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Goldhedge

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#1
The Great Retirement Con
Frankly put: retirement is now a myth for the majority
by Adam Taggart
Friday, November 17, 2017, 7:25 PM




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.

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 has 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.

Three 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.

First off, not every American worker (by far) is offered a 401k or similar retirement plan through work. But of those that are, 21% choose not to participate (source).

As a result, 1 in 4 of those aged 45-64 and 22% of those 65+ have $0 in retirement savings (source). Forty-nine percent of American adults of all ages aren't saving anything for retirement.

In 2016, the Economic Policy Institute published an excellent chartbook titled The State Of American Retirement (for those inclined to review the full set of charts on their website, it's well worth the time). The EPI's main conclusion from their analysis is that the switchover of the US workforce from defined-benefit pension plans to self-directed retirement savings vehicles (e..g, 401Ks and IRAs) has resulted in a sizeable drop in retirement preparedness. Retirement wealth has not grown fast enough to keep pace with our aging population.

The stats illustrated by the EPI's charts are frightening on a mean, or average, level. For instance, for all workers 32-61, the average amount saved for retirement is less than $100,000. That's not much to live on in the last decades of your twilight years. And that average savings is actually lower than it was back in 2007, showing that households have still yet to fully recover the wealth lost during the Great Recession.

But mean numbers are skewed by the outliers. In this case, the multi-$million households are