-that-whole-mess/thg2cxOBY7dnbnnpLVyS4L/story.html?event=event25
via @BostonGlobe - Dante Ramos - January 3

In the nondescript world of public policy, oopsies don't get any bigger than this.

In a remarkable story (#) in Tuesday's Wall Street Journal, several early champions of 401(k)s, the now-ubiquitous tax-deferred plans that help workers sock away retirement funds, expressed regrets for what their efforts later yielded: Private pensions have withered. Individual workers now shoulder risks that large corporations once bore. Investment fees chip away at account owners' returns. The typical American worker is badly underprepared for old age.

" I helped open the door for Wall Street to make even more money than they were already making ," said benefits consultant Ted Benna - sometimes known, according the Journal's Timothy W. Martin, as the "father of the 401(k)." "We weren't social visionaries," said former Johnson & Johnson human-resources executive Herbert Whitehouse, who helped popularize the plans. "The great lie is that the 401(k) was capable of replacing the old system of pensions," said Gerald Facciani, the former head of the American Society of Pension Actuaries.

Whoops.

Older Americans' fear of leaving the workforce with nothing saved surely added to the economic unease that Donald Trump channeled in his campaign. ...

Instead, a Republican Congress and the incoming Republican president are preparing to repeal Obamacare and replace it with individual health savings accounts, or something else, or perhaps nothing at all. At the least, the new regime in Washington should heed a lesson from the 401(k) debacle: When you fiddle with the safety net, you should consider how people and corporations behave in real life. ...


#- The original champions of
the 401(k) lament the revolution
they started http://www.wsj.com/articles/the-champions-of-the-401-k-lament-the-revolution-they-started-1483382348
via @WSJ - Timothy W. Martin - January 2

Herbert Whitehouse was one of the first in the U.S. to suggest workers use a 401(k). His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life.

Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start.

What Mr. Whitehouse and other proponents didn't anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses. Just 13% of all private-sector workers have a traditional pension, compared with 38% in 1979.

"We weren't social visionaries," Mr. Whitehouse says.

Many early backers of the 401(k) now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save. Some say it wasn't designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days.

Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.

"The great lie is that the 401(k) was capable of replacing the old system of pensions," says former American Society of Pension Actuaries head Gerald Facciani, who helped turn back a 1986 Reagan administration push to kill the 401(k). "It was oversold."

Misgivings about 401(k) plans are part of a larger debate over how best to boost the savings of all Americans. Some early 401(k) backers are now calling for changes that either force employees to save more or require companies to funnel additional money into their workers' retirement plans. Current regulations provide incentives to set up voluntary plans but don't require employees or companies to take any specific action. ...

The advent of 401(k)s gave individuals considerable discretion as to how and even whether they would save for retirement. Just 61% of eligible workers are currently saving, and most have never calculated how much they would need to retire comfortably, according to the Employee Benefit Research Institute and market researcher Greenwald & Associates.

Financial experts recommend people amass at least eight times their annual salary to retire. All income levels are falling short. For people ages 50 to 64, the bottom half of earners have a median income of $32,000 and retirement assets of $25,000, according to an analysis of federal data by the New School's Schwartz Center for Economic Policy Analysis in New York. The middle 40% earn $97,000 and have saved $121,000, while the top 10% make $251,000 and have $450,000 socked away.

Savings gap

And the savings gap is worsening. Fifty-two percent of U.S. households are at risk of running low on money during retirement, based on projections of assets, home prices, debt levels and Social Security income, according to Boston College's Center for Retirement Research. That is up from 31% of households in 1983. Roughly 45% of all households currently have zero saved for retirement, according to the National Institute on Retirement Security.

More than 30 million U.S. workers don't have access to any retirement plan because many small businesses don't provide one. People are living longer than they did in the 1980s, fewer companies are covering retirees' health-care expenses, wages have largely stagnated and low interest rates have diluted investment gains.

"I go around the country. The thing that people are terrified about is running out of money," says Phyllis C. Borzi, a U.S. Labor Department assistant secretary and retirement-income expert.

Some savers underestimate how much they will need to retire or accumulate too much debt. Lucian J. Bernard is among those wishing he had a do-over. The 65-year-old lawyer from Edgewood, Ky., doesn't have much savings beyond a small company pension and Social Security. He cashed out a 401(k) in the 1980s to fund law school and never replenished it. He implores his daughter to start saving.

"It's a little easier saying it than doing it," he says.

Defenders of the 401(k) say it can produce an ample retirement cache if employers provide access to one and people start saving early enough. People in their 60s who have been socking away money in 401(k)s for multiple decades have average savings of $304,000, according to the Employee Benefit Research Institute and Investment Company Institute.

"There's no question it worked" for those who committed to saving, says Robert Reynolds, who was involved in Fidelity Investments' first sales of 401(k) products several decades ago.

He considers himself among the success stories. At 64, he could retire comfortably today after saving for three decades. "It's a very simple formula," he says. "If you save at 10% plus a year and participate in your plan, you will have more than 100% of your annual income for retirement."

The 401(k) can be traced back to a 1978 decision by Congress to change the tax code-at line 401(k)-so top executives had a tax-free way to defer compensation from bonuses or stock options.

At the time, defined benefit-pension plans, which boomed in popularity after World War II, were the most common way workers saved for retirement.

A group of human-resources executives, consultants, economists and policy experts then jumped on the tax code as a way to encourage saving. Ted Benna, a benefits consultant with the Johnson Companies, was one of the first to propose such a move, in 1980, leading some in the industry to refer to him as the father of the 401(k).

Selling it to workers was a challenge. Employees could put aside money tax-free, but they were largely responsible for their own saving and investment choices, meaning they could profit or lose big based on markets. They also took home less money with each paycheck, which is why 401(k)s were commonly called "salary reduction plans."

Traditional pension plans, on the other hand, had weaknesses: Company bankruptcies could wipe them out or weaken them, and it was difficult for workers to transfer them if they switched employers.

Companies embraced the 401(k) because it was less expensive and more predictable to fund than pensions. Company pay-ins ended when an employee left or retired.

Employees, for their part, were drawn to an option that could provide more than a company's pension ever would. Two bull-market runs in the 1980s and 1990s pushed 401(k) accounts higher.

Economist Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis, says she offered assurances at union board meetings and congressional hearings that employees would have enough to retire if they set aside just 3% of their paychecks in a 401(k). That assumed investments would rise by 7% a year.

"There was a complete overreaction of excitement and wow," says Kevin Crain, who as a young executive at Fidelity Investments in the 1990s recalled complaints about some of its funds underperforming the S&P 500. "People were thinking: Forget that boring pension plan."

Two recessions in the 2000s erased those gains and prompted second thoughts from some early 401(k) champions. Markets have since recovered, but many savers are still behind where they need to be. ...

run75441 -> Fred C. Dobbs... , -1
Yeah, I saw that too.

"An oops, you are screwed moment. We are sorry!"

[Dec 26, 2016] The Quiet War on Medicaid - The New York Times

Dec 26, 2016 | www.nytimes.com
--> The Quiet War on Medicaid

By GENE B. SPERLING DEC. 25, 2016

Continue reading the main story Share This Page Continue reading the main story

Progressives have already homed in on Republican efforts to privatize Medicare as one of the major domestic political battles of 2017. If Donald J. Trump decides to gut the basic guarantee of Medicare and revamp its structure so that it hurts older and sicker people, Democrats must and will push back hard . But if Democrats focus too much of their attention on Medicare, they may inadvertently assist the quieter war on Medicaid - one that could deny health benefits to millions of children, seniors, working families and people with disabilities.

Of the two battles, the Republican effort to dismantle Medicaid is more certain. Neither Mr. Trump nor Senate Republicans may have the stomach to fully own the political risks of Medicare privatization. But not only have Speaker Paul D. Ryan and Tom Price, Mr. Trump's choice for secretary of health and human services, made proposals to deeply cut Medicaid through arbitrary block grants or "per capita caps," during the campaign, Mr. Trump has also proposed block grants.

If Mr. Trump chooses to oppose his party's Medicare proposals while pushing unprecedented cuts to older people and working families in other vital safety-net programs, it would play into what seems to be an emerging strategy of his: to publicly fight a few select or symbolic populist battles in order to mask an overall economic and fiscal strategy that showers benefits on the most well-off at the expense of tens of millions of Americans.

Without an intense focus by progressives on the widespread benefits of Medicaid and its efficiency, it will be too easy for Mr. Trump to market the false notion that Medicaid is a bloated, wasteful program and that such financing caps are means simply to give states more flexibility while "slowing growth." Medicaid's actual spending per beneficiary has, on average, grown about 3 percentage points less each year than it has for those with private health insurance, according to the Center on Budget and Policy Priorities - a long-term trend that is projected to continue. The arbitrary spending caps proposed by Mr. Price and Mr. Ryan would cut Medicaid to the bone, leaving no alternative for states but to impose harsh cuts in benefits and coverage.

Continue reading the main story Advertisement Continue reading the main story

Mr. Price's own proposal, which he presented as the chairman of the House budget committee, would cut Medicaid by about $1 trillion over the next decade. This is on top of the reduction that would result from the repeal of the Affordable Care Act, which both Mr. Trump and Republican leaders have championed. Together, full repeal and block granting would cut Medicaid and the Children's Health Insurance Program funding by about $2.1 trillion over the next 10 years - a 40 percent cut.

Photo
Tom Price, President-elect Trump's choice for secretary of health and human services, has made proposals to deeply cut Medicaid. Credit Joshua Roberts/Reuters

Even without counting the repeal of the A.C.A. coverage expansion, the Price plan would cut remaining federal Medicaid spending by $169 billion - or one-third - by the 10th year of his proposal, with the reductions growing more severe thereafter. The Henry J. Kaiser Family Foundation estimated that a similar Medicaid block grant proposed by Mr. Ryan in 2012 would lead to 14 million to 21 million Americans' losing their Medicaid coverage by the 10th year, and that is on top of the 13 million who would lose Medicaid or children's insurance program coverage under an A.C.A. repeal.

The emerging Republican plan to "repeal, delay and replace" the A.C.A. seeks to further camouflage these harmful cuts. Current Republican plans to eliminate the marketplace subsidies and A.C.A. Medicaid expansion in 2019 would create a health care cliff where all of the Medicaid funds and subsidies for the A.C.A. expansion would simply disappear and 30 million people would lose their health care.

Advertisement Continue reading the main story

In the face of such a manufactured crisis, the Trump administration could cynically claim to be increasing Medicaid funding by offering governors a small fraction of the existing A.C.A. expansion back as part of a block grant. No one should be deceived. Maintaining a small fraction of the current Medicaid expansion within a tightly constrained block grant is not an increase.

Some might whisper that these cuts would be harder to beat back because their impact would fall on those with the least political power. Sweeping cuts to Medicaid would hurt tens of millions of low-income and middle-income families who had a family member with a disability or were in need of nursing home care. About 60 percent of the costs of traditional Medicaid come from providing nursing home care and other types of care for the elderly and those with disabilities.

While Republicans resist characterizations of their block grant or cap proposals as tearing away health benefits from children, older people in nursing homes or middle-class families heroically coping with children with serious disabilities, the tyranny of the math does not allow for any other conclusion. If one tried to cut off all 30 million poor kids now enrolled in Medicaid, it would save 19 percent of the program's spending. Among the Medicaid programs at greatest risk would be those optional state programs that seek to help middle-income families who become "medically needy" because of the costs of having a child with a serious disability like autism or Down syndrome.

Democrats at all levels of government must aggressively communicate the degree to which these anodyne-sounding proposals would lead to an assault on health care for those in nursing homes and for working families straining to deal with a serious disability, as well as for the poorest Americans. With many Republican governors and local hospitals also likely to be victimized by the proposals of Mr. Ryan and Mr. Price, this fight can be both morally right and politically powerful . Republicans hold only a slight majority in the Senate. It would take only three Republican senators thinking twice about the wisdom of block grants and per capita caps to put a halt to the coming war on Medicaid.

Gene B. Sperling was director of the National Economic Council from 1996 to 2001 and from 2011 until 2014.

[Dec 23, 2016] Republicans try link cutting Social Security with balancing budget but they face a fundamental problem with their math duto to need to granfather people older then 55

Just doubling the ceiling for SS contributions will sove the problem. $120K is too low.
Dec 23, 2016 | economistsview.typepad.com
likbez : December 23, 2016 at 04:07 PM

From
"One neat trick to stop Social Security 'Reform'"
http://angrybearblog.com/2016/12/one-neat-trick-to-stop-social-security-reform.html
=== quote ===
Republicans constantly try to bring Social Security into ongoing debates about 'Balanced Budgets'. But they face a fundamental problem with their math. For a variety of reasons, some quite reasonable and others nakedly political (seniors vote) nearly every 'Reform' proposal out there promises to hold 55 and older harmless. Meaning you can't have any more than miniscule effects on Cost projections until today's 54′s and younger start retiring. Except for a handful of early retirees that event happens 11+ years in the future, which is to say outside the 10 year Budget Scoring window.

You can't have a fix to a problem scored over 10 years with a solution starting Year 11. Sure the 'Reformers' will blather about "Infinite Future Horizons". But any proposal that spares current seniors from cuts will score close to zero by CBO and JCT. You just have to count years on your fingers.
... ... ...

GOP plans to "reform" Social Security often take this form

1. Américas $20 trillion public debt is unsustainable

2. Current Budget Deficits add to that debt

So far so good

3. Social Security must be part of that discussion

4. 55 and orders must be shielded from changes that allow them no time to adjust

5. (The Bush/Krasting argument) Payrolll tax increases across the board are neither politically possible nor econimically wise

All three of these are doubtful. This post points out that 2 and 3 +4 (2nd edit) are incompatible within a structure that assumes 10 year budget scoring. Argue or acknowledge that specific point and we can move on.
... ... ..
GOP point one is interesting on several fronts. One it is debatable on its own terms. It it is not clear that current Public Debt is unsustainable on a percentage of GDP basis, especially when you take that in the form of Debt Service at current and projected 10 year rates. A $10 trillion debt at 8% (roughly Bush era) is twice as expensive as a $20 trillion debt at 2% in debt service terms and assuming principal rollover. Simply put Obama years have seen a massive refi of Public Debt. Much credit for which belongs to the Feds QE1 and QE 2.

... ... ..

Jim A, December 15, 2016 11:31 am

Of course that 22% benefit cut is an illusion created by thinking that the SS trust fund is something more substantial than your left pocket borrowing from your right pocket and giving it IOUs.

Assuming that we were to simply run out the clock and make no changes to SS until the trust fund ran out. On the day before the trust fund ran out we would have combined general revenues and government borrowing sufficient to redeem the special, non-negotiable bonds held in the trust fund. On the day afterwards, the general revenue and the ability to the US treasury to borrow money wouldn't have changed. Under current law we would at that point be forced to cut benefits to all retirees by 22%.

Presumably that 22% of revenue that was NOT being spent to repay the trust fund would be applied as deficit reduction. Or used for tax cuts or new discretionary spending. Of course those are all political impossibilities, and would never happen.

It is important to the Republicans that want to reform SS that people never realize that we can afford to pay the shortfall in SS revenues from the treasury. Because once people realize that, they will be more comfortable with that than they will be with the alternatives.

[Dec 18, 2016] Will Donald Trump Cave on Social Security

First Bush II bankrupted the country by cutting taxes for rich and unleashing Iraq war. Then Republicans want to cut Social Securty to pay for it
Notable quotes:
"... His nominee to run the Department of Health and Human Services, Tom Price, a Republican congressman from Georgia, has been a champion of cuts to all three of the nation's large social programs - Medicare, Medicaid and Social Security. When discussing reforms to Social Security, he has ignored ways to bring new revenue into the system while emphasizing possible benefit cuts through means-testing, private accounts and raising the retirement age. ..."
"... But Mr. Price, who currently heads the House Budget Committee, has found a way to cut Social Security deeply without Congress and the president ever having to enact specific benefit cuts, like raising the retirement age. ..."
"... Mr. Trump's hands-off approach to Social Security during the campaign was partly a strategic gesture to separate him from other Republican contenders who stuck to the party line on cutting Social Security. But he also noted the basic fairness of a system in which people who dutifully contribute while they are working receive promised benefits when they retire. Unfortunately, he has not surrounded himself with people who will help him follow those instincts. ..."
www.nytimes.com

Donald Trump campaigned on a promise not to cut Social Security, which puts him at odds with the Republican Party's historical antipathy to the program and the aims of today's Republican leadership. So it should come as no surprise that congressional Republicans are already testing Mr. Trump's hands-off pledge.

... ... ...

As Congress drew to a close this month, Sam Johnson, the chairman of the House Social Security subcommittee, introduced a bill that would slash Social Security benefits for all but the very poorest beneficiaries. To name just two of the bill's benefit cuts, it would raise the retirement age to 69 and reduce the annual cost-of-living adjustment, while asking nothing in the way of higher taxes to bolster the program; on the contrary, it would cut taxes that high earners now pay on a portion of their benefits. Last week, Mark Meadows, the Republican chairman of the conservative House Freedom Caucus, said the group would push for an overhaul of Social Security and Medicare in the early days of the next Congress.

... ... ...

Another sensible reform would be to bring more tax revenue into the system by raising the level of wages subject to Social Security taxes, currently $118,500. In recent decades, the wage cap has not kept pace with the income gains of high earners; if it had, it would be about $250,000 today.

The next move on Social Security is Mr. Trump's. He can remind Republicans in Congress that his pledge would lead him to veto benefit cuts to Social Security if such legislation ever reached his desk. When he nominates the next commissioner of Social Security, he can choose a competent manager, rather than someone who has taken sides in political and ideological debates over the program.

What Mr. Trump actually will do is unknown, but his actions so far don't inspire confidence. By law, the secretaries of labor, the Treasury and health and human services are trustees of Social Security. Mr. Trump's nominees to head two of these departments, Labor and Treasury - Andrew Puzder, a fast-food executive, and Steve Mnuchin, a Wall Street trader and hedge fund manager turned Hollywood producer - have no government experience and no known expertise on Social Security.

His nominee to run the Department of Health and Human Services, Tom Price, a Republican congressman from Georgia, has been a champion of cuts to all three of the nation's large social programs - Medicare, Medicaid and Social Security. When discussing reforms to Social Security, he has ignored ways to bring new revenue into the system while emphasizing possible benefit cuts through means-testing, private accounts and raising the retirement age.

There is no way to mesh those ideas with Mr. Trump's pledge. But Mr. Price, who currently heads the House Budget Committee, has found a way to cut Social Security deeply without Congress and the president ever having to enact specific benefit cuts, like raising the retirement age. Recently, he put forth a proposal to reform the budget process by imposing automatic spending cuts on most federal programs if the national debt exceeds specified levels in a given year. If Congress passed Mr. Trump's proposed tax cut, for example, the ensuing rise in debt would trigger automatic spending cuts that would slash Social Security by $1.7 trillion over 10 years, according to an analysis by the Center for American Progress, a liberal think tank. This works out to a cut of $168 a month on the average monthly benefit of $1,240. If other Trump priorities were enacted, including tax credits for private real estate development and increases in military spending, the program cuts would be even deeper.

Mr. Trump's hands-off approach to Social Security during the campaign was partly a strategic gesture to separate him from other Republican contenders who stuck to the party line on cutting Social Security. But he also noted the basic fairness of a system in which people who dutifully contribute while they are working receive promised benefits when they retire. Unfortunately, he has not surrounded himself with people who will help him follow those instincts.

Susan Anderson is a trusted commenter Boston 1 hour ago
There is a simple solution to Social Security.

Remove the cap, so it is not a regressive tax. After all, Republicans appear to be all for a "flat" tax. Then lower the rate for everyone.

There is no reason why it should only be charged on the part of income that is needed to pay for necessary expenses should as housing, food, medical care, transportation, school, communications, and such. Anyone making more than the current "cap" is actually able to afford all this.

There is no reason the costs should be born only by those at the bottom of the income pyramid.

As for Republican looting, that's just despicable, and we'll hope they are wise enough to realize that they shouldn't let government mess with people's Social Security!

Thomas Zaslavsky is a trusted commenter Binghamton, N.Y. 1 hour ago
The idea hinted in the editorial that Trump has any principle or instinct that would lead him to protect benefits for people who are not himself or his ultra-wealthy class is not worthy of consideration. No, Trump has none such and he will act accordingly. (Test my prediction at the end of 2017 or even sooner; it seems the Republicans are champing at the bit to loot the government and the country fro their backers.)
Christine McM is a trusted commenter Massachusetts 2 hours ago
I wouldn't hold Trump to any of his campaign promises, given how often he changes positions, backtracks, changes subjects, or whatever. His biggest promise of all was to "drain the swamp" and we know how that turned out.

He might have a cabinet of outsiders, but they are still creatures from outside swamps. That said, if there is even the barest of hints that this is on the agenda, I can pretty much bet that in two years, Congress will completely change parties.

Imagine: cutting benefits for people who worked all their lives and depend on that money in older age, all in order to give the wealthiest Americans another huge tax cut. For a fake populist like Trump, that might sound like a great idea (he has no fixed beliefs or principles) but to his most ardent supporters, that might be the moment they finally get it: they fell for one of the biggest cons in the universe.

Rita is a trusted commenter California 2 hours ago
Given the Republican desire to shut down Medicare and Social Security, it is not hard to predict that they will do so a little at a time so that people will not notice until its too late.

But since the Republicans have been very upfront with hostility towards the social safety net, one can conclude that their supporters want to eliminate social safety net.

Mary Ann Donahue is a trusted commenter NYS 2 hours ago

RE: "To name just two of the bill's benefit cuts, it would raise the retirement age to 69 and reduce the annual cost-of-living adjustment..."

The COLA for 2017 is .03% a paltry average increase of $5 per month. There was no increase in 2016.

The formula for how the COLA is calculated needs to be changed to allow for fair increases not reductions.

Mary Scott is a trusted commenter NY 4 hours ago
Republicans have been promising to "fix" Social Security for years and now we are seeing exactly what they mean. We can see how low they're willing to stoop by their plan to cut the taxes that high earners now pay on a portion of their benefits and decimate the program for everybody else. I wouldn't be surprised if they raised SS taxes on low and middle income earners.

There has been an easy fix for Social Security for years. Simply raise the tax on income to $250,000 thousand and retirees both present and future would be on much firmer footing. Many future retirees will be moving on to Social Security without the benefit of defined pension plans and will need a more robust SS benefit in the future, not a weaker one.

Don't count on Donald Trump to come to the rescue. He seems to hate any tax more than even the most fervent anti-tax freak like Paul Ryan. Mr. Trump admitted throughout the campaign that he avoids paying any tax at all.

The Times seems to want to give Mr. Trump limitless chances to do the right thing. "Will Donald Trump Cave on Social Security" it asks. Of course he will. One has only to look at his cabinet choices and his embrace of the Ryan budget to know the answer to that question. Better to ask, "How Long Will It Take Trump To Destroy Social Security?"

At least it would be an honest question and one that would put Mr. Trump in the center of a question that will affect the economic security of millions of Americans.

serban is a trusted commenter Miller Place 4 hours ago
Cutting benefits for upper income solves nothing since by definition upper incomes are a small percentage of the population. The obvious way to solve any problem with SS is to raise taxes on upper incomes, the present cap is preposterous. People so wealthy that SS is a pittance can show their concern by simply donating the money they get from SS to charities.
david is a trusted commenter ny 4 hours ago

We can get some perspective on what Social Security privatization schemes would mean to the average SSS recipient from Roger Lowenstein' analysis of Bush's privatization scheme.

Roger Lowenstein's Times article discusses the CBO's analysis of how the Bush privatization scheme for Social Security would reduce benefits.

http://www.nytimes.com/2005/01/16/magazine/16SOCIAL.html?_r=1&amp;pagewa...

"The C.B.O. assumes that the typical worker would invest half of his allocation in stocks and the rest in bonds. The C.B.O. projects the average return, after inflation and expenses, at 4.9 percent. This compares with the 6 percent rate (about 3.5 percent after inflation) that the trust fund is earning now.

The second feature of the plan would link future benefit increases to inflation rather than to wages. Because wages typically grow faster, this would mean a rather substantial benefit cut. In other words, absent a sustained roaring bull market, the private accounts would not fully make up for the benefit cuts. According to the C.B.O.'s analysis, which, like all projections of this sort should be regarded as a best guess, a low-income retiree in 2035 would receive annual benefits (including the annuity from his private account) of $9,100, down from the $9,500 forecast under the present program. A median retiree would be cut severely, from $17,700 to $13,600. "

[Dec 15, 2016] GOP Plans to Gut Social Security naked capitalism

Notable quotes:
"... Talking Points Memo ..."
"... Social Security has succeeded because Roosevelt insisted it be paid for by the workers who would get the benefits, "so no damn politician can take it away from them." ..."
"... "These who pant after the very dust of the earth on the head of the helpless also turn aside the way of the humble; " ..."
Dec 14, 2016 | www.nakedcapitalism.com

Originally published at Angry Bear

The Republicans have opened a new assault on Social Security. At present all I know about it is what I read in a Talking Points Memo by Tierney Sneed Key House GOPer Introduces Bill With Major Cuts To Social Security .

The trouble with Sneed's article is that she does not appear to know what she is talking about. She just wrote down what some "experts" told her with no idea what the words mean.

For example, she says,

"A 65 year-old at the top of the scale, a $118,500 average earner, would see his benefits cut by 25% when he retired, compared to the current law, and that reduction would grow to 55 percent compared to current law by the time the retiree was 85 years old."

Well, which is he, "at the top of the scale" or an "average earner"?

The point is probably trivial but I point it out so you will be on your guard if you read her article.

Additionally she quotes Paul Van de Water, who is someone who actually knows that Social Security can be fixed entirely and forever by simply raising the payrolll tax one tenth of one percent per year until the balance between wage growth and growth in the cost of retirement is restored. But somehow she doesn't bother to mention this, or maybe Van De Water forgot to mention it because he favors a "tax the rich" solution without understanding that that will turn Social Security into welfare as we knew it, and lead to its ultimate destruction by those rich who would then be paying for it.

Social Security has succeeded because Roosevelt insisted it be paid for by the workers who would get the benefits, "so no damn politician can take it away from them."

But the damn politicians keep lying and journalists keep repeating the lies without spending ten minutes thinking about them. The basic "facts" about the Republican proposal, introduced by Texas Congressman Sam Johnson appear to be :

This turns Social Security into a straight welfare plan. Most people will be paying for benefits they will never get. The very poorest are promised a larger benefit for awhile until the bogus cost of living adjustment, and increased retirement age do their work. Moreover it is not clear what happens to "the rich" who lose their "side income" as they get older. And of course there is always the fun of going to the welfare office every month to prove that you don't have any hidden assets.

Meanwhile, the CRFB (Committee for a Responsible Federal Budget). an organization dedicated to the destruction of Social Security by misrepresenting the facts, is playing cute games like "use our calculator to find out how old you will be when SS runs out of funds."

But SS will never run out of funds as long as the workers are allowed to pay in advance for their own benefits. With no change at all in SS, SS will pay 80% of "scheduled benefits," but this is 80% of scheduled benefits which meanwhile have grown 25% in real value. So the GOP "plan to save SS" is out and out theft.

CRFB has another cute game: "use our calculator to design your own plan to save social security." But when I used their calculator it did not allow "increase the payroll contribution by one tenth percent (for each the worker and the employer) per year for twenty years.

There are other ways to accomplish the same end, but this seemed to be the simplest way to fit the CRFB "calculator." Someone with more time and a newer browser might want to try seeing what they get. But look at small per year increases in payroll contribution. For example, I think a 0.4% increase (combined), about two dollars per week for each the worker and the employer, should solve the problem in ten years, but I haven't done the numbers on that myself.

Meanwhile, something that calls itself "the Bipartisan Policy Center, says "Ultimately, we are going to need something that's a little more balanced between benefits saving and revenue changes in order to get a proposal that could pass Congress and get approved by the president," said Shai Akabas, director fiscal policy at the Bipartisan Policy Center."

It's hard to see how much cuts ("benefit savings") make sense to balance a dollar a week increase in the payroll tax (revenue changes), but that's the kind of thinking that "Bipartisan" gets you. "Hey folks, we can save you a dollar a week just by gutting Social Security so it becomes meaningless as insurance so workers can retire at a reasonable age."

I am getting too discouraged. As long as no one is working to tell the people how this will work for them, we are just going to stand around like sheep and watch them cut our throats.

ambrit , December 14, 2016 at 4:28 am

As someone who grew up with the promise of Social Security as a minimal income support system for my old age I can attest to the fact that when the "average" retiree, who has almost no individual savings accrued, steps in the pile of Social Security "reforms," there will be not just a wailing and gnashing of teeth.

Modern age old people no longer can rely on extended families for support. Those extended families have been fragmented by the pressures of "modern" socio-economics. This is prime territory for a demagogue.

The Twentieth Century had World War 1.0 and a subsequent "Lost Generation." It's increasingly looking like the Twentyfirst Century will have the GFC, Social Support 'Reforms' and a subsequent "Euthanized Generation."

Remember, this process will not affect just oldsters. It will suck in those closest to said oldsters as emergency support resources. It won't be only oldesters who will be watching elites "over iron sights."

PlutoniumKun , December 14, 2016 at 6:06 am

Perhaps someone will enlighten me, but this is one thing that really puzzles me about the Republican determination over many years to gut social security. I can understand their ideological fixation with it – what I can't understand is why they are so willing to play electoral fire with it. Surely this directly attacks millions of core Republican voters?

They may be able to fool many of them with deceptive slogans, but surely when the prospect of finding their pensions slashed faces them, even the most supine and gullible middle American Republican voter in their middle to late years is going to realise they've been had. The backlash could be enormous. I find it hard to see how any rational politician would want to go near it.

Cry Shop , December 14, 2016 at 6:39 am

They will find a way to blame it on the Democrats, and more importantly, on Blacks, Hispanics and other minorities. They will sell the cuts and privatizations as the only way to save the system that has been so badly damage by the fore mentioned, and as long as their base gets their beliefs from Faux News, Bretbart, etc; it's quite probably the Republicans will succeed in getting what they want while screwing down the ever hapless Democratic party.

I've met more than a few who'd almost be pleased to suffer as long as they thought blacks were being made to suffer even more. There's no logic when hate gets this strong.

Leigh , December 14, 2016 at 7:29 am

Exactly, the same way they have mortally wounded our once stellar public education system, (a system once good enough to educate our "Greatest Generation) – is now a shell, death by a thousand cuts

Also, if you think income disparity is bad now? – hang on to your wallet, because after 4 years of Trump and his prospective cabinet picks, it will hit the stratosphere.

"There's no logic when hate gets this strong" – so true.

Scott , December 14, 2016 at 7:49 pm

Smart to point at the educational system.
I have not found many youths who can tell me what they want to do. I find this really weird.
It is true that if you know what you want to do the library will do.
Thanks to Ben Franklin, inventors, engineers had a place to hang out and collect information they could use.
Maybe you had to live in NYC to have a NYCity library card, but it is a big city.
Meantime Charter schools, which sounded great to us when at Kenwood on the Southside, are gaining ground and collecting tax money regardless of results.
They are said now in Not Conscious to be handing out diplomas same as Public Schools did to get some bodies out the door.
I was a graduate, but denied attendance at the diploma hand out thing, cause I refused to pay, for my public school diploma. Public education, supposed to be free to citizens.
People think I didn't graduate.
The Union believed in Trump. I get sick about lots of things. It will be worse than they think.
Education & Defense are what the government is for.

Steve C , December 14, 2016 at 7:50 am

Twelve years ago the Republicans needed the Democrats to actually plunge the knife on the back. Democrats like Joe Lieberman dearly wanted to lend a bipartisan hand but Pelosi and Reid actually rallied to prevent it. Talking Points Memo was all over it then. Now they're on top of Paul Ryan's machinations to privatize Medicare and this Social Security scam. Kind of raised some old feelings for TPM, but they're also heavily flogging the CIA Russian hacking dembot campaign.

About the only thing I knew about Hillary's agenda is that she wanted to means test Social Security and Medicare and start new wars. Obama wanted to do many of the cuts in Sam Johnson's bill but was foiled by Tea Partiers who couldn't take yes for an answer or were smarter than they seemed.

Both Schumer and Pelosi said the Democrats would oppose any of these current plans. We'll see.

Pat , December 14, 2016 at 8:10 am

I would hope they would realize that Social Security and Medicare are issues where the only winning move is to expand them. IOW, they need to realize this is an area where the campaign donors need to be told to pound sand, shut up and expect to pony up – as in you ARE going to be paying more into the system.
But these are people who thought there was no way that Clinton could lose, that this Russia nonsense is a winning strategy and that ACA was going to be good for Democrats once people got to know it. IOW, their grasp of reality outside their bubble might as well not exist it is so broken.
So while my fingers are crossed they still want their jobs AND aren't completely delusional, I also know we better put the fear of the voters into every member of Congress about grannies and wannabe grannies with canes beating them to a pulp any time they leave their house.

And by grannies I mean anyone on SS, and wanna be grannies everyone who someday might be able to retire or at least only work part time after retirement age because of SS.

Steve C , December 14, 2016 at 8:34 am

For Democrats it's not about winning. It's about pleasing the donors.

Pat , December 14, 2016 at 9:22 am

IF they cannot win an election they will not have any donors, and they are rapidly getting to the point where a Democrat getting elected to a national office is the exception. Not to mention there are a large number of states where that is pretty much the case. There is no reason to try to bribe people so you can have them in your pocket if they are powerless.

They are terrible at strategy, but eventually they may figure out they need voters. You do NOT alienate seniors as seniors are the most reliable voters around. Oh, and most of those seniors have grandchildren they think deserve Social Security and Medicare as well. The only winning strategy is to protect and expand.

Steve C , December 14, 2016 at 1:42 pm

I forgot to mention the consultant class. Absent a hostile takeover the Democrats may not be fixable. Their disdain for and disconnect from the voters will do them in.

Larry Motuz , December 14, 2016 at 8:16 pm

Gerry-mandering: When politicians pick the voters, instead of the voters picking the politicians.

Fixing that could fix politics.

Spring Texan , December 14, 2016 at 9:54 am

Would love to see this repeated and repeated, because although it's hard, we need to grasp this fact:
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.
their grasp of reality outside their bubble might as well not exist it is so broken.

dontknowitall , December 14, 2016 at 8:31 am

Sam Johnson the same Sam Johnson who wrote "I spent seven years in the Hanoy Hilton. The Hanoy Hilton is no Trump hotel." back in July ? Who milks his Vietnam tour of duty like a rabid milkmaid Who says "I do not feel like a hero, and I do not call myself one" in the tones of one who thinks the exact opposite? Who is constant cahoots with McCain (who is currently trying to sink a Trump presidency) why am I not surprised that a neoliberal faction of the senatorial republican party in seeking to weaken a populist president-elect is reaching for the third rail with both hands and smearing all republicans with the same brush. I doubt very much Trump will weaken social security since he knows it is the only thing his rebellious base of Deplorables can depend on call me simple but Trump won this election against practically everyone and he knows his base is the only sure recourse he has.

Praedor , December 14, 2016 at 12:47 pm

I don't count on that (Trump knowing not to touch Social Security). I wouldn't be surprised if he went for privatization. HE will never ever need Social Security so why concern himself over it? He's already throwing his electoral base under the bus with his cabinet picks. Every single one of them is a direct violation of his pre-election promises.

oh , December 14, 2016 at 1:51 pm

I heard that there special rooms available for Johnson and McCain at the Hanoi Hilton! I urge them to take advantage of this excellent offer.

susan the other , December 14, 2016 at 12:28 pm

I think Hillary also wanted to increase the payroll tax by 3% (an enormous amount of money) and use it to privatize 3% of the SS funds to make up for shortfalls, ostensibly. They better have a good insurance policy so that'll be another 3%. All this nonsense because we refuse to admit we need social policies and social funding of the basic things. We are committing suicide 24/7 these days. Why don't we just call it all insurance?

oh , December 14, 2016 at 1:53 pm

The financial (rentier) crowd want to get their claws on the SS funds. They'll achieve their goal unless we kick their puppets out of Congress.
They already have their teeth into your IRA funds, student loans, home mortgages and your bank funds, It won't be too long before a Trojan Horse Prez signs away your SS. Beware!

Praedor , December 14, 2016 at 12:43 pm

We'll see if the Dems stand firm and fight back OR go for the old "bipartisanship!" bullcrap and instead agree to a lessor CUT. They would then promote it as the two sides working together.

Typical neoliberal Dem establishment move.

Or are the progressive forces ascendant and ready to fight absolutely?

We'll see. In any case, the House will pass it, no question. The test is in the senate where the Dems still have some teeth available (whether they USE those teeth is another thing altogether).

Steve C , December 14, 2016 at 1:44 pm

If so, the Democrats are finished.

jrs , December 14, 2016 at 9:34 pm

Yea Senate that consists of a bunch of millionaires (on both sides).

Paul P , December 14, 2016 at 2:29 pm

The Democratic Party must be made to defend Social Security as they rallied
against Bush's privatization plan. They will do so for political advantage, but they
too have attacked Social Security. Obama attacked it on three occasions–the Deficit Commission, the chained CPI added to a budget proposal, and the timing of married couples claiming benefits–and, were it not for Monica Lewinsky distracting
Bill Clinton, Bill Clinton would have been attempting to privatize Social Security, not Bush.

Now it the time to contact your senators and representatives: NO CUTS.

jawbone , December 14, 2016 at 4:34 pm

As things stand, what you recommend is the best action to take as of right now. It is not enough, but when letters come in to Dems and Repubs stating the senders will NEVER vote for anyone who votes to mess with Social Security, Medicare, Medicaid, there might be some reactions.

BUT it needs to be many, many, many people writing, calling, and meaning it when stating "Representative/Senator XXX, you mess with this and you will never, ever get a vote from me."

How do we get enough people to take action???

Is Bernie on the ball about this?

Cry Shop , December 14, 2016 at 7:17 pm

Humm, if you are depending on Bernie or any one politician to save you, then you've lost the point of Democracy. It's all of you forcing them to do the right thing.

Bernie Sanders has said it himself, even FDR said to Black Activist asking for an anti-discrimination executive order to the defense industry: "I agree with you, I want to do it, now make me do it." They did do it, by threatening a strike during WWII, for which some were sent to jail. That's what it's going to take, because voting once every 2 or 4 years isn't going to cut it.

Paul Art , December 14, 2016 at 7:24 am

They will never attack current beneficiaries. This is a lesson they have learnt over the years. This is why they changed tack in the 1980s and keep raising the eligibility age which is a very soft target. One thing the GOPers understand really well is, GOPer Seniors ALWAYS vote and some Dem Seniors vote sometimes. So they will leave current beneficiaries alone. GOPer Seniors – almost all of them are driven by the conviction (Tea Party types) that Social Security and Medicare are under jeopardy because of illegal immigration and because Social Security funds are being raided and handed over to other beneficiaries like those on Disability etc. They have plenty of traction on this because if you go ask the average 25 year old or even a 40 year old today whether they can count on Social Security, most of them being morons and having swallowed the MSM propaganda will tell you, 'I don't think it will be around when I get to 65'. I am fairly certain there are polls to back this up. This is what the Greenspan Blue Ribbon Commission cleverly did under Reagan. The people who are in their 50s today were in their late 20s in the 1980s and clueless about what exactly Greenspan did to the eligibility age. So telling current beneficiaries that its good to cut benefits for future beneficiaries makes a lot of sense to current beneficiaries. In any case SS is toast. I think we will have to wait for the entire cycle of Old Age poverty to take root again in another 50-60 years and for the tide to turn. It was wide spread old age poverty that prompted FDR and also Trueman into action for SS and Medicare respectively.

Sewer species like Pete Peterson and the Hedge Funders target SS because it is a very productive way to create mass unemployment and lower wages. They don't want people removed from the labor market by SS when they become 65. Their secret longing is to drive down wages to the point where the per hour rate will equal the human mules you see pulling overloaded hand carts in Mumbai, India or Shangai, China. This is really the agenda. This is basically the psychology of monopoly thinking. When you have captured markets up to a 95% level then you start looking like an idiot because you have closed off growth altogether. Monopolies do not grow because there are no more markets left. So the next thing to do is increase profits via driving labor costs down – standard Michael Porter Harvard Business School trick. This is what they have been doing in the last 40 years.

Cry Shop , December 14, 2016 at 8:31 am

+1

It's how they are selling every sort of deregulation. it destroys the future, but who gives a damn about their children and grand-kids, the ungrateful snots. Shipping the old folks off to the retirement home has divorced them from both the care and of caring about their descendants.

RUKidding , December 14, 2016 at 10:21 am

Your comment about the old folks home is right on target. The better class of senior housing establishments are often the most fortified of bubble worlds, and the Seniors there spend hours ranting to each other about how the younger generation has screwed them over somehow. I've witnessed it first hand. They've been carefully taught not to give a crap about future generations, including their own kids and grandkids. It's all about MEEEEEEEEEEE .

BeliTsari , December 14, 2016 at 9:11 am

Thank you, I think a lot of us have noticed the veracity of this, especially over the last four decades. Show of hands who else out there is sufficiently paranoid, to consider signing-up a year early & simply absorbing the hit, with some silly fantasy of being grandfathered-in?

RUKidding , December 14, 2016 at 10:22 am

Hand is raised in the air.

My siblings have done that for just this reason.

BeliTsari , December 14, 2016 at 11:45 am

Thanks! I was dizzy from a bad head cold, working in very bagger-ridden environs (a quite literally Dikensian hell-hole in Pennsyltucky), applying for Medicare and fishing through obfuscatory pleonasm, picking Plan D & N insurers the 2nd or 3rd page in, they ask you if you're applying for "benefits" at this time! Jesus Anybody ANYBODY??? I have some meager equity (at least, last time I looked?) sufficient for a decade or so. But with Republicans dying young?

Steve H. , December 14, 2016 at 12:01 pm

: pleonasm

New word, thank you.

You can never have too many words

BeliTsari , December 14, 2016 at 12:05 pm

I doubtless stole it from Izzy Stone or Frank Zappa, while high?

UserFriendly , December 14, 2016 at 10:49 am

Increasing the retirement age while the average life expectancy is decreasing seams especially crewel. Combine that with that piece from the times that showed people like me, born in the 80's only have a 50% chance of earning more than our parents and that we are already drowning in student debt and that is a full on assault on the youth of this country. Screw the national debt burdening future generations, this will actually burden us. This really is the worst country in the world. Fuck Patriotism.

jawbone , December 14, 2016 at 4:37 pm

Phrases to remember: "Hurry Up and Die" and "Soylent Green is People."

JTMcPhee , December 14, 2016 at 11:23 am

Anyone who has a chance of affecting the behavior of AARP when it comes to SS and Medicare needs to step up and apply whatever pressure they can to get that thing to return to its origins and "work the issue" for their members, present and future. I know, it's mostly just another front for insurance and other sales pitches and scams and "cruise packages" and other lifestyle crap, but at least there has to be some skeletal remains of the original bones of the organization in there somewhere.

Or failing that, is there another entity that might be worth supporting and joining with, to go on the offensive and fight back? I would hate to think it's all futility and "47%" from here on out.

Susan Nelson , December 14, 2016 at 7:03 pm

Alliance for Retired Americans https://retiredamericans.org/
Social Security Works http://www.socialsecurityworks.org/

JTMcPhee , December 14, 2016 at 9:17 pm

Thanks. Will examine for signs of actual utility versus collection of data and $$.

Cry Shop , December 14, 2016 at 8:42 pm

AARP's origins? It was founded by an insurance salesman as a slick way to sell, yep you guessed it, the industry's interests to a powerful bank of less than bright voters.

JL , December 14, 2016 at 11:54 am

Just want to point out that you both degrade avg 40yo for thinking they can't count on SS and in the same post claim SS is toast.

Some of us don't think we'll be able to count on SS because the elite are determined to raid that cash flow, not because we've swallowed the B's line.

jrs , December 14, 2016 at 9:43 pm

Some of us question if there won't be mass human extinction before then. Maybe there will be no old age for many people alive today including yours truly. But nonetheless, if by some miracle the worst doesn't happen then Social Security is important.

Marco , December 14, 2016 at 7:34 am

Prez Hope and Change's support for chained-CPI will certainly complicate the fight against this. If Obama and his Rubinite stable of bean-counting butt-boys were for it then it must be okay?

Steve C , December 14, 2016 at 1:51 pm

See Paul Art's comment above. Obama worked to keep wages low to please the Pete Petersons of the world.

voteforno6 , December 14, 2016 at 7:36 am

They're banking on getting some Democratic support, to make it bipartisan. With weasels like Mark Warner in the Senate, they might get some Democrats to sign on to this.

RUKidding , December 14, 2016 at 10:37 am

Eh? Democrats will line up with their Republican BFFs to screw over the proles. Given how Democrats are now a very Rump party in this nation, what have they got to lose? Why take of their alleged "constituents" in the 99% What a laugh. The constituents of the Dem pols are, have always been, and will continue to be the .01%. So the Dems will happily oblige their real constituents by screwing over the proles. Anyone who expects a different outcome is not living in reality.

Carolinian , December 14, 2016 at 8:20 am

Perhaps it's because "the banks own this place." Also the Republicans, like the Dems, are running on the fumes of past ideological obsessions and Social Security was always seen as a prime Dem vote getter and flagship of the hated New Deal. Remember Karl Rove wanted to take the country back to the McKinley administration. But mostly it's probably because people like Paul Ryan are creatures of their funders.

NotTimothyGeithner , December 14, 2016 at 9:32 am

Plenty are stupid, but the Democrats are in complete disarray. The GOP will face push back from their voters, but the Democrats as they are now are not a threat to win any time soon. AARP recognizing the interests of its members can shake Washington, but right now, the GOP sees no threat to its rule.

oh , December 14, 2016 at 2:33 pm

Many of the not so weathy Repubs are 'rich wannabes'. So they'll gladly toe the line on cut social security cuts and free market memes. They think that they have noting to worry about because they'll be wealthy before they retire and they won't need SS. Boy, do I have a few bridges and lots of swamp land to sell them!

John Wright , December 14, 2016 at 10:17 am

One can note the Social Security "reform" is usually pushed by wealthy individuals who feign concern about saving a system for the future of less well off Americans.

Also, Social Security is a system that is of little import to the wealthy as they will not be depending on it for basic living expenses.

The wealthy's real fears are of a raising of the income cap that will hit them directly or of an effort to support higher wages for the citizens currently paying into Social Security, hitting their business profits.

While it may seem unexpected they can get help from Democrats in this effort (Obama, Bill Clinton ) but I suspect this is so because wealthy donors support the effort and the Democrats can pitch the "saving" aspect while collecting campaign cash.

If a politician is not re-elected as a result, they might have a more lucrative career at a think tank or as a lobbyist.

Of course, if the wealthy are so concerned about the alleged Social Security problem that is looming in the future, where were far sighted wealthy Americans when it came to questioning the Iraq War, the drug war, the lack of financial reform, and all the USA military/covert actions that have done great harm to public finances?

Strangely, Social Security "reform" is a big concern of theirs, and the other USA efforts that have caused much harm, are not.

Then there is climate change, again, wealthy individuals are more concerned about "saving social security" than saving the planet.

Also the "reform minded" politicians do not appear to allow that current social security benefits probably are used by many entire low income families. So cutting grandma's benefits also could immediately hit her kids/grandkids financially.

A secondary effect is that lowering SS benefits means the wages of current workers can be lowered in concert as their SS payments, which flow to current recipients, can be lowered, perhaps even allowing another Social Security reform effort to be promoted.

The ability of TPTB to sell this to the American public should not be underestimated as the advertising/public relations/MSM has been successful in promoting/maintaining many bad ideas.

sharonsj , December 14, 2016 at 12:38 pm

The wealthy are not concerned about saving anything unless they can make money off it. They are already getting richer from the endless wars on terror and drugs, and taking planetary resources for themselves. The only reason they talk about "reforming" Social Security and Medicare is to get their hands on that money as well. And please do not expect the corporate media to explain any of this to the dumbed-down masses.

Michael C , December 14, 2016 at 10:25 am

The Republicans can afford to play with potential policial backlash for two reasons: First, they relentlessly beat out false narratives about the demise of SS and its inadequacies so that their flase story becomes a part of the consciousness of citizens. (This is the same thing done to attack teachers, unions, the post office, government, etc. You put out the lie long enough, it becomes the truth.) Second, they have been engaged in not one knife to the heart of the program but an attempt to promote its demise by a thousand cuts, little by little, until the program is no longer viable. I know for a fact that young people have bought into the lies put forth by them and do not think the program will be there for them because they too have bought the lie. Those pushing to kill the most effective program in US history, one that has kept the elderly from complete poverty, are nothing more than evil. They want no public programs, and all revenue funnelled into corporate models that enrich the 1%.

Deloss Brown , December 14, 2016 at 11:41 am

Sure, I can explain it.

Conservatives love destruction for its own sake. Smashing the Alaska Wildlife Refuge, smashing the ancient city of Baghdad, spilling oil all over North Dakota, wrecking Social Security, all these things have a political component, but it is the destruction itself that makes them absolutely adorable to Conservatives. Bear in mind this pervasive love of destruction, and many Conservative initiatives will become more clear.

And the "base" goes along with it, because many of them have been inculcated with the theory that it is more pleasurable to do someone else harm than to do one's self good. Given a choice to make, they will always pick the former. Hope this helps.

Me, I find NC's alarm and amazement at the Republican plans to wreck Social Security ingenuous. What did you think would happen? God knows you were warned.

diogenes , December 14, 2016 at 4:12 pm

Yeppers.

https://www.youtube.com/watch?v=FNt0anp7WK8

juliania , December 14, 2016 at 7:03 pm

Who warned us? Not the media. Not Obama. Who? I'm thinking naked capitalism.com, best Paul Revere substitute I can come up with at the moment.

Nobody here needed warning. Nobody is alarmed or amazed. And nobody stuck their heads in the sand and figured everything is going to be peachy. What we did need was a well written reminder.

And we got it. Thanks, Yves.

jrs , December 14, 2016 at 9:48 pm

People drunk a whole lot of Koolaid like "it takes a Democrat to cut social security". Koolaid was spilled all over in drunken Koolaid orgies at one point toward the end of election silly season. But the party is over and all that is left is the wreckage. Of course Hillary may have done the same thing as we weren't exactly getting any encouragement from her that she wouldn't and rather in fact got hints that she might (support for Peterson committee, her retirement plans for private investment etc. – to supplement Social Security of course). None of which were absolute certainty that she would cut it of course, but they aren't always honest about that are they, so not encouraging either.

Glen , December 14, 2016 at 12:29 pm

It's best seen as an all out effort to wreck any good that the government does for common people so that they can beat the war drum of government failure. This then serves as the smoke screen to hide just how much ultra rich directly benefit from government support through bailouts, privatization, tax cuts, subsidies, and out right theft and fraud. And just how much more they will get when Social Security and Medicare are privatized and benefits are shrunk. Those are large streams of government controlled funds, and they want it.

Social Security and Medicare work extremely well, and should be expanded. But don't delude yourself into thinking this is obvious to most people. Both political parties are dedicated to killing Social Security and Medicare and are extremely adept at spouting the " we must kill it to save it" BS.

Waldenpond , December 14, 2016 at 1:09 pm

Ds movement to the right and their continuation of R policies, no matter how vile, actually redeems the R party for the next election. If they take turns governing only on behalf of the .9, .09 and .01% they take turns redeeming the other branch of the money party. The colluding media will propagandize every bit of corruption and sleazebaggery as 'no other option' trot out imaginary deficits.

The voted out politicians will enthusiastically do it because they enter office looking for the big sellout as they will receive the only objective they ever had in achieving elected office . lucrative appointments and sinecures at parasitizing corporations, think tanks, scam foundations and presidential libraries.

Harris , December 14, 2016 at 5:11 pm

He will limit the changes to those under 50 ( ie those with much much lower voting percentages than 60+'ers ).

Johnson is 85, so I doubt any of this was his idea.

Praedor , December 14, 2016 at 12:08 pm

Screw your "iron sights". I'll use my reflex sight and hit center every time.

JTMcPhee , December 14, 2016 at 12:40 pm

Exactly. But not everyone has a reflex sight or scope. And a lot of people who do have such a very wrong notion of who the targets ought to be, the ones that actually pose the greater=st immediate threat

Though 4,000 veterans appearing at Cannon Ball with the #NoDAPL presence probably have or are developing a correct "sight picture" and target designation

ambrit , December 14, 2016 at 4:37 pm

Oh H-! Where is my 3-9X40 when I need it?
The late lamented science fiction writer Mack Reynolds penned a screed along these line a ways back about a pissed off ageing Lord Greystoke and the fate of the old in America called "Relic."

Scott Frasier , December 14, 2016 at 2:05 pm

The plan will be structured to only hurt future retirees. The solution to this political problem is to have anyone who will be affected demand that they be allowed to opt out from now on and to receive a refund, with interest, of all of their previous contributions to the system because the "earned benefits" have been taken away. Ownership in America is a sure winner politically.

I don't expect Democrats to have the balls to actually propose this, but it would leave the plans in tatters because without the tax stream and the already contributed taxes it won't be able to pay current retirees. Now that would get the current retirees attention!

Jeremy Grimm , December 14, 2016 at 2:14 pm

Not only can old people no longer depend on their extended families for support I'm afraid many young people in that extended family have had to rely on the older people for support. My young adult children are not doing terribly well in the new economy and I don't see things improving for them any time soon - if at all. I've had to step in and help a little here and little there more and more as the costs for those unplanned surprise expenses keep blindsiding my children.

juliania , December 14, 2016 at 7:08 pm

Very true!

Battaile Fauber , December 14, 2016 at 4:55 am

Well, which is he, "at the top of the scale" or an "average earner"?

I interpreted that as he earns an average of 118k, putting him at the top of the scale.

Mike , December 14, 2016 at 6:35 am

And maybe that is what the author thought, but it doesn't work. Wages above the SS max don't get taxed and don't add to the final benefit, so people who have an average salary equal to the max have a benefit that is below the max. The difference would depend on how much the salary fluctuates, year by year.

Naomi , December 14, 2016 at 9:15 am

Exactly correct. This author misinterpreted. But Sneed's original grammar was sloppy as well. Should've read, "earning an average of $118,000".

BecauseTradition , December 14, 2016 at 4:55 am

Perhaps a serious attack on welfare for the rich would persuade the enemies of Social Security that those who live in glass houses should not throw stones?

ambrit , December 14, 2016 at 5:13 am

To make such an attack, one needs must take over the "reins of power." In short, your suggestion is revolutionary. (I'm not averse to such, just observing.)

BecauseTradition , December 14, 2016 at 8:22 am

I mean an ideological attack since much welfare for the rich is not yet recognized as such (e.g. government provided deposit insurance instead of a Postal Checking Service or equivalent, e.g. interest on reserves, e.g. other positive yeilding sovereign debt).

not a rich person , December 14, 2016 at 10:06 am

government provided deposit insurance is for the rich?

who knew?

BecauseTradition , December 14, 2016 at 10:52 am

Yes it is. It is part of the means by which the poor, the least so-called creditworthy, are forced to loan to depository institutions to lower the borrowing costs of the rich, the most so-called credit worthy.

The ethical alternative is an inherently risk-free Postal Checking Service or equivalent for all citizens, their businesses, etc. Then the poor need no longer lend (a deposit is legally a loan) to banks, credit unions, etc or else be limited to unsafe, inconvenient physical fiat, aka "cash."

JTMcPhee , December 14, 2016 at 11:27 am

And of course the Few are planning to do away with "cash." Already happening several places

Higgs Boson , December 14, 2016 at 5:50 am

And yet our crumbling empire has ample treasure to play game of thrones all over the world.

JTMcPhee , December 14, 2016 at 12:13 pm

It's slightly old news, but "Congress" is also hurting the Troops (another easily cut-able bunch) that are doing that "war" thing all over the world. http://www.stripes.com/news/us/congress-passes-defense-budget-with-troop-benefit-cuts-1.319021 , and with more detail on the "sausage making" process, there's this (note the remarks about "furious lobbying" by beneficiaries and entitled persons): http://thehill.com/policy/defense/overnights/225785-overnight-defense-budget-would-cut-military-benefits The efforts to cut VA disability and health care benefits, and of course pensions and stuff, are constant. Just like SS and Medicare. Maybe there are some congruencies of interests and constituencies here? A "base," of sorts?

Interesting that maybe 4,000 veterans showed up and formed up at Cannonball/DAPL, to stand against the thugs and "government" and with the Native Americans who seem to have found a set of honest and attractive memes to present to the rest of us. The Bonus Marchers got the MacArthur Fist way back when, but I'm wondering how all those troops trained in maneuver-and-fire would take to further (planned) assaults on their livelihoods and families, while they are ever more being "deployed" to protect the as-s-ets and post-national "interests" of the Few

lyman alpha blob , December 14, 2016 at 2:25 pm

+1

Marie Parham , December 14, 2016 at 6:41 am

Not to worry. Organization is taking place. In New York State the Bernie delegates have kept in touch since the convention. They have organized into 25 affiliates state wide. We have had a conference already. The Lower Hudson Valley affiliate may be able to defeat the Trump agenda all by itself. We tuned into the Our Revolution call and decided to do our own thing. https://twitter.com/NYPANetwork

Larry , December 14, 2016 at 7:08 am

Any similar initiative in Massachusetts? The last time the Republicans tried to gut SS under Bush, the Democrats came out in force and held meetings on weekends around Rhode Island (where I was living at the time) to fire up opposition to the plan. I'm anticipating Elizabeth Warren and other MA democrats will oppose this, but want to be ahead of that by looking for other avenues of opposition like Bernie's coalition, such that it is.

Paul Art , December 14, 2016 at 7:26 am

I seriously doubt anyone would be enthused by a Democrat party still headed by that Super Frisco Water Carrier Pelosi. I know I would not for one. The bell tolls for Bernie but the man has been struck dumb.

UserFriendly , December 14, 2016 at 10:55 am

If you already have an OR local or state group and you want to be affiliated with national, or at least talk to national DM me on twitter and I can get you in touch, I have a friend who works for them.
https://twitter.com/UserFrIENDlyyy

dao , December 14, 2016 at 7:03 am

Social security has already been cut over the last several years without a peep out of anyone. No cost of living adjustments in 3 of the last 8 years. Actual inflation is at least 2 points higher than the reported figures. Social security has been cut 15-20% since the financial crisis.

RUKidding , December 14, 2016 at 10:26 am

Yep. And I have elderly friends who are suffering bc of it. But everyone is very passive having bought into the propaganda that this is "just the way it is," and "there's just not enough money" to provide anymore via SS. So we have a very passive population, who've mostly all bought the propaganda about how "broke" Soc Sec is we proles, yet again, have to suck it up bc the wealthy certainly cannot be expected to have the income cap raised heave forfend.

Gcw919 , December 14, 2016 at 11:27 am

Just got my Soc Security statement. My net gain, for 2017, after an increased deduction for MediCare, is .nothing. See, there's no inflation (except my car insurance, home insurance, health insurance, food, etc have all gone up). And to add insult to injury, our benefits (derived from involuntary deductions from our paychecks) are called "entitlements."
As our elected "representatives" are so adamantly opposed to these programs, and would like to reduce them to table scraps, I am eagerly awaiting the announcement that Congressional pensions and healthcare benefits are going to be discontinued.

Fran , December 14, 2016 at 12:47 pm

Same here. Any small gain was offset by increase in deduction for Medicare. In addition to the rising costs you cite, I find I am paying increased local taxes, among other things. So, like most people, we must contend with stagnant income to pay rising cost of living (and I mean the necessities).
I started paying into the system in 1965. Medicare used to be no cost and cover all medical expenses, so that is a cut in itself. I knew that I could not rely on SS in my old age, and I live modestly.
I agree with your last comment. I have never seen why our representatives in Congress should receive any different coverage than the citizens they are elected to represent. As individuals, they can supplement it, just as we have to.

GregL , December 14, 2016 at 12:28 pm

I was notified yesterday via letter that my SS benefits will increase 4.00 / mo next year. This will be a great help because my rent went up 7.00 / mo to 1600.00 for my studio apt.

ambrit , December 14, 2016 at 4:40 pm

Woah there. You were paying only 1593.00 a month before? You related to the landlord perhaps?

bkrasting , December 14, 2016 at 7:24 am

What is the status of SS today?

Current law says that in approximately 13 years all benefits will be cut – across the board – by 20-25%.

That is an unacceptable outcome.

What to do with this reality? The answer is "Something" must get done. The wrong answer is, "Don't do anything, wait 13 years, and then fall off a cliff".

The proposal that in the author's words "Guts" SS actually increases benefits by 9% for the bottom 20% of beneficiaries. The cost of the proposal falls on those who have high incomes before AND after reaching age 65. The proposal stabilizes SS for the next 75 years, and there are no new taxes required. Exactly what is wrong with that?

not a rich person , December 14, 2016 at 10:10 am

what is wrong with that is that far more than the "bottom 20 percent of beneficiaries" rely on Social Security income.

apparently you are not aware of that.

craazyboy , December 14, 2016 at 12:03 pm

In the post pension plan age, I think the 20%-90% bracket needs it. Maybe up to the 99% bracket once our current 401K bubble bursts and Housing Bubble II bursts.

Pat , December 14, 2016 at 11:13 am

So the only option are things that actually punish today's working class and weaken the system by eliminating the all in/all the same position? No, it isn't. The problem is that the answer is to slowly raise the payroll tax AND eliminate the cap – something that should have been done decades ago once it became clear that the people who lived the longest on SS were largely those who stopped paying payroll taxes at some point throughout the year. But we cannot consider those.

Nope we have to talk about raising the retirement age when life expectancy for most is dropping and we have to go with things that mean that you need to start living like you have to choose between drugs and eating cat food from day one because your benefit will never increase regardless of how much more your food, housing or medicare premium increase, or there even if they allow cost of living they write off things because you can give up steak for chicken over and over.

Waldenpond , December 14, 2016 at 2:21 pm

Instead of a expanding to a more universal program, you support turning SS farther into a program that categorizes individuals, assigns a hierarchy and then ranks them according to some random definition of human and who is most deserving.

There's nothing wrong at all with having nothing but contempt for others and hiding behind some made up term of 'cost'. It's perfectly reasonable to deny the means to the dignity of housing and food to others.

or .

roadrider , December 14, 2016 at 7:56 am

The fact the last two Dim-o-crat presidents (Clinton and Obama) and not a few Dim-o-crat Senators and Congressmen are in agreement about "saving" Social Security doesn't help either. Clinton's plan was derailed by the Lewinski thing and Obama's because the Republicans wouldn't take yes for an answer (didn't want him to get credit for it but don't mind doing it themselves)

mikimurphy , December 14, 2016 at 8:59 am

In case anyone has not noticed, they are already cutting SS benefits by stealth means. There have been no cost of living increases in 3 of the last 5 years, and for my personal SS benefits, the measly .3% increase next year goes away entirely with the increase in medicare payments. I suspect many folks, like my sister who is 78 and still working full time, do not realize that the increases they are receiving are due entirely to their still being in the work force. In addition, with the cutbacks that have been forced on the administrative side of SS, more mistakes are being made. A friend of mine was declared "dead" by SS (something that also happened to me with my tiny pension plan). When she attempted to correct the error, the SS employee discovered that "thousands" of people had been similarly affected. This happened last summer and my friend is finally receiving her benefits, but a month late and for some reason the agency cannot issue that catch-up check. She is still working and so not completely bereft, but what in the world are the folks doing who have no other income??? I suppose our overlords will be most pleased that the constant annoyances they are causing us will result in our passing away from sheer anger and frustration.

RUKidding , December 14, 2016 at 10:30 am

That's interesting. I have a friend, who is still in her 50s, who was working on her will, etc, and discovered that she was no longer "alive" as far as Soc Sec was concerned. She got it rectified, and it didn't have a negative impact on her (she's still comparatively young and working). But it's decidedly odd about how all these citizens are suddenly dead as far as Soc Sec is concerned. And yes, it takes some effort to get back on the database of the living. For those who are really elderly, this could be a very difficult thing to do.

Wonder why this is happening .

Susan C , December 14, 2016 at 9:00 am

It boggles my mind why any one would ever want to gut social security. Companies already push people out at 55 and then you have a good 8 to 12 years of somehow managing until social security comes to your rescue. Younger people do think social security will not be in place when they are in their 60s which makes them angry. And who can ultimately rely on the stock market etc. to give them the money they will need when older – shivers. Is the economy that sound? Plus many people cannot manage to work so long due to health reasons which do start creeping up on people in their late 50s or the work they do is too labor intensive for them to imagine keeping at it until 69 or even 67. Bodies give out at some point. That is reality. Everyone wants to work until 70 but the companies don't want older workers – they want young, fresh, vital. If anything, social security should start at 60.

BecauseTradition , December 14, 2016 at 9:22 am

"These who pant after the very dust of the earth on the head of the helpless
also turn aside the way of the humble; "
Amos 2:7

ChiGal in Carolina , December 14, 2016 at 10:17 am

Love me some of those Old T prophets. Widows and orphans, man, widows and orphans

Pat , December 14, 2016 at 9:27 am

Two reasons come to my mind, a desire to reduce or eliminate the employer half of payroll taxes AND the pool of money that the financial industry thinks should be theirs to rape and pillage. But I'm sure there are others.

Steve H. , December 14, 2016 at 9:39 am

Recent posts and comments have noted both more billionaires and a rapid concentration of wealth amongst them. But it's mo' po', too, what Turchin calls 'popular immiseration'. To decrease the effects of 'interelite competition' the wealthiest cannot just bestow unto their favorites, they must tend to the rich on the downslope. Those are the ones with resources to engage in attrition. So there is a long history of shoving the costs onto those who can't fight back, and the unlanded are easier to slap down.

A personal case: Pearl was a delightful very elderly lady a few doors down. Her house was in trust until she died, and she had a daughter and a grandaughter living with her. When she died, one of her (all over-55) children had medical debt needing paid and so he vetoed keeping the house. It sold, the land was lost to the family, and daughter and grandaughter were homeless.

That interelite competition was apparent in the election. Our choice of two New York billionaires was a choice over which aspect of the FIRE sector would dominate, Finance or Real Estate. But those differences seem to get averaged out below a scale of 10^8 or so dollars.

craazyboy , December 14, 2016 at 12:08 pm

"Everyone wants to work until 70"

Not me. I decided I hate work at the young age of 49.

neo-realist , December 14, 2016 at 3:50 pm

Re Companies that push people out at 55 and don't want older workers and prefer younger ones, this leaves a lot of people in that 55-70 age bracket in a difficult (and in some cases, a terrible) situation if they're not in the minority of those who have a secure gig until they retire (usually people that I know that have government gigs w/ pensions.) The Presidency nor the Congress have no solution for older workers who get pushed out and face discrimination due to their age when they seek employment. They would prefer to not hear about it and if they're sleeping in cars or in tents under bridges, that's their problem.

Punxsutawney , December 14, 2016 at 9:30 am

What the GOP is doing is planning "Theft", pure and simple.

The next 4 years will likely see the greatest wealth transfer of all times. To the top of course.

tegnost , December 14, 2016 at 11:10 am

continuing what's been going on for the past 8 years, ever heard of quantitative easing, the ACA, or chained CPI? Foam the runway with HAMP, maybe, or endless war as the only jobs guarantee available. Sorry, but trump is just more of the same, only a little more forthright. You should be used to it by now.

Punxsutawney , December 14, 2016 at 2:55 pm

No argument here. Put the Dems in control and they will find all kinds of excuses for doing the same thing, all bight more subtlety. Clinton was going to privatize Social Security and Obama proposed chained CPI. Not to mention the effects of TPP.

Adam Eran , December 14, 2016 at 9:55 am

Another columnist whose "answers" are predicated on the assumption that taxes provision government programs. Just one question: Where do tax payers get the dollars to pay taxes with if government doesn't spend them out into the economy first?

If that's too much thinking: Where was all this "we're out of money" talk when the Fed, according to its own audit, pushed $16 – $29 trillion out the door to save the financial sector from its own frauds? Yet government routinely denies it makes the money when the orders-of-magnitude demands of safety net programs appear. Taxes make the money valuable; they do not, and obviously cannot, provision government.

As long as this isn't common knowledge, we're all condemned to austerity. Even public policy makers sympathetic to workers (e.g. Dilma Rousseff) are in peril if they adopt the "inevitable austerity" routine.

Jerry , December 14, 2016 at 1:31 pm

Unfortunate that I had to scroll this far down to find the first person with a correct understanding of government finance. I've explained MMT point blank to people multiple times and they still cannot grasp it. Until people start caring and get a general understanding of how this thing works we are in a lot of trouble. I am hoping that Trump will be godawful enough to bring about such a conviction for revolution to the average American

As the Henry Ford saying goes (oft-quoted by Ellen Brown):

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

John Hemington , December 14, 2016 at 4:38 pm

Exactly right and if the powers that be were really concerned about funding SS from those who will receive it all they have to do is raise the income cap to cover total income for everyone - not just middle income workers. Problem solved and no need to worry about the fact that the government can't run out of dollars.

Denis Drew , December 14, 2016 at 10:13 am

I have my own weird tack on SS retirement.

I see the Trust Fund as having been accumulated over the decades by my generation - by paying higher FICA tax to purchase fed bonds with. TF running out now supposed to be the big to do? Wasn't it supposed to run out? Aren't we supposed to use what we saved?

I like to say: have an SS retirement shortfall today? Do it all over again: hike FICA, lower income tax and accumulate bonds. Mmm.

But, just yesterday I had a brainstorm. If Repubs want to cut benefits so FICA shortfall doesn't have to made up by income tax cashing bonds (covering about 25% of outgo just before our bonds run out, then, Repubs want to steal our savings that we forgave immediate gratification to accumulate all those long years.

Always suspected income tax payers who are hit for as much as 39% would balk at cashing the bonds when the time came - but on the basis of the usual world run for the haves idea. Never thought of it in terms of outright theft - before yesterday.

PS. Really shouldn't use up all bonds. Right now there are about four years of full replacement in the TF. Legal solvency is defined as one year - needed to cover temporary shortfall while Congress moves to fill in - happened couple of times.

Jim Haygood , December 14, 2016 at 12:34 pm

" Wasn't it supposed to run out? "

No. Defined benefit plans are supposed to be funded so that the assets earn enough to pay promised benefits. If the assets run out, the plan is not only mismanaged, it's bankrupt.

Seriously, if your checking account were emptied by a hacker, would you ask "Wasn't it supposed to run out?" You are a crime victim.

thoughtful person , December 14, 2016 at 10:37 am

Educate, Agitate, Organize, yup, expanding on cry shop's comment above, it's more than breitbart and Fox these days. The mainstream media may be (usually) more polite and more subtle, but they will not report the basic info accurately like Yves and Lambert do here. Our Revolution is a good start. There need to be alternative sources of information such that education can happen. That is why the "fake news" attacks on alternative media are such a big deal. The founders of the US understood the importance of information too, one reason the postal service was established with low rates for all periodicals. "Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives", wrote Madison. We really are sheep without knowledge. Some like it that way .

RUKidding , December 14, 2016 at 10:42 am

Donald Trump, at his rallies, consistently lied to his fervent fans that he was going to save Soc Sec & Medicare. What a laugh.

I've been blogging and telling people throughout the election process that Trump made a very public DEAL with Paul Ryan that he, Trump, was totally behind cutting and gutting SS & Medicare. That is the main (possibly only) reason why Ryan gave Trump his very tepid "endorsement." But this was very public knowledge and not hidden.

But of course, Trump lies constantly, so his fans were mainly enthralled with what a bully he is and believed what they wanted to believe. Made up fantasies. Some of his fans are waking up to the fact that they've been screwed over royally. Of course the M$M will happily oblige by somehow finding a way to blame it all on Obama, Clinton, the Democrats, whatever (not that the Dems aren't equally happy to cut and gut SS & Medicare, as well) and the proles will buy it.

Home and hosed. Case closed. We're screwed.

Gaylord , December 14, 2016 at 11:21 am

Republicans should offer Kevorkian "escape kits" free for the asking.

RUKidding , December 14, 2016 at 12:02 pm

Although various states have now passed laws to legalize what's called "assisted suicide," there's still a lot of resistance to it, esp from those of various religious persuasions. Also assisted death in these cases is only available for those already in the latter stages of terminal illnesses, and generally extreme poverty doesn't fall under that definition. So sucks to be you.

I guess dying from hunger and exposure, due to extreme poverty, is our just deserts. No rest for the wicked. When you die, you have to die as painfully and slowly as possible just to impress upon you how worthless and awful you truly are. The punishments will continue until morale improves.

Katharine , December 14, 2016 at 11:35 am

This was posted hours ago. How many readers have taken the time to email their congressmen? Please do! You don't have to be lengthy or learned. You can simply state a couple of talking points you all know and intimate that tampering with benefits is not going to be accepted. This is definitely one of those "if you're not with us you're against us" issues, and the sooner your elected representatives understand you mean that the better.

Jim Haygood , December 14, 2016 at 12:30 pm

"I think a 0.4% increase (combined), about two dollars per week for each the worker and the employer, should solve the problem in ten years, but I haven't done the numbers on that myself. "

WHUT? Why are space cadets like this even allowed on the internet?

Trying to patch Soc Sec's $10 trillion hole with an 0.4% FICA tax hike is like trying to empty the Atlantic Ocean with a teaspoon.

Net present value, Dale - I'm afraid you cut class that day. Now it's too late.

Benedict@Large , December 14, 2016 at 12:36 pm

Mark my words.

The attempt by the right to "fix" Social Security is nothing more than an attempt to make the trust fund disappear, and to mark all the obligations that fund was supposed to have met null and void.

If this sounds like they are trying to steal the trust fund, that is not the case. They have already stolen it. Now they just have to fix the accounting to say they didn't, which they will do by setting the system to never need to cash a bond from the trust fund.

Tin foil hat, you say? Fine, but do me a favor. Whenever a bill is introduced to "fix" Social Security, do the accounting for how it will play out. The trust fund will no longer be needed?

oh , December 14, 2016 at 4:55 pm

Yup, that's the R's plan and people will be sleeping when they play this con.

Ranger Rick , December 14, 2016 at 1:00 pm

Something about this strikes me as a hilarious farce of unintended consequences. People worried about "government debt" and demanding its reduction are getting exactly what they wished for.

Waldenpond , December 14, 2016 at 1:54 pm

I'm not quite sure of your meaning here. It sounds like you are mocking people for not being able to get out from under a propagandist educational/media system and a corrupt government. Then again, it also seems to be gloating and that people deserve to be immiserated.

Nate , December 14, 2016 at 3:38 pm

Exactly!

herkie1 , December 14, 2016 at 1:49 pm

This is called a "technical adjustment." They can pretend that the CPI is too generous and know that most people won't understand the scam.

I am a 100% disabled veteran and several years back they tied our COLA to the SS COLA.

The result is that since mid 2013 in this region we have lost about 40% of our purchasing power. Our standards of living have dropped by that much.

Of course there is NO INFLATION, the letters I have been getting actually claimed that because of this DISINFALTIONARY economic environment . That is no inflation so no raise this year.

Now, I am going to be 59 this spring, I worked at a lot of things between 1973 and 2005 when a judge ruled in my favor regarding my disability and awarded me SSD. But, because I spent so many years fighting SS and did not have the quarters of income recent enough my SSD amounts to $1,013 per month.

Now for all the republicans out there who think SS is too generous, I would ask you to stick your filthy little brains, or rather pull them out of your exhaust holes. You can claim it is too generous when you have spent a lifetime paying in and then someone tells you that 12 grand a year is too generous.

MY RENT IS MORE THAN THAT and this place s a hovel in the sticks. The only way I can have a roof over my head for less is to live in my vehicle.

Fortunately I also have a bit in VA disability and between the two I thought of myself as middle class if just barely only 36 months ago, now I would consider myself in dire poverty at 20k a year, anything less and we are talking eating at the mission and sleeping in shelters. Vehicle? Right. The fact that they refuse to acknowledge inflation and use quite literally half a dozen tricks to disappear it from the headlines does NOT mean it does not exist. If you can eat gasoline and flat screen TV's you are certainly doing great, otherwise you are experiencing something never known in the USA, structural downward mobility for 90% of us.

And it is these facts that drove the angry and the stupid to vote for Trump, they were not the majority of voters, but between them and antiquated laws giving voters in small states far more power than in urban areas (where people actually live) that Orange Hitler dude got in, and so did the GOP majority of fascists who have as a holy mission class warfare and getting rid of diversity of any kind, racial, sexual, or gender.

They are going to gut every bit of progress since Teddy Roosevelt. They are going to bring back segregation, this time though via school vouchers. They are not going to FORCE non white non middle class kids into slum condition schools, so they will plausibly claim HEY it is NOT segregation and those parents have an equal right to move their kids to private schools also. No, instead these kids will be abandoned in schools that the government will slash funding to as white upper and middle class people are partially paid the tuition to send their kids to private schools which are exempt from federal discrimination laws. I am NOT holding my breath for this, I have a one way ticket to Australia for the first week of January.

THAT is going to be the story of all government for a while, social security is just one of MANY functions of government they are going to kill off. If you think people were angry in 2016 just you wait till 2020.

It is already so bad that unless the GOP grows a conscience and a heart in the next 2-4 years the USA will break up the way the Soviet Union did. The nation now has what so many married couples cite in divorce proceedings, IRRECONCILABLE differences.

And the worst of it is that no matter if you like it or hate it the USA is the rock of stability that has keep civilization working since the end of WWII. You break up the USA and bingo there is no uni in the unipolar geopolitical world. What we will have is chaos and war and humanity will fail. USA FAIL=Humanity FAIL.

PrairieRose , December 14, 2016 at 9:43 pm

Thank you. Thank you. Thank you. For your plainspoken honesty. This should be copied and posted everywhere, starting with senators and representatives.

Nate , December 14, 2016 at 3:27 pm

Don't you love when your vote gets what you desired? No empathy. Big shoutout to U.S. congress.

Brooklinite , December 14, 2016 at 4:59 pm

They should have an option for an opt out of social security, medicare/Medicaid, Affordable Health Care. Not having that kind of freedom to me is not worth it. I am not buying any other excuses such as I am not shrewd to invest my money. Taking money is the easy part. Getting back is always laborious if you are lucky to get.

no to opting out , December 14, 2016 at 6:44 pm

right. many people opt out of "mandantory" auto insurance by just not
getting it. it's been estimated that in FL at different times as many as
one third of the drivers on the road are not insured. and really, if they
get injured, they get treated in an emergency room until they are stabilized
(the law) and if they were sued for damages, what could be recovered?

but, let's remember, while they are on their "ride" they are "free." Yep.
a lot of people think like that.

marblex , December 14, 2016 at 5:27 pm

Social Security, let's lay it to rest once and for all Social security has nothing to do with the deficit. Social Security is totally funded by the payroll tax leviedon employer and employee. If you reduce the outgo of Social Security, that money would not go into the general fund or reduce the deficit. It would go into to the Social Security Trust Fund. So Social Security has nothing to do with balancing a budget or lowering the deficit.

Ronald Reagan (first Reagan-Mondale debate 1984)

Quill , December 14, 2016 at 5:51 pm

You misunderstand the article from the beginning. When she says:

"A 65 year-old at the top of the scale, a $118,500 average earner, "

She means someone who has earned $118,500 on average over his/her career , placing him/her at the top of the scale.

I'm not sure why you are criticizing the writer of this article.

walter jahnke , December 14, 2016 at 6:14 pm

would someone explain why the greenspan changes , which were supposed to keep social security solvent, did not, I've googled the history and the only answers seem to be that the trust had trillions in surplus that were used to pay off other obligations, , which I do know that the funds were used to lower the deficits in previous years, but wouldn't the surplus still be there? Explanation please by someone knowledgeable about the history and why the problems now

Oregoncharles , December 14, 2016 at 6:45 pm

"Well, which is he, "at the top of the scale" or an "average earner"?"

Oops. Even I understand that one. It means he earned an AVERAGE of $118,500, the maximum that SS taxes.

Next question: what kind of idiot actually introduces a bill to cut Social Security? One who plans on a lucrative retirement from politics, that's what kind.

Altandmain , December 14, 2016 at 8:28 pm

Sadly the Democrats will just go along with it.

Maybe the left wing (represented by Sanders) might put up a fight, but they don't have the power to stop this.

The US is rapidly becoming a feudal society.

aab , December 14, 2016 at 8:39 pm

Protesting the proposed policies of President who owns real properties of value in media-drenched major cities that require the labor of lower income workers on a daily basis might be more effective than protesting a President whose wealth is almost entirely stored in secret, offshore bank accounts.

Let's hope, anyway.

David , December 14, 2016 at 9:44 pm

"The trouble with Sneed's article is that she does not appear to know what she is talking about. She just wrote down what some "experts" told her with no idea what the words mean."
You missed the question, is it the writer or the policy of the site?

[Oct 24, 2016] Chris Wallace, Supply, Demand, and the Government Budget Deficit

Notable quotes:
"... Second, it is important to note that the size of the projected shortfall in the Medicare Part A program (the portion funded by its own tax) has fallen sharply in the Obama years. The shortfall for the 75-year planning horizon was projected at 3.53 percentage points of payroll in 2009, the first year of the Obama presidency. It has now fallen by 80 percent to just 0.73 percent of payroll. This reduction is due to a sharp slowdown in the projected growth of health care costs. Some of this predates the Affordable Care Act (ACA), but some of the slowdown is undoubtedly attributable to the impact of the ACA. ..."
"... On Chris Wallace's question, we know now from Hillary Clinton's Wall Street speeches that her plan on debt and entitlements is to support the elitist Bowles-Simpson project, the centerpiece of which was raising the age for Medicare and Social Security. Who do you think Hillary is lying to about benefits - everyday Americans like you (who she deplores) or her Wall Street backers? ..."
"... Japan has been doing this deficit spending thing for 20+ years and borrowed an enormous amount of money. It has not solved anything. Growth continues to be elusive. Progressive economists keep whistling by the graveyard. And the conservatives just want to cut taxes. Both groups look like medieval doctors who prescribe bloodletting no matter what the illness is. Oh, the dismal science! ..."
"... She proudly proclaimed that her programs would not add to the national debt implying no increase in deficit spending. She ridiculed Trump because his tax plan would add significantly to the deficit and national debt. Clearly she wants to portray an image of fiscal responsibility and Wallace's question allowed her to go down that path. ..."
Oct 24, 2016 | cepr.net
At the debate last night, moderator Chris Wallace challenged both candidates on the question of cutting Social Security and Medicare. The implication is that the country is threatened by the prospect of out of control government deficits. The question was misguided on several grounds.

First, as a matter of law the Social Security program can only spend money that is in the trust fund. This means that, unless Congress changes the law, the program can never be a cause of runaway deficits.

Second, it is important to note that the size of the projected shortfall in the Medicare Part A program (the portion funded by its own tax) has fallen sharply in the Obama years. The shortfall for the 75-year planning horizon was projected at 3.53 percentage points of payroll in 2009, the first year of the Obama presidency. It has now fallen by 80 percent to just 0.73 percent of payroll. This reduction is due to a sharp slowdown in the projected growth of health care costs. Some of this predates the Affordable Care Act (ACA), but some of the slowdown is undoubtedly attributable to the impact of the ACA.

Anyhow, the implication of Wallace's question, that these programs are somehow out of control and require some near term fix, is not supported by the data. We will have to make changes to maintain full funding for Social Security, but there is no urgency to this issue.

On the more general point of deficits, the country's problem since the crash in 2008 has been deficits that are too small, not too large. The main factor holding back the economy has been a lack of demand, not a lack of supply. Deficits create more demand, either directly through government spending or indirectly through increased consumption. If we had larger deficits in recent years we would have seen more GDP, more jobs, and, due to a tighter labor market, higher wages.

The problem of too small deficits is not just a short-term issue. A smaller economy means less investment in new plant and equipment and research. This reduces the economy's capacity in the future. In the same vein, high rates of unemployment cause people to permanently drop out of the labor force, reducing our future labor supply if these people become unemployable. (Having unemployed parents is also very bad news for the kids who will have worse life prospects.)

The Congressional Budget Office now puts potential GDP at about 10 percent lower for 2016 than its projection from 2008, before the recession. Much of this drop is due the decision to run smaller deficits and prevent the economy from reaching its potential level of output. We can think of this loss of potential output as a "austerity tax." It currently is at close to $2 trillion a year or more than $6,000 for every person in the country.

It is unfortunate that Wallace chose to devote valuable debate time to a non-problem while ignoring the huge problem of needless unemployment and lost output due to government deficits that are too small.

WDG • 4 days ago
On Chris Wallace's question, we know now from Hillary Clinton's Wall Street speeches that her plan on debt and entitlements is to support the elitist Bowles-Simpson project, the centerpiece of which was raising the age for Medicare and Social Security. Who do you think Hillary is lying to about benefits - everyday Americans like you (who she deplores) or her Wall Street backers?

pieceofcake 4 days ago

and the nerve of this Wallace dude and the nerve of all these other... so called journalist on this show?

Wallace even didn't notice - the whole time!! - that it was Alec Baldwin -(and not Trump) - who answered his silly questions - and then the nerve of the so called 'media' to praise Wallace - that he didn't notice that Alec Baldwin answered his questions.

... ... ...

NN 4 days ago
I am perfectly fine with running deficits to get out of a recession and compensate for temporary shortfall in private demand. Isn't this the original idea behind deficit spending? But we are 7 years out of a recession.

Japan has been doing this deficit spending thing for 20+ years and borrowed an enormous amount of money. It has not solved anything. Growth continues to be elusive. Progressive economists keep whistling by the graveyard. And the conservatives just want to cut taxes. Both groups look like medieval doctors who prescribe bloodletting no matter what the illness is. Oh, the dismal science!

Paul NN 4 days ago
The Japanese yen is severely overvalued and therefore Japan's exports no longer can sustain GDP growth as they did in the past. Combined with Japan's anemic consumer demand, there is nothing but government spending to spur growth. If Japan now cut its deficit spending, its economy would collapse.
michael garneau carolindenver 2 days ago
My point is that American health care is profit driven. The private health insurer companies drive up the costs in all sectors of health care - whether that be for a simple phlebotomy test or a urinary catheter or...., or for a visit to a cardiologist after initial treatment for angina in an emergency dep't.

Health care should be considered a basic human right in any country and not one that is affected by the amount a person can pay - or the quality of private insurance a person can afford. I worked in the field for 33 years before retiring and what I saw was, in many cases, very sad and unfortunate. Those who had money went on with their lives and those who did not often simply died. That is no way to manage any society.

carolindenver michael garneau a day ago
Dear Michael,I am in TOTALl agreement with you but, as a very satisfied Kaiser Permanente member, I am a little defensive about maligning the term "HMO" which, I believe, is a beacon of hope for "Best Practices" in our current profit driven health delivery mess. I am a retired RN who watched first hand as the system became ruled by consolidation and greed. I remember in the 1980s being told that consolidation would bring cost down. What a joke that was. So I am working for single payer, Medicare for all. Carol
stewarjt 4 days ago
"It is unfortunate that Wallace chose to devote valuable debate time to a
non-problem while ignoring the huge problem of needless unemployment
and lost output due to government deficits that are too small." -D. Baker

That's Wallace's job and he does it expertly.

JaaaaaCeeeee stewarjt 4 days ago
Well, not so much expertly as doggedly, with enthusiasm, and without letting anything like arithmetic or reality interfere.
Francisco Flores 4 days ago
We should have a Full Employment Fiscal Policy coupled with a Federal Job Guaranty would put an end to this discussion. Funding the entitlements are not an issue - although the law may need to be revised - as the government can issue its currency without a problem - inflation being the constraint. (The increase in demand for apartments, cable subscriptions, and shuffleboards are unlikely to trigger uncontrolled inflation.)
AlanInAZ • 4 days ago
Dean thinks the debt is not a problem but the majority of voters Clinton was trying to reach probably do think it is a problem. She proudly proclaimed that her programs would not add to the national debt implying no increase in deficit spending. She ridiculed Trump because his tax plan would add significantly to the deficit and national debt. Clearly she wants to portray an image of fiscal responsibility and Wallace's question allowed her to go down that path.
AlanInAZ NP 4 days ago
I did not say that she did not propose to increase spending - just that she would not increase the debt because everything is "paid for". If everything is paid for by tax increases then there is no near term stimulus to the overall economy. There may be long term benefits if the projects are worthwhile but that will take years to surface. She also declined to defend the benefits of fiscal stimulus after the financial crisis. People hear what they want to hear from these debates.
NP AlanInAZ 4 days ago
I think you are wrong about the near term benefits of taxing wealthy people and then using that money for public spending. The propensity of the wealthy for spending is low and therefore if you take some of their money and spend it it will be stimulative.
AlanInAZ NP 3 days ago
I am aware of this ptc argument but find it weak. I know plenty of "wealthy" couples who save very little. Anyhow, even if there is some merit to the argument why not borrow now at almost zero cost and ensure the maximum stimulus.

Another factor - public spending may not find its way into the lowest income levels of our society. Infrastructure projects, for example, will enrich contractors and materials industries as much or more than the individual workers. Also, they take a long time to get started as there really is no such thing as shovel ready. Couple the protracted startup with higher taxes and you get very little near term benefit.

Francisco Flores AlanInAZ 3 days ago
This whole discussion is of course mute since running deficits does not crowd out investing. And increasing the debt has no negative implication other then the political effects. The government can print money and spend money. If it runs deficits it can keep interest rates low by buying securities.
jumpinjezebel 4 days ago
We need to stimulate DEMAND Now to get the economy revved up and the money flowing. Best way is the change Social Security such that it doesn't kick in until the earner has made $10,000 (i.e.) and account for that by lifting the cap accordingly such that 90% of all earned income is taxed: just as it used to be when Reagan/?? fixed it. Just think what all that money would do in the economy. It would not be used to by back stock or inflate golden parachutes. It would be immediately spent. It would be DEMAND.

[Oct 24, 2016] The Peter Peterson-Washington Post deficit hawk gang keep trying to scare us into cutting Social Security and Medicare

Oct 24, 2016 | economistsview.typepad.com

anne : October 23, 2016 at 02:04 PM , 2016 at 02:04 PM

http://cepr.net/blogs/beat-the-press/the-173-trillion-austerity-tax-in-the-infinite-horizon

October 23, 2016

The $173 Trillion Austerity Tax in the Infinite Horizon
By Lara Merling and Dean Baker

The Peter Peterson-Washington Post deficit hawk gang keep trying * to scare us into cutting Social Security and Medicare. If we don't cut these programs now, then at some point in the future we might have to cut these program or RAISE TAXES.

There are many good reasons not to take the advice of the deficit hawks, but the most immediate one is that our economy is suffering from a deficit that is too small, not too large. The point is straightforward, the economy needs more demand, which we could get from larger budget deficits. More demand would lead to more output and employment. It would also cause firms to invest more, which would make us richer in the future.

The flip side in this story is that because we have not been investing as much as we would in a fully employed economy, our potential level of output is lower today than if we had remained near full employment since the downturn in 2008. The Congressional Budget Office estimates that potential GDP in 2016 is down by 10.5 percent (almost $2.0 trillion) from the level it had projected for 2016 back in 2008, before the downturn.

This is real money, over $6,200 per person. But if we want to have a little fun, we can use a tactic developed by the deficit hawks. We can calculate the cost of austerity over the infinite horizon. This is a simple story. We just assume that we will never get back the potential GDP lost as a result of the weak growth of the last eight years. Carrying this the lost 10.5 percent of GDP out to the infinite future and using a 2.9 percent real discount rate gives us $172.94 trillion in lost output. This is the size of the austerity tax for all future time. It comes to more than $500,000 for every person in the country.

By comparison, we can look at the projected Social Security shortfall for the infinite horizon. According to the most recent Social Security Trustees Report, ** this comes to $32.1 trillion. (Almost two thirds of this occurs after the 75-year projection period.) Undoubtedly many deficit hawks hope that people would be scared by this number. But compared to the austerity tax imposed by the deficit hawks, it doesn't look like a big deal.

* http://www.nytimes.com/2016/10/22/opinion/ignoring-the-debt-problem.html

** https://www.ssa.gov/OACT/TR/2016/VI_F_infinite.html#1000194

[Oct 23, 2016] How 401(k) Plans Stack the Deck to Get Chump Investors to Sign Up for Doggy Sponsor Funds

Notable quotes:
"... When I signed up for a 401k at my previous job, I wanted to invest in the S&P index fund, as it was the lowest cost option. Given that Putnam used their own fund, it charged 0.35% at a time when Vanguard was at 0.07% and Fidelity at 0.10%. ..."
"... Rule of 72 says that at 7% return for ten years would be $20,000 not $136K. ..."
"... Washington has proven itself incapable of managing its money (our taxes) prudently and efficiently because of our corrupt representatives putting their electoral and personal interests first. The 401K experiment has failed. Very few individuals will be able to rely on them for retirement security, and of those most hail from the higher income brackets. They do virtually nothing for retirement security for the vast, vast majority of the country. ..."
"... Social Security is a proven, cost effective, and reliable deliverer of retirement income for our entire population. 401K's will never come close, and in fact aren't worth shit to most people. But that is not what matters in Washington. ..."
"... The Plan administrator has a fiduciary obligation to manage the options. The administrator can put pressure to make non-Sponsor funds available. With a total company 401k of only about $5mm, I was able to pressure our 401K plan Sponsor to provide access to lower cost equivalent portfolios for investment options such as S&P 500, Russell 2000 and a long-term bond yield (via Vanguard and Fidelity). ..."
"... Difficult to reconcile this with the Department of Labor's new fiduciary rule, which reportedly requires financial advisers to place the interests of clients with retirement-saving accounts ahead of their own. I have read that it will be implemented sometime next year, assuming there are no additional delays. (hat tip Barry Ritholtz) ..."
Oct 23, 2016 | www.nakedcapitalism.com
Cocomaan October 21, 2016 at 6:56 am

Thanks for this analysis. I have a 403b through my institution of higher Ed, specifically Tiaa. Their funds are kind of lousy (compared, say, to a vanguard index) and there's little choice in which funds seem to be available from one institution to another.

The idea that workers will somehow sit down and process the numbers surrounding badly performing funds, and then redistribute, is a fantasy. Who has the financial literacy to do that? Like healthcare,it's another area of personal finance where people are expected to take on time consuming and complex administrative duties.

Mandatory 401s sounds just great. Can't wait. "You give me your money, you tell me where to put it among crappy options, wait forty years, and you may or may not ever see it again, based on the quality of your choices. Pleasure doing business with you."

Larry October 21, 2016 at 7:18 am

I love the last line, because it applies to almost everything in our society today: far more scrutiny and oversight. Thanks to Naked Capitalism for turning up the scrutiny.

Mark John October 21, 2016 at 7:59 am

We are going to have a fight on our hands if and when HRC gets elected. The fact that our politicians have gotten away with weakening New Deal programs that actually worked well is all the evidence I need to believe they are not finished with their attack.

Scott October 21, 2016 at 9:06 am

When I signed up for a 401k at my previous job, I wanted to invest in the S&P index fund, as it was the lowest cost option. Given that Putnam used their own fund, it charged 0.35% at a time when Vanguard was at 0.07% and Fidelity at 0.10%.

James October 21, 2016 at 10:29 am

If you put $10k into the fund at 35 bps, you'd have $136k at the end of 10 years (assuming 7% gross return). if you got it at 7 bps, you'd have $137k. Now, if you'd bought a loaded A share American Fund with a 5.75% sales load and a 65 bps expense ratio, you'd have $126k.

The principle of low fees is important, but you're effectively there with the 35 bps fund.

Rule of 72 October 22, 2016 at 1:12 pm

Rule of 72 says that at 7% return for ten years would be $20,000 not $136K.

griffen October 22, 2016 at 6:49 pm

that is 10k per annum as contribution. mathing on saturday can be hardi know

JW October 21, 2016 at 4:47 pm

exactly. then, what's the 401k management fee on top of that?

KYrocky October 21, 2016 at 10:03 am

"…investors might be vigilant enough to recognize that their interests are not being well served…"

Come on. Really. I would wager that the percentage of people knowledgeable and sophisticated enough to do so at well under 0.1% of the population. The entire system of 401 retirement plans has been constructed for the purpose of fleecing undisclosed fees from us suckers forced into these plans.

Washington has proven itself incapable of managing its money (our taxes) prudently and efficiently because of our corrupt representatives putting their electoral and personal interests first. The 401K experiment has failed. Very few individuals will be able to rely on them for retirement security, and of those most hail from the higher income brackets. They do virtually nothing for retirement security for the vast, vast majority of the country.

Social Security is a proven, cost effective, and reliable deliverer of retirement income for our entire population. 401K's will never come close, and in fact aren't worth shit to most people. But that is not what matters in Washington.

cdub October 21, 2016 at 10:56 am

I see this as akin to a Board of Driectors governance issue.

The Plan administrator has a fiduciary obligation to manage the options. The administrator can put pressure to make non-Sponsor funds available. With a total company 401k of only about $5mm, I was able to pressure our 401K plan Sponsor to provide access to lower cost equivalent portfolios for investment options such as S&P 500, Russell 2000 and a long-term bond yield (via Vanguard and Fidelity).

All it required was performing the minimums of being a 401k plan administrator. Quarterly monitoring of fund performance versus peers via a service like Morningstar (took 4 hours to prebuild screens that displayed QonQ, YonY and 3Yon3Y), pressing the Sponsor for alternatives and then refusing the steak dinner to discuss with the Sponsor. I mean for crying out loud this is really simple. And of course if your plan administrator isn't doing this minimum I'm sure they have fiduciary insurance so there are alternatives.

Of course many people aren't willing to ask/press these questions of their employer/HR. I've seen plans administered exceptionally well (utility with a union for about 1/3 of employees and small family energy firm) and poorly (some larger energy companies). Why somebody doesn't provides this administrator function as an outsource is beyond me. The real liability can be quite high and pushing off to a 3rd party who does just that would seem worth the $.

P Fitzsimon October 21, 2016 at 10:58 am

My 401K was administered by Fidelity and I believe there were no restrictions whatsoever. I could invest in any Fidelity fund or actually any fund through a brokerage account. If you didn't use a Fidelity brokerage account offered by the plan as an option your choices were restricted.

enzica October 21, 2016 at 12:12 pm

I think you meant 'dodgy', not 'doggy'.

Vatch October 21, 2016 at 2:12 pm

Yes, thank you. I was going to comment on that, but you're way ahead of me.

Doggy funds belong in the Antidote du jour.

Yves Smith Post author October 21, 2016 at 5:52 pm

No, I mean "doggy" as in the performance is bad. "That fund is a dog".

"Dodgy" means the ethics are questionable.

Mattie October 22, 2016 at 7:42 am

They are often dodgy too. Great-west/Empower does a real bait and switch on the options offered for certain 401A funds were there is deeply buried disclosure about proprietary versions charging much higher fees, than the term sheet prominently displayed as "this is what you're buying if you select this fund". This is a real racket

Arizona Slim October 21, 2016 at 5:01 pm

I'm of the mind that people should be investors because they *want* to, not because they *have* to. Even then, investing is not easy.

Can't help agreeing with Joe Nocera, who said that investing is a talent that most people will never have.

oceaniris October 22, 2016 at 1:15 pm

Yves, article and analysis insightful, thanks again. "Doggy" in title makes sense, but "dodgy" may apply as well to Fidelity specifically, read on. Stumbled on to Reuters write up by Tim McLaughlin about Fidelity this month and began a search for a new money management firm with a "fiduciary" bone in it's body: http://www.reuters.com/article/us-usa-fidelity-family-specialreport-idUSKCN1251BG .
Though the article indicates Fidelity's behavior is not "illegal nor unethical" – Yale University law professor John Morley said Fidelity runs the risk of losing investors by competing with the funds that serve them.

"What they're doing is not illegal, not even unethical," Morley said. "But it's entirely appropriate for mutual fund investors to take their money elsewhere because Fidelity has made a decision to take away some of their potential returns."

Many of us are trapped in the DC funds our employers establish for us. As cdub referenced, pressuring plan administrators is one way to change options or broaden offerings – but one needs to understand what pressure to apply.

Morely said it best and I will move on…..
.

Chauncey Gardiner October 22, 2016 at 6:35 pm

Difficult to reconcile this with the Department of Labor's new fiduciary rule, which reportedly requires financial advisers to place the interests of clients with retirement-saving accounts ahead of their own. I have read that it will be implemented sometime next year, assuming there are no additional delays. (hat tip Barry Ritholtz)

[Oct 21, 2016] Clinton Promises to Increase Social Security Tax

www.strategic-culture.org

So: Hillary Clinton has already said that she will raise Social Security taxes on people who make less than $118,500 per year, but Donald Trump has not indicated whether he will impose Social Security taxes on income above $118,500 per year.

Other proposals that have been pushed in order to "replenish the Social Security Trust Fund" - or to achieve the long-term stability of the Social Security system - mainly focus on three approaches:

One is privatizing Social Security, as Wall Street wants, and which proposal is based on private gambles that the assets that are purchased by the Wall Street firm for the individual investor will continually increase in value, never plunge, and never be reduced by annual charges to pay Wall Street's fees for management and for transactions, throughout the worker's career until retirement.

Another approach is gradually reducing the inflation-adjuster for benefits, the inflation-adjusted value of the benefits that Social Security recipients will be receiving. President Obama had been trying to get congressional Republicans to agree with him to do that (which some call "the boiling-frog approach" because it's applied so gradually), but they continued to hold out for privatizing Social Security, and thus nothing was done.

And the third option is to increase the retirement-age, as Obama also wanted to do (and which is really just another form of "boiling-frog approach"), but also couldn't get congressional Republicans to accept that. (Trump's comment to "Not increase the age and to leave it as it is" is a clear repudiation by him of this approach. And his promise to not increase taxes would, if taken seriously, also prohibit him from endorsing Hillary Clinton's approach.)

Investigative historian Eric Zuesse is the author, most recently, of They're Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST'S VENTRILOQUISTS: The Event that Created Christianity.

[Oct 20, 2016] Blackstone Groups Tony James, likely to be Clintons Sec of Treasury, advocates a hedgfund enriching scheme involving MANDATORY government savings plan on all Amercans

Notable quotes:
"... Mr. James recommended a proposal by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School in New York, to create a retirement savings plan for everyone based on 3% annual salary contributions shared equally among employees and employers. The federal government would guarantee a 2% return, through a modest insurance premium on such accounts . "With corporate profits at an all-time high, this should be a manageable burden," he said, adding that the approach "is going to require us to look beyond the next election cycle." ..."
www.zerohedge.com

Cheapie -> css1971 Oct 19, 2016 9:20 AM

Blackstone Group's Tony James, likely to be Clinton's Sec of Treasury, advocates a hedgfund enriching scheme involving MANDATORY government savings plan on all Amercans.

Tony James head of the crooked Blackstone Group, a giant hedge fund connected to many state pension funds, is likely to be Clinton's Treasury Sec. Hedge funds have donated 125 million to Crooked Hillary, 20k to Trump. This is thievery on the grand, epic biblical scale with the usual bs about "helping" people.

"We absolutely have to start now," Mr. James said at a Center for American Progress conference in Washington on Wednesday. " It has to be mandated . Nothing short of a mandate will provide future generations a secure retirement."

Mr. James recommended a proposal by Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School in New York, to create a retirement savings plan for everyone based on 3% annual salary contributions shared equally among employees and employers. The federal government would guarantee a 2% return, through a modest insurance premium on such accounts . "With corporate profits at an all-time high, this should be a manageable burden," he said, adding that the approach "is going to require us to look beyond the next election cycle."

Mr. James also called for redirecting $120 billion in annual retirement tax deductions to give every worker a $600 annual tax credit to save for retirement.

small search brings up deluge of corruption, payoffs etc.

  • http://www.reuters.com/article/us-blackstone-lawsuit-idUSBRE97S0NA20130829
  • http://blogs.wsj.com/corruption-currents/tag/blackstone-group/
  • http://www.businessinsider.com/sec-probes-banks-buyout-shops-over-dealings-with-sovereign-funds-2011-1
  • http://www.ibtimes.com/political-capital/hillary-clinton-denounces-corporate-crime-while-accepting-cash-blackstone-firm
  • http://www.economicpopulist.org/content/one-thousand-names-fraud
  • https://www.ft.com/content/0cee0c66-1e3e-11e4-bb68-00144feabdc0
  • http://nypost.com/2014/08/14/seaworld-shares-dive-but-blackstone-on-a-perfect-wave/
  • https://libertyblitzkrieg.com/2014/05/05/leaked-documents-show-how-blackstone-fleeces-taxpayers-via-public-pension-funds/
  • https://pando.com/2014/05/05/leaked-docs-obtained-by-pando-show-how-a-wall-street-giant-is-guaranteed-huge-fees-from-taxpayers-on-risky-pension-investments/
  • [Sep 27, 2016] Contrary to What AP Tells You, Social Security Is NOT a Main Driver of the Countrys Long-term Budget Problem

    Sep 27, 2016 | economistsview.typepad.com

    anne : Tuesday, September 27, 2016 at 05:05 AM

    http://cepr.net/blogs/beat-the-press/contrary-to-what-ap-tells-you-social-security-is-not-a-main-driver-of-the-country-s-long-term-budget-problem

    September 27, 2016

    Contrary to What AP Tells You, Social Security Is NOT a Main Driver of the Country's Long-term Budget Problem

    The New York Times ran a short Associated Press piece * on Social Security and "why it matters." The piece wrongly told readers that Social Security is "a main driver of the government's long-term budget problems." This is not true. Under the law, Social Security can only spend money that is in its trust fund. If the trust fund is depleted then full benefits cannot be paid. The law would have to be changed to allow Social Security to spend money other than the funds designated for the program and in that way contribute to the deficit.

    The piece also plays the "really big number" game, telling readers:

    "the program faces huge shortfalls that get bigger and bigger each year.In 2034, the program faces a $500 billion shortfall, according to the Social Security Administration. In just five years, the shortfalls add up to more than $3 trillion.

    "Over the next 75 years, the shortfalls add up to a staggering $139 trillion. But why worry? When that number is adjusted for inflation, it comes to only $40 trillion in 2016 dollars - a little more than twice the national debt."

    Since this is talking about shortfalls projected to be incurred over a long period of time, it would be helpful to express the shortfall relative to the economy over this period of time, not debt at a point in time. This is not hard to do, since there is a table ** right in the Social Security trustees report that reports the projected shortfall as being equal to 0.95 percent of GDP over the 75-year forecasting horizon. By comparison, the costs of the war in Iraq and Afghanistan came to around 1.6 percent of GDP at their peaks in the last decade.

    The piece also gets the reason for the projected shortfall wrong. It tells readers:

    "In short, because Americans aren't having as many babies as they used to. That leaves relatively fewer workers to pay into the system. Immigration has helped Social Security's finances, but not enough to fix the long-term problems.

    "In 1960, there were 5.1 workers for each person getting benefits. Today, there are about 2.8 workers for each beneficiary. That ratio will drop to 2.1 workers by 2040."

    Actually the drop in the birth rate and the declining ratio of workers to beneficiaries had long been predicted. The reason that the program's finances look worse than when the Greenspan commission put in place the last major changes in 1983 is the slowdown in wage growth and the upward redistribution of wage income so that a larger share of wage income now goes untaxed.

    In 1983, only 10 percent of wage income was above the payroll tax cap. Today it is close to 18 percent. This upward redistribution explains more than 40 percent *** of projected shortfall over the next 75 years.

    It is also worth noting that the loss in wage income for most workers to upward redistribution swamps the size of any tax increases that could be needed to maintain full funding for the program. While AP wants to get people very worried over possible tax increases in future years, it would rather they ignore the policies (e.g. trade, Federal Reserve policy, Wall Street policy, patent policy) that have taken money out of the pockets of ordinary workers and put it in the hands of the rich.

    * http://www.nytimes.com/aponline/2016/09/27/business/ap-us-campaign-2016-why-it-matters-social-security.html

    ** https://www.ssa.gov/OACT/TR/2016/VI_G2_OASDHI_GDP.html#200732

    *** http://www.cepr.net/index.php/blogs/cepr-blog/the-impact-of-the-upward-redistribution-of-wage-income-on-social-security-solvency

    -- Dean Baker

    Reply Tuesday, September 27, 2016 at 05:05 AM Foreign Kidnappers said in reply to anne... , Tuesday, September 27, 2016 at 05:21 AM

    fewer workers to pay into the system. Immigration has helped Social Security's finances, but not enough to fix the long-term
    "
    ~~dB~

    Fewer workers who on balance draw smaller pay-check-s within a World of rising prices. Can you see the long trend of inflation? Do you see how the price of a t-bond has risen steady on during the past 35 years? As the bond price rises the yield falls. Do you see how much?

    This is a long term unstoppable inflation that raises the price of all ships. All nursing homes and all ships!

    Holy
    ship --

    Paine -> anne... , Tuesday, September 27, 2016 at 07:23 AM
    Dean in high gear
    Remove the taxable compensation exclusions and caps
    Julio -> anne... , Tuesday, September 27, 2016 at 01:39 PM
    That's 139 Trillion with a capital "T", and that rhymes with "P", and that stands for pool!

    And don't look at guys like me to save Social Security. My unfunded liability for kids shoes alone is over $20,000, and that's assuming they leave home at 18.

    anne : , Tuesday, September 27, 2016 at 05:08 AM
    http://cepr.net/publications/op-eds-columns/time-to-treat-bank-ceos-like-adults

    September 26, 2016

    Time to Treat Bank CEOs Like Adults
    By Dean Baker

    The country's major banks are like trouble-making adolescents. They constantly get involved in some new and unimagined form of mischief. Back in the housing bubble years it was the pushing, packaging and selling of fraudulent mortgages. Just a few years later we had JP Morgan, the country's largest bank, incurring billions in losses from the gambling debts of its "London Whale" subsidiary. And now we have the story of Wells Fargo, which fired 5,300 workers for selling phony accounts to the bank's customers.

    It is important to understand what is involved in this latest incident at Wells Fargo. The bank didn't just discover last month that these employees had been ripping off its customers. These firings date back to 2011. The company has known for years that low-level employees were ripping off customers by assigning them accounts -- and charging for them -- which they did not ask for. And this was not an isolated incident, 5,300 workers is a lot of people even for a huge bank like Wells Fargo.

    When so many workers break the rules, this suggests a problem with the system, not bad behavior by a rogue employee. And, it is not hard to find the problem with the system. The bank gave these low level employees stringent quotas for account sales. In order to make these quotas, bank employees routinely made up phony accounts. This practice went on for five years.

    As it became aware of widespread abuses, it's hard to understand why the bank would not change its quota system for employees. One possibility is that they actually encouraged this behavior, since the new accounts (even phony accounts) would be seen as good news on Wall Street and drive up the bank's stock price.

    Certainly Wells Fargo CEO John Stumpf, as a major share and options holder, stood to gain from propping up the stock price, as pointed out by reporter David Dayan. In keeping with this explanation, Carrie Tolsted, the executive most immediately responsible for overseeing account sales, announced her resignation and took away $125 million in compensation. This is equal to the annual pay of roughly 5,000 starting bank tellers at Wells Fargo. That is not ordinarily the way employees are treated when they seriously mess up on the job.

    Regardless of the exact motives, the real question is what will be the consequences for Stumpf and other top executives. Thus far, he has been forced to stand before a Senate committee and look contrite for four hours. Stumpf stands to make $19 million this year in compensation. That's almost $5 million for each hour of contrition. Millions of trouble-making high school students must be very jealous.

    There is little reason for most of us to worry about Stumpf contrition, or lack thereof. His bank broke the law repeatedly on a large scale. And, he was aware of these violations, yet he nonetheless left in place the incentive structure that caused them. In the adult world this should mean being held accountable.

    This is not a question of being vindictive towards Stumpf, it's a matter of getting the incentives right. If the only price for large-scale law breaking by the top executives of the big banks is a few hours of public shaming, but the rewards are tens of millions or even hundreds of millions in compensation, then we will continue to see bankers disregard the law, as they did at Wells Fargo and they did on a larger scale during the run-up of housing bubble.

    There is another aspect to the Wells Fargo scandal that is worth considering. Insofar as the bank was booking revenue on accounts that didn't exist, it was also ripping off the banks' shareholders. The shareholders' interests are supposed to be protected by the bank's board of directors.

    It doesn't seem the shareholders got much help there....

    anne -> anne... , Tuesday, September 27, 2016 at 06:09 AM
    http://www.nytimes.com/2016/09/27/business/dealbook/wells-fargo-workers-claim-retaliation-for-playing-by-the-rules.html

    September 26, 2016

    Wells Fargo Workers Claim Retaliation for Playing by the Rules
    By STACY COWLEY

    In two lawsuits seeking class-action status, workers say they were fired or demoted for acting ethically and falling short of unrealistic sales goals.

    Paine -> anne... , Tuesday, September 27, 2016 at 07:31 AM
    Really important
    pgl -> anne... , Tuesday, September 27, 2016 at 08:19 AM
    Rehire the staff. Fire the CEO.
    EMichael -> anne... , Tuesday, September 27, 2016 at 09:06 AM
    This isn't going to be popular in here, and I do not even like saying it, but the timing of these lawsuits suggest to me ambulance chasing.

    Unless someone can tell me how it is possible for these employees to accept this treatment for years and years until the CFPB fines Wells Fargo.

    pgl -> EMichael... , Tuesday, September 27, 2016 at 09:18 AM
    Cellino & Barnes? I hope these plaintiffs have been attorneys than that. But yea - having a government agency make your case is a good idea as I'm sure top Wells Fargo management has hired some nasty defense attorneys.
    EMichael -> pgl... , Tuesday, September 27, 2016 at 09:26 AM
    Not my point.

    California has some of the strongest whistle blower protections in the country.

    I find it remarkable that(and I have tried but failed to find any evidence) not one of these mistreated employees filed a lawsuit years ago. The firings started in 2011. Are you telling me these employees sat around for 5 years without a single one of them taking action?

    The other part that bothers me is this bonus level goal. Wells Fargo is not the only company in the world that sets their bonus levels at points that are almost impossible to obtain.

    I do not see why that is an issue at all.


    pgl -> EMichael... , Tuesday, September 27, 2016 at 09:46 AM
    Not talking whistle blower protections. Firms like Cellino and Barnes only take cases where they know they can win. Then again - I am talking about a dirt bag law firm. Why bring a case when the odds are stacked against you? But I think what you are pointing out is they is a new sheriff in town with respect to gathering the facts - which of course is always key in winning any law suit.
    pgl -> EMichael... , Tuesday, September 27, 2016 at 09:47 AM
    "not one of these mistreated employees filed a lawsuit years ago".

    A lot of women who have been raped don't bother to prosecute the creep thinking they can't win anyway. This may have been the thinking of these employees until now.

    EMichael -> pgl... , Tuesday, September 27, 2016 at 10:04 AM
    0 for 5300 is mind boggling.

    I am not saying the law firm is incompetent, I am saying it seems to me they are taking a case where WF might not want to deal with more bad pr and settle.

    The only people, from what I have seen of this case, that have a chance to win on the merits are those who claimed they called the ethics department at Wells and were fired for that action.

    Julio -> EMichael... , Tuesday, September 27, 2016 at 11:19 AM
    Yes, the lawyers are circling like vultures.
    But it just shows that lawyers evaluate cases before taking them on, and that the cases' prospects depend on public opinion.

    In addition, it is much easier for people to feel empowered, talk to lawyers, and fight back if they don't feel isolated and vulnerable to retaliation.

    cm -> anne... , Tuesday, September 27, 2016 at 09:35 AM
    "the executive most immediately responsible for overseeing account sales, announced her resignation and took away $125 million in compensation. ... That is not ordinarily the way employees are treated when they seriously mess up on the job."

    Based on (public) evidence available to me, I have to inform you that this *is* ordinarily the way how the higher executive ranks are treated when the have to leave because of a serious blunder. In many cases, the termination package is written into their contract, with exceptions mostly for criminal malfeasance, breach of contract, and that type of thing, or if the management/board deems it is better for everybody else to "convince" the undesired executive to leave without a big splash, then they will sweeten the deal.

    As I have seen in tech, in many companies the rank-and-file are treated to similar arrangements, only the amounts are several orders of magnitude lower. But it is not very common for somebody to be outright fired without severance. There are commonly provisions like a few weeks of salary continuation per year of service, or offering a small sum to get a quick exit instead of a drawn out and arduous process of managing somebody out and "documenting" everything.

    EMichael -> anne... , Tuesday, September 27, 2016 at 10:52 AM
    Here's the part that bothers me about this.(and once again I will mention that I feel almost dirty defending bank execs).

    " large-scale law breaking by the top executives of the big banks".

    I don't get this at all. It seems that setting huge bonus numbers is somehow large scale law breaking.

    But let's look at the real numbers is some perspective here(which is usually Baker's thing).

    The idea seems to be that Stumpf came up with this idea to open accounts that people did not know they had. Those accounts would both generate revenue and allow him to talk about the growth of accounts in the bank.

    I have seen nothing that shows how many accounts were opened illegally(I would like to see that) and nothing to show how many legal accounts were opened during this time frame. With that info you could put this into perspective how Stumpf and other high level execs gained from this action.

    That being said I know one thing. People who had accounts opened illegally were returned the fees that they paid. That total is $5 million. Not a lot of revenue but it kind of makes sense. You cannot charge people a lot of fees with products they do not even know they have. there is no way in the world that anyone can think there was going to be a lot of money made on accounts that were, to all intents and purposes, dead.

    Meanwhile, in the time period that this case covers, Wells Fargo had profits of almost $100 billion. To think the CEO is going to worry about such an insignificant amount of revenue by "planning" an illegal action is absurd.

    I am all in in the bank CEOs committing fraud during the bubble, there was a huge amount of profit to be made. But to think this thing came from the top, or even five or six levels down, is silly. There is no reason.

    This was the case of front line people committing fraud to make money. It was also the case of their managers to encourage and/or allow that fraud to make money.

    Wells certainly deserves the punishment for allowing this fraud to happen, but thinking it originated in the executive offices makes no sense from an standpoint.

    Paine -> EMichael... , Tuesday, September 27, 2016 at 11:38 AM
    It takes courage to defend top management
    Of a oligop bank
    Peter K. -> Paine ... , Tuesday, September 27, 2016 at 01:01 PM
    EMichael hates lefites. He gets off on baiting them (us).
    paine -> Peter K.... , -1
    Let us enjoy the attention

    [Mar 04, 2016] Naïve Siegelism

    www.nakedcapitalism.com

    Jim Haygood , March 3, 2016 at 9:55 am

    'a retirement plan ultimately depends on the future earning power of the economy'

    That's why all modern pension plans hold some equities.

    An individual's cost to own one diversified equity fund and one diversified bond fund is about 0.1% per year. Whereas the expected benefit (compared to SocSec's all Treasury portfolio) is about 3.0% annually.

    The seminal research pointing to an equity premium was done in the U.S. in the early 1960s, resulting in Nobel prizes for several participants. A half century on, their work has had zero effect on the politically petrified SocSec system - 20% funded, headed for zero in 2033.

    Jim Haygood , March 3, 2016 at 11:55 am

    Total bond market fund, 0.07% annual expense ratio (not a reco; just one example):

    https://personal.vanguard.com/us/funds/snapshot?FundId=0928&FundIntExt=INT

    Large cap index fund, 0.05% expense ratio (again not a reco, just an example):

    https://personal.vanguard.com/us/funds/snapshot?FundId=0968&FundIntExt=INT

    Equity premium of 6% gives 3% net benefit (vs. 100% Treasuries) in a 50/50 mix with bonds:

    "The equity premium, which is defined as equity returns less bond returns, has been about 6% on average for the past century."

    http://www.investopedia.com/terms/e/epp.asp#ixzz41rIVV14V

    Seminal research - Fisher/Lorie paper of 1964, establishing the equity premium and founding CRSP which serves as the database for nearly all U.S. equities research:

    http://www.crsp.com/50/images/rates%20of%20return%20paper.pdf

    Nobel Prizes 1990 - Harry Markowitz, Merton Miller, William Sharpe - for Modern Portfolio Theory, which implies in conjunction with the equity premium that the optimal risk-reward portfolio should include equities:

    http://www.britannica.com/topic/Winners-of-the-Nobel-Prize-for-Economics-1856936

    Zero effect: "Since the beginning of the Social Security program [in 1935], all securities held by the trust funds have been issued by the Federal Government."

    https://www.ssa.gov/oact/progdata/investheld.html

    Headed for zero: "The dollar level of the theoretical combined trust fund reserves declines beginning in 2020 until reserves become depleted in 2034." - SocSec Trustees Report 2015, page 3.

    https://www.ssa.gov/oact/tr/2015/tr2015.pdf

    (The 2033 depletion date was from last year's trustees report; sorry.)

    likbez , March 3, 2016 at 6:39 pm
    This all is "water under the bridge." Called Naïve Siegelism

    http://softpanorama.biz/Skeptics/Financial_skeptic/Protecting_your_401K/Protecting_401K_from_yourself/naive_siegelism.shtml

    Can you spell "secular stagnation" ? And can you explain to us what returns are expected for stocks in the "secular stagnation" regime in comparison with bonds?

    And what will you do if S&P500 drops to 660 like it did in 2008. And stays at this level for a couple of years like oil prices recently did.

    BTW LTM was also founded by Nobel price winners: (https://en.wikipedia.org/wiki/Long-Term_Capital_Management ):

    LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".[3]

    [Jan 10, 2016] Comprehensive financial planners now do a lot of the work that family attorneys did in generations past

    www.nakedcapitalism.com

    Jim in SC , January 9, 2016 at 8:57 pm

    I think that comprehensive financial planners now do a lot of the work that family attorneys did in generations past. This is partly because the sort of person who goes to law school now is much more intellectual -- and thus often a little more introverted and socially inept–than in years past. Watergate caused that, I believe. All of a sudden everybody was interested in the mechanism of the law. Fifty years ago a right-of-way agreement from the local utility was three sentences. Now it's five pages single spaced, in some English derived technical gibberish.

    Anyway, you really need the professional when somebody dies. That professional is far more likely to be the financial planner than the lawyer these days, in part because the financial planner is paid by assets under management, rather than hundreds of dollars per hour, so the financial planner would be paid anyway. I think it is rare to see attorneys designated as executors of estates these days. They charge six percent by statute, and that's too much for many people's blood. God forbid that one should be appointed to manage a trust with multiple beneficiaries. They'll stretch it out thirty years.

    [Dec 24, 2015] In 2012, Greek pension funds, which were obliged under Greek law to own government bonds were hit by debt write-down and lost about 10 billion euros or roughly 60 percent of their reserves

    econbrowser.com
    Jeffrey J. Brown

    In reading the following NYT article about the Greek Crisis, with an emphasis on pensions and pensioners, I recalled Professor Hamilton's post on the US Social Security system. To borrow Warren Buffet's phrase about finding out who is skinny dipping when the tide goes out, I wonder if the tide has just receded faster for Greece than for the US, in terms of over promised and under-funded Social Security and pension plans, especially in regard to vastly underfunded state and local government pension plans. And of course, federal government owns both the asset and the liability for the Social Security Trust Fund

    http://www.nytimes.com/2015/06/09/world/europe/greece-pensions-debt-negotiations-alexis-tsipras.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0

    Greece's social security system was troubled even before the crisis, already divided into more than 130 funds and offering a crazy quilt of early-retirement options that were a monument to past political patronage.

    In 2012, the pension funds, which were obliged under Greek law to own government bonds*, were hit by a huge debt write-down as those bonds plummeted in value. As a result they lost about 10 billion euros, or $11.1 billion - roughly 60 percent of their reserves.

    Greece's creditors, seeking to make the Greek labor market more competitive, insisted that the government reduce the amount companies and workers must contribute toward pensions. And they insisted that Greece reduce its minimum wage so that those who do contribute have smaller outlays.

    At the same time, the pension system was becoming an even bigger component of the social safety net, absorbing thousands. People like Ms. Meliou retired early, either because of the sale of state-owned companies, because they feared their salaries would be cut and thus their pensions would be smaller, or simply because their businesses failed. Few are living comfortably, and many support unemployed children.

    *Remind you of another system?

    [Dec 24, 2015] An Aging Society Is No Problem When Wages Rise

    Notable quotes:
    "... Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied. ..."
    "... Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich. ..."
    "... Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings. ..."
    economistsview.typepad.com

    Dean Baker:

    An Aging Society Is No Problem When Wages Rise: Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.
    While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.
    We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)
    The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.
    For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.

    RC AKA Darryl, Ron said...

    Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied.

    DrDick -> Darryl, Ron...

    "they will need to raise the payroll tax cap on Social Security"

    Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich.

    Bud Meyers -> DrDick...

    Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings.

    mulp

    "We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised."

    Illogical!

    If wages of younger workers were maintaining the same gains over their previous generation peers, and in fact, gained even more due to reduced supply of workers relative to steady demand for labor as the large boomer cohort leaves the labor force to the smaller subsequent generation.

    Instead, conservative free lunch economicntheory, itself grossly illogical, has led to cuts in wages as a matter of policy based on the idea that workers are not consumers, so gdp can grow faster if workers are paid less, leading to a larger supply of consumers with pockets of money being created by the tinker bell of wealth.

    While changing demographics might require higher payroll taxes, say younger generations having more kids than the boomer generation and being stay at home parents than boomers were, in reality, the younger generations are moving further along the trend line of working more, just like the boomers.

    Incomes are falling leading to reduced gdp growth because that is driven by labor incomes which are labor costs, and lower gdp means lower wage income means lower tax revenue with a fixed tax rate.

    Social Security has structural problems simply because conservatives have sold Americans a bill of goods, promising something for nothing.

    TANSTAAFL

    As a leading edge boomer, I've had the best of both good and bad policy. Great big government benefits when young to give me a great start in life, followed by bad policy tax hikes for me paid for by screwing the generation of children I did not have, and now 68, getting the great big government Social Security benefits Reagan signed into law in 1983, doubly great because, my big government start in life lasted to 2001 and made me very rich from simply working and living like my parents who were shaped by the depression. And Republicans can not cut my benefits because I'm hidden in the biggest block of the Republican base who almost all depend on Social Security.

    [Nov 24, 2015] James Poterba Interview

    economistsview.typepad.com

    James Poterba is interviewed by the Richmond Fed:

    ... ... ... EF: More recently, one of your areas of research has been retirement finance and the investment decisions of workers thinking about their retirement. In recent decades, we've seen a tremendous shift in the private sector from defined benefit retirement programs to defined contribution programs. Was this mainly a response by firms to the tightening of the regulatory environment for defined benefit plans, to changing demand from workers, or to something else?

    Poterba: I think it's a bit of everything. A number of factors came together to create an environment in which firms were more comfortable offering defined contribution plans than defined benefit plans. One factor was that when firms began offering defined benefit plans, in World War II and the years following it, the U.S. economy and its population were growing rapidly. The size of the benefit recipient population from these plans relative to the workforce was small. It was also a time when life expectancy for people who were aged 65 was several years less than it is today. Over time, the financial executives at firms came to a greater recognition of the true cost of defined benefit plans.

    I also think the fiduciary responsibilities and the financial burdens that were placed on firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms to take more responsibility for the retirement plans they were offering their workers and to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans were not well-funded, leaving retirees with virtually no pension income.

    But ERISA and the growing recognition of the costs of defined benefit plans are probably not the full story. The U.S. labor market has become more dynamic over time, or at least workers think it has, and that has led to fewer workers being well-suited to defined benefit plans. These plans worked very well for workers who had a long career at a single firm. Today, workers may overestimate the degree of dynamism in the labor market. But if they believe it is dynamic, they may place great value on a portable retirement structure that enables them to move from firm to firm and to take their retirement assets with them.

    Most workers who are at large firms, firms that have 500 employees or more, have access to defined contribution plans. Unfortunately, we still don't have great coverage at smaller firms, below, say, 50 employees. For workers who will spend a long career at a small firm, the absence of these employer-based plans can make it harder to save for retirement. A key policy priority is pushing the coverage of defined contribution plans further down the firm size distribution. That's hard, because smaller firms are less likely to have the infrastructure in place in their HR departments or to have the spare resources to be able to learn how to establish a defined contribution plan and how to administer it. They are probably also more reluctant to take on the fiduciary burdens and responsibilities that come with offering these plans.

    Another concern, within the defined contribution system, is the significant amount of leakage. Money that was originally contributed for retirement may be pulled out before the worker reaches retirement age.

    EF: What is causing that?

    Poterba: Say you've worked for 10 years at a firm that offers a 401(k) plan and you've been contributing all the way along. You decide to leave that firm. In some cases, the firm you are leaving may encourage you to take the money out of their retirement plan because they may not want to have you around as a legacy participant in their plan. Sometimes, the worker may choose to move the funds from the prior 401(k) plan to a retirement plan at their new employer, or to an IRA. Those moves keep the funds in the retirement system. But sometimes, the worker just spends the money. When an individual leaves a job, they may experience a spell of unemployment, or they may have health issues. There may be very good reasons for tapping into the 401(k) accumulation. Using the 401(k) system as a source of emergency cash, sort of as the ATM for these crises, diminishes what gets accumulated for retirement.

    Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings. So while there may be a "very good reason" for this from an individual's perspective, from a larger social perspective this is a problem connected to our unwillingness to provide adequate social insurance for those who are the unlucky losers to the dynamism inherent in capitalism that propels us forward. Those who benefit so much from the dynamism could and should do more to help those who pay the costs.

    pgl:

    "I also think the fiduciary responsibilities and the financial burdens that were placed on firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms to take more responsibility for the retirement plans they were offering their workers and to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans were not well-funded, leaving retirees with virtually no pension income."

    Gee we corporations liked pushing the responsibility of provided retirement benefits onto others and now that government regulations made that more difficult for us to do - we don't want to take any responsibility whatsoever!

    Which is exactly why Mark's closing here is so correct.

    likbez said in reply to pgl:

    "Gee we corporations liked pushing the responsibility of provided retirement benefits onto others and now that government regulations made that more difficult for us to do - we don't want to take any responsibility whatsoever!"

    Not only that. 401K opens huge possibilities of shadow deals between financial firms/mutual funds and providers of 401K plans. They can agree on a bad set of funds (for example with high annual costs or with bad diversification -- heavily tilted toward stocks) in exchange of discounted services in other areas.

    This is actually how such deals are done by all major corporations. Providers of 401 mutual funds in this case typically perform other services for the corporation. Some like Wall-Mart are especially cruel to their workers in this respect and fleece them mercilessly.

    Also the amount of contributions from the company is usually much less then in defined benefit plan and all risks are transferred to employees.

    The other negative side effect was tremendous growth of mutual fund industry which increased the "Financialization of the economy" -- hallmark of the neoliberal social system (aka casino capitalism).

    This industry which has developed over the decades between 1980 and 2000 created preconditions for the situation, in which financial leverage tended to override capital (equity), and financial markets dominate the traditional industrial economy and agriculture.

    For example such behemoths as Vanguard, Fidelity, Pimco, etc are direct result of the switch to 401K plans. They would never exists in such enormous size without them.

    They by the virtue of being the largest shareholders play very negative role in corporate governance (if we use this neoliberal term). For example both Vanguard and Fidelity are indirectly responsible for 2008 crisis as the major voting shareholders of Wall Street "Masters of the Universe".

    Such mutual funds providers are creating a new situation on the market with their enormous mutual funds and amount of funds under management.

    Indirectly they facilitate sophisticated parasitic forms of trading which can exist only in high volume environment.

    Tom aka Rusty said in reply to pgl:

    Between 1974 and 1990 almost every small business and professional group DB plan I was aware of was closed or frozen, including HR-10s. Most of the rest faded away over time.

    The ERISA administrative costs and financing risks were too much for these smaller sized firms, and the 401(k) came along (started in Rev. Act 1978, regulated more thoroughly in 84 and 86 tax acts).

    A reform directed at the likes of General Motors didn't work well for the little guys. And General Motors continued playing games anyway.

    And the 401(k) has not filled the void.

    pgl said in reply to Tom aka Rusty:

    "The ERISA administrative costs and financing risks were too much for these smaller sized firms".

    Oh Lord - Rusty wants to excuse all sorts of nefarious corporate behavior as it is just too hard to play by the rules. How tiresome.

    mulp said in reply to pgl:

    Rusty believes in free lunch economics. Eliminate all labor costs so profits are 100% of revenue and gdp will explode as wealth creation drives production and the surge in supply will create consumers with drills of money due to the effect of other people's wealth.

    Workers are a deadweight cost to an economy because workers such money into a blackhole from which the money never reappears.

    Consumers are never workers and workers are never consumers.

    Wealth comes from profits, not labor.
    Labor destroys wealth.

    That sums up free lunch economics. The free in free markets means wealth and profit should be free by labor being free.

    pgl said in reply to Tom aka Rusty:

    I wonder if Rusty has ever seen "Pensions: The Broken Promise" (NBC September 12, 1972) detailed the consequences of poorly funded pension plans and onerous vesting requirements. This Congress to hold a public hearings on pension issues and public support for pension reform grew significantly.

    Or does Rusty remember Studebaker which closed up in the 1960's with pension plan was so poorly funded that Studebaker could not afford to provide all employees with their pensions. 3600 did receive full benefits but 4000 workers aged 40–59 who had ten years with Studebaker received lump sum payments valued at roughly 15% of the actuarial value of their pension benefits, and the remaining 2,900 workers received no pensions.

    But Rusty thinks compliance with ERISA is just too complicated.

    djb said in reply to pgl:

    I mean seriously , pension after pension just disappeared when the firms declared bankruptcy and suddenly the money is no where to be found

    there is nothing about that in this article

    Mr. Poterba has no credibility with me, based on this interview

    defined contribution, in part, was supposed to make it so this couldn't happen

    pgl said in reply to djb:

    I agree that Poterba could have spent more time on this issue but he is not the bad guy here. The bad guy are the fools who say government intervention has no place (hello Rusty). Defined contributions is a different means for paying for retirement but as Mark Thoma has noted since the beginning of this blog, it does not cover certain risks. Which is why we need to defend the Social Security program.

    ilsm:

    " The size of the benefit recipient population from these plans relative to the workforce was small."

    Malthusian excuse for productivity gains going to the pentagon and other payors of the .1%.

    "Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings."

    The system works for the duped, the exploiters and the plunderers, no one else.

    tom:

    During the Obamacare debate, there was talk about a public option. Why not a public option for 401K plans, that would take the burden of administering such planes away from small firms? And if we are going to get so hot under the collar about 'choice', why not give employees two choices for public option, a defined contribution public option, and a defined benefit public option?

    Sandwichman:

    "...the dynamism inherent in capitalism that propels us forward..."

    Although it is said that it doesn't matter how fast you are going if you don't know which direction you are headed. Forward? To what end?

    Sandwichman said in reply to Sandwichman:
    Offing "The Agenda" Before the Agenda Offs Us

    http://econospeak.blogspot.ca/2015/11/offing-agenda-before-agenda-offs-us.html

    Dean Baker writes:

    "The time has long since passed when we should be arguing about whether global warming is happening or whether the consequences will be serious. The question is what we are prepared to do about it."

    And the answer is… "set targets"?

    As long as adopting shorter work weeks and years to achieve full employment is off the agenda, doing something meaningful about climate change is also off the agenda. Shorter hours is not a panacea for full employment or slowing man-made climate change. But excluding shorter hours from the policy mix is the opposite of a panacea - guaranteed toxic.

    It is no mistake that shorter hours are off the agenda. It is not happenstance or serendipity. The best way to describe the thinking behind the exclusion is a kind of rentiers' marxism-in-reverse. Marx's model of capitalism predicts an "increasing organic composition" of capital. In the absence of capital devaluing crises, such an increase makes labor increasingly scarce relative to capital.

    Shorter hours would make labor even scarcer relative to capital. Price of labor goes up, returns to capital go down. Can't let that happen. This is America, where "free enterprise" rules and the rich buy the public policy regime - and whatever economic policy rationale justifies it - that suits them.

    So achieving full employment and mitigating climate change are off the respectable economists' agenda. The question is what are we prepared to do about that?

    anne said in reply to Sandwichman...

    http://www.cepr.net/documents/Getting-Back-to-Full-Employment_20131118.pdf

    November, 2013

    Getting Back to Full Employment
    A Better Bargain for Working People
    By Dean Baker and Jared Bernstein

    anne said in reply to Sandwichman...

    "...the dynamism inherent in capitalism that propels us forward..."

    Although it is said that it doesn't matter how fast you are going if you don't know which direction you are headed. Forward? To what end?

    [ A remarkably meaningless cliche. ]

    [Nov 22, 2015] Coping IRA Withdrawal Rules Advice IQ

    www.adviceiq.com

    Types of accounts where RMDs apply. While your invested money sat in your qualified retirement accounts, the IRS deferred any taxes due until a later date. That date arrives when you hit age 70 ½.

    RMDs affect many types of accounts, including traditional IRAs, simplified employee pension (SEP) and savings incentive match plan for employees (SIMPLE) IRAs and employer retirement accounts such as 401(k)s and 403(b)s.

    Once you reach the trigger age for RMDs, the IRS requires that you start taking RMDs and begins collecting taxes previously deferred. Taxes come due on amounts only as they are distributed to you and not while you keep them invested.

    For the year you first reach 70½, you must take a minimum distribution either that year or no later than April of the following year. Every year after, you also must take the required minimum distribution by Dec. 31 of each tax year.

    Beware deadline penalties. Not only does the IRS want to tax revenue from your retirement accounts, if you fail to meet the deadline for distribution the taxman sticks on an additional and whopping 50% penalty.

    Figuring out what you owe. IRS publication number 590 explains how to calculate the actual amount you must take as an annual distribution and additional information on how RMDs apply to each type of retirement account you might own.

    Generally, calculate RMD for each account by dividing the prior Dec. 31 balance of that IRA or retirement plan account by a life expectancy factor. Use the:

    These great resources help you avoid the price of getting these calculations wrong – a price high enough that I recommend you consider help with the calculation and with getting the proper amount withdrawn from your accounts before the IRS deadline.

    I especially warn those tracking more than one tax-deferred retirement account. If you still have years or even decades before RMDs apply to you, your parents or loved ones 70½ or older need this reminder, too.

    Taxes are a part of life. Penalties you avoid.

    [Nov 22, 2015] Fixing a broken retirement system

    Notable quotes:
    "... Only consider retaining old plans if you have an exceptional deal, like 3% or higher guaranteed interest in the current low interest-rate world. ..."
    www.usatoday.com

    The state of Americans' retirement preparation is shocking. Why is this, and what can people do about it?

    PBS ran its Frontline documentary The Retirement Gamble a few years ago, and it's still pertinent. It's hard to watch this program without a sense of horror at the way our retirement plan system is rigged to rip off Americans struggling to save for their later years after working.

    Here are the key points in The Retirement Gamble. Read them and think about what you can do to shore up your retirement plan:

    Potential Versus Real Wealth

    So what can you do? Here are some strategies:

    Coping: IRA Withdrawal Rules

    [Oct 13, 2015] Dont Tell My Mother Im In Finance (She Thinks I Work In A Brothel)

    "... The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns. ..."
    "... "The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors." ..."
    "... The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be. ..."
    May 13, 2008 | www.zerohedge.com

    In medicine, they have something called the Hippocratic Oath. It requires physicians to swear to uphold certain ethical standards. In modern fund management, there is no Hippocratic Oath. Whereas doctors are expected to "First, do no harm", in modern fund management, iatrogenic illnesses hold sway. An iatrogenic illness is one that is caused by the physician himself.

    Fund management doctors seem to be doing the best they can to kill their own patients. Science has a word for this, too. It's called parasite. There is a solution to all this insanity.

    ... ... ...

    There is a solution to all this insanity.

    The chief investment officer of the Yale Endowment, David Swensen, has written an excellent book entitled 'Unconventional Success'.

    The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns.

    Swensen pulls few punches.

    The fund management industry involves the

    "interaction between sophisticated, profit-seeking providers of financial services [Keynes would have called them rentiers] and naïve, return-seeking consumers of investment products.

    "The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors."

    The nature of ownership is crucial. To Swensen, the more mouths standing between you and your money that need to be fed, the poorer the ultimate investment return outcome is likely to be.

    In a rational world, investors would be well advised to favour smaller, entrepreneurial boutiques, or private partnerships, over larger, publicly listed full service investment operations – especially subsidiaries of banks or insurance companies – with all kinds of intermediary layers craving their share of your pie.

    The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be.

    This past week, and the conjunction of the Bill Gross lawsuit and the Investment Association's Daniel Godfrey debacle, is likely to go down as one of the biggest fund management public relations disasters in history.

    Before buying any fund, ask yourself some questions:

    Most fund management firms fall into the latter category. Favour the former.

    How to distinguish between the asset managers and the asset gatherers? Try to find managers like the celebrated investor Jean-Marie Eveillard, who once remarked:

    "I would rather lose half of my shareholders than half of my shareholders' money."

    The managed fund marketplace is clearly much larger than it should be. It is oversupplied, and there is insufficient genuine talent and integrity to support the grotesque number of spurious, me-too funds out there all chasing a finite pot of capital.

    After a disastrous week in the spotlight, asset management companies might wish to start cutting their fund ranges before the regulators force them to. >

    Muddy1
    Working in a brothel? Working in finance?

    It's the same thing. You take people's money and then they get screwed.

    [Aug 27, 2015] Is your financial planner getting rich at your expense

    "..."Some advisers use 'fee-only' for marketing purposes instead of as a pledge to their clients," "
    A recent decision in a lengthy legal case involving two certified financial planners was hailed as a victory for consumers.

    A husband and wife, Jeffrey and Kimberly Camarda of Fleming Island, Fla., had been marketing themselves as "fee-only" financial planners, a term for those who charge clients a fixed rate for their services and don't earn commissions or bonuses when recommending financial products. But that wasn't true, according to the Certified Financial Planner Board of Standards, which filed a disciplinary action against the pair. It claimed that the Camardas were selling insurance products from which they earned commissions without disclosing that potential conflict of interest, a violation of CFP Board rules. Then the couple sued the board, saying they were unfairly disciplined. But in July, a judge dismissed their lawsuit.

    "Some advisers use 'fee-only' for marketing purposes instead of as a pledge to their clients," says Eleanor Blayney, a consumer advocate on the board. There's no way to tell just how many financial advisers misrepresent how they're compensated, she adds. What's clear is how much working with the wrong kind of adviser can cost you. A study from the White House by the Council of Economic Advisers, published in February, estimated that financial advisers who have conflicts of interest cause $17 billion in losses every year to Americans, many of them in working and middle-class families. And that's just for those who are using IRAs to save for retirement.

    Read more about how to manage your financial planning in your 40s, your 50s and your 60s.

    Part of the problem is that there's no governmental regulatory body that polices all financial planners. Investment advisers and brokers who sell bonds, stocks, and other financial products must be registered with the Securities and Exchange Commission or in some cases with state regulators. There's no such oversight for financial planners, who help clients with retirement planning, estate planning, saving for college, and other matters.

    The CFP Board, however, will investigate complaints it receives or violations the organization uncovers itself. It can suspend or revoke the use of the certified financial planner designation, but it can't stop financial planners from giving advice.

    The best line of defense against unscrupulous planners is to educate yourself. That can be confusing at first, because there are more than 150 designations for financial planners. But many of the titles are dubious; they can be earned after just a few hours of study and an open-book test. Adding to the confusion is that many suspect designations sound similar to legitimate ones.

    [Jun 22, 2015] 10 secrets to get more from Social Security

    Larry Kotlikoff, professor of economics at Boston University, says maximizing your benefits can be simplified into three basic rules: Delay your Social Security benefits, take spousal/survivor/mother and father/child benefits, and make sure one of these two rules doesn't undermine the other. The best choice when it comes to when to cash in on your Social Security ultimately comes down to personal circumstances, but waiting to collect higher benefits through the delayed retirement credit can be a huge advantage.

    These guidelines are a good starting point, but a lot of the finer details can be confusing, especially when it comes to spousal benefits. Since the most complex rules can be the most lucrative, it's worth some investigation. The problem is most Americans are unaware of the finer points of Social Security and don't know where to turn for help. Social security offices are dwindling and phone wait times are getting longer, so the smartest course of action is to arm yourself with information as early as possible. Even the Social Security Administration (SSA) is known for spreading misinformation, so double-check and triple-check your information before making a big decision about your retirement.

    MORE: 5 signs you rely too much on Social Security for retirement

    On PBS NewsHour's Making Sen$e, Kotlikoff compiled a list of 34 social security secrets people should know, as well as some additional rules in a follow-up article. His findings are particularly useful if you're looking for explanations of the many highly nuanced rules for collecting spousal benefits. Bear in mind his list was compiled back in 2012, but Kotlikoff continues to report on Social Security and work to demystify the finer details. You can even write in and ask him a question regarding your situation.

    Spousal benefits are the most overlooked Social Security benefits, according to Kotlikoff, and $10 billion in spousal benefits go unclaimed in America every year. In what can be called loopholes for married couples, Americans can collect more in Social Security by employing strategies like "file and suspend," in which one partner suspends retirement benefits so the other can collect spousal benefits. Later, the couple can cash in on the delayed retirement credit.

    Taxpayers are essentially walking away from money they are entitled to if they don't take advantage of all the Social Security rules that could help them. Here are ten more little-known Social Security rules that could help you maximize your benefits, sourced from Kotlikoff's list as well as others.

    1. You can suspend your benefits temporarily and see rewards later

    Once you are at or over full retirement age, you can suspend further Social Security benefits and then restart them later. The "start-stop-start" strategy refers to starting your benefits prior to full retirement age, stopping them at full retirement age, and starting them up again at age 70 when they will be 32% larger due to the delayed retirement credit.

    2. You can withdraw and repay Social Security, then collect more later

    As long as you repay all the benefits you received, you can withdraw your Social Security claim and then reapply at a later date (when you will get higher benefits based on your age). The SSA used to allow claim withdrawals at any time, but after it became more common, the rules were changed. Now you can only withdraw your claim within 12 months of receiving benefits, and you can only withdraw a claim once in your lifetime.

    3. In some states, you can collect unemployment and Social Security at the same time

    Americans can be both unemployed and retired in certain states. If you collect checks from both agencies, you just have to report the income of both. Receiving unemployment benefits won't affect your Social Security payments, but in some states, collecting Social Security can reduce your unemployment checks.

    4. You can shop around for the best deal

    You can go to several Social Security offices and receive different benefit estimates. This is because Social Security staff have differing interpretations of the rules, although there is only one that is correct. But just as you may be able to shop around for the best estimate, make sure a social security office isn't erroneously denying you a legal benefit, such as the right to file and suspend.

    5. Delaying your divorce can lead to more benefits

    If you're divorced but were married for at least 10 years, you can collect spousal benefits. So if you're getting divorced after about 9 and a half years, it would be wise to delay your divorce, since it will mean a payout for both you and your ex. You have to wait to collect until your ex is 62, but if you aren't 62 yet you can still get benefits at a reduced rate.

    MORE: The retirement crisis: This plan may be a solution

    6. Survivors can file and suspend before full retirement age

    A widow/widower can begin benefits based on his or her own earnings record and later switch to survivors benefits or, conversely, begin with survivors benefits and later switch to their own benefits-even if the surviving spouse is filing before full retirement age. With spousal benefits, on the other hand, you cannot file and suspend before full retirement age.

    7. There's no advantage to delaying spousal/survivor benefits after full retirement age

    It does not benefit you to delay collecting either your spousal or survivor benefits past your full retirement age. Your own retirement benefits will grow if you delay, but there's no reason to wait so long to collect spousal or survivor benefits.

    8. In some cases, you won't be penalized for working

    If you take retirement, spousal, or widow/widower benefits early and lose some or all of them as a result of Social Security's earnings test, don't worry too much. The SSA will actually give you credit for the money they've docked in the form of permanently higher benefits once you reach full retirement age. Be advised, however, that in the case of mother and father benefits, if you earn too much money, you lose the docked money for good.

    [May 11, 2015] Avoid Fraud

    May 11, 2015 | FINRA.org

    Even if you have never been subjected to an investment fraudster's sales pitch, you probably know someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go "where the money is"-and that means targeting older Americans who are nearing or already in retirement.

    Financial fraudsters tend to go after people who are college-educated, optimistic and self-reliant. They also target those with higher incomes and financial knowledge, and have had a recent health or financial change. If you believe you've been defrauded or treated unfairly by a securities professional or firm, file a complaint. If you suspect that someone you know has been taken in by a scam, send a tip.

    To entice you to invest, fraudsters use high pressure and a number of "tricks of the trade." Here are some common tactics:

    Protect yourself with these strategies:

    FINRA offers an array of information and resources to help you outsmart investment fraud.

    1. Red Flags of Fraud
      Knowing the important warning signs of financial fraud puts you in charge.
    2. Ask and Check
      Ask the right questions and verify the answers before you work with an investment professional or buy an investment product.
    3. How Social Pressure Cost One Family $30,000
      It's often hard to resist an investment tip from someone in your social circle. Before handing over any money, you need to check out the investment and the person selling it.
    4. Spot a Scam in 6 Steps
      Financial fraudsters use sophisticated and effective tactics to get people to part with their money. Here are six steps you can take to help you spot an investment scam.
    5. Investor Alerts
      Don't be taken in by these frauds and scams. Learn how to protect yourself and your money.

    More

    [Nov 23, 2013] Kevin Drum and the Retirement Crisis Eye on the Ball Beat the Press

    Parasitic rent-seeking (aka legalized theft) of financial oligarchy is an important problem that if behind the drive to squeeze Social Security. They want to privatize it. Just look how efficiently Merrill Lynch manages Wal-Mart workers 402K plans.

    Kevin Drum poses a reasonable question about the existence of a retirement crisis in a recent blogpost. He notes that retirement income projections from the Social Security Administration's MINT model show income for older households rising from 1971 to the present, while incomes for those in the age 35 to 44 were nearly stagnant. The model also shows income for older households continuing to rise over the next three decades. Kevin's conclusion is that we are wrong to spend a lot of time worrying about retirees, and would be wrong to consider increasing Social Security taxes on the working population to maintain scheduled benefits for Social Security recipients.

    While the story of rising income for retirees is correct, there are several points to keep in mind. First, the main reason that income for the over 65 group has risen is that the real value of Social Security benefits has risen. Social Security benefits are tied to average wages, not median wages. This is important. Most of the upward redistribution of the last three decades has been to higher end wage earners like doctors, Wall Street types, and CEOs, not to profits. Since the average wage includes these high end earners, benefits will rise through time, pushing up retiree incomes. For the median household over age 65 Social Security benefits are more than 70 percent of their income, so the story of rising income is largely a story of rising Social Security benefits.

    However even with this increase in Social Security benefits, replacement rates at age 67 are projected to fall relative to lifetime wages (on a wage-adjusted basis) from 98 percent for the World War II babies to 89 percent for early baby boomers, 86 percent for later baby boomers and 84 percent for GenXers. There are several reasons for this drop. The most important is the rise in the normal retirement age from 65 for people who turned 62 before 2002 to 67 for people who turn 62 after 2022. This amounts to roughly a 12 percent cut in scheduled benefits. The other reason for the drop is the decline in non-Social Security income. This is primarily due to the fact that defined benefit pensions are rapidly disappearing and defined contribution pensions are not coming close to filling the gap.

    It is also important that the over age 65 population on average has a considerably longer life expectancy today and in the future than was the case in 1971. In 1971 someone turning age 65 could expect to live roughly 16 years, today their life expectancy would be over 20 years. This is a good thing of course, but it means that when we use the same age cutoff today as we did 40 plus years ago we are looking at a population that is much healthier, and therefore also more likely to be working, and further from death. If we adjusted our view to focus on the population that was within 16 years of hitting the end of their age 65 life expectancy, the story would not be as positive.

    The data from the MINT model may also be somewhat misleading because it includes owner equivalent rent (OER) as income. While not having to pay rent is clearly an important savings to an older couple or individual that has paid off their mortgage, it can give an inaccurate picture of their income. There are many older couples or single individuals that live in large houses in which they raised their families. The imputed rent on such a house can be quite large relative to their income as retirees. (Imputed rent is almost one quarter of total consumer expenditures even though only two-thirds of families are homeowners.) There are undoubtedly many retirees who live in homes that would rent for an amount that is larger than their cash income, which will be primarily their Social Security check.

    In principle it might be desirable for such people to move to smaller less expensive homes or apartments, but this is often not easy to do. Government policy that hugely subsidizes homeownership and denigrates renting is also not helpful in this respect.

    The other part of the income picture overlooked is that almost all middle income retirees will be paying for Medicare Part B, the premium for which is taking up a large and growing share of their cash income. That premium has risen from roughly $250 a year (in 2013 dollars) to more than $1,200 a year at present. This difference would be equal to almost 5 percent of the income (excluding OER) of the typical senior. That means that if we took a measure of income that subtracted Medicare premiums (not co-pays and deductibles) it would show a considerably smaller increase than the MINT data. The higher costs faced by seniors for health care and other expenditures is the reason that the Census Bureau's supplemental poverty measures shows a much higher poverty rate than the official measure.

    Finally, there is the need to focus on the question of how well seniors are doing. Seniors income has been rising relative to the income of the typical working household because the typical working household is seeing their income redistributed to the Wall Street crew, CEOs, doctors and other members of the one percent. However, even with the relative gains for seniors their income is still well below that of the working age population. The median person income for people over age 65 was $20,380 in 2012 compared to a median person income of $36,800 for someone between the ages of 35 to 44. Now we can point to the fact that incomes have been rising considerably faster for the over 65 group, but this would be like saying that we should be annoyed because women's wages have been rising more rapidly than men's wages. Women still earn much less for their work and seniors still get by on much less money than the working age population.

    The bottom line is that it takes some pretty strange glasses to see the senior population as doing well either now or in the near future based on current economic conditions. We can argue about whether young people or old people have a tougher time, but it's clear that the division between winners and losers is not aged based, but rather class based.

    [Nov 18, 2013] Yahoo! Personal Finance

    "... limit it [your company stock --NNB] to ~10 percent of your portfolio."

    Under a law passed last year, you can even sell shares that your employer contributed to your account, as long as you've been there for three years.

    Being too conservative

    Plowing too much money into low-risk choices like stable value, bond and money funds may seem safe since it protects your 401(k) from market setbacks.

    But it's dangerous in the long run because your savings won't grow enough to provide you with an adequate income in retirement.

    A better approach: Create a blend of stocks and bonds that provides a cushion against price drops but also gives you a shot at the gains you'll need to amass a sizable nest egg.

    For help setting the appropriate mix for your age, check our Asset Allocator tool.

    Doin' the smorgasbord thing

    In an attempt to diversify, some people spread their money evenly across all the options on their 401(k) menu.

    That doesn't produce a well-rounded portfolio any more than scarfing every item at a buffet assures a balanced meal. You might wind up with too big a helping of growth or bonds, depending on your plan's options.

    What to do? First plug your choices into the Instant X-Ray tool at morningstar.com to see how your portfolio breaks down by the major asset classes - large and small stocks, bonds and foreign shares.

    You can then compare your current mix to the blend our Asset Allocator recommends and, if necessary, rejigger your choices to get your 401(k) on track.

    Avoiding these errors won't guarantee you a giant nest egg. But you will be making the most of every penny you set aside. And in the long run, that will pay off.

    [Sep 6, 2013] You're not a kid. Stop investing like one by Dan Kadlec

    You're not a kid. Stop investing like one. Your age demands that you become more risk-averse.

    September 6, 2013 Yahoo!/Money Magazine

    How do you know when you've crossed the invisible line and you're not young anymore? Maybe it's the first time you look at Billboard's top 20 list and don't recognize a single name. Or when your kids start staying out later at night than you can keep your eyes open.

    Or maybe it hits you when you realize that if the stock market falls 30 percent, as it does from time to time, you'll lose the equivalent of a year's pay, not a week's, and you don't want to have to work forever to make the money back.

    In the last case at least, there's a silver lining. It means you've managed to put away a substantial sum, reaping the benefits of 30 or so years of steady saving and compounding returns.

    But that's a once-in-a-lifetime deal. You will never get those 30 years back. If you're a boomer, in other words, the math has started to work against you: Whether you're 49 or 56 or 60, odds are you have more to lose than ever and less time than ever to recover if something goes wrong.

    So your age demands that you become more risk-averse. And with the market coming off record highs, the housing market taking forever to find a bottom and a host of other troubling financial signals, you've got reason to worry about stock prices tumbling.

    Yet with many good years still in front of you, getting out of the market isn't an option either. You need your savings to keep growing to outpace inflation and reach your goals.

    How are you supposed to do all of these contradictory things at once?

    Get some perspective

    Although it may not feel like it, you probab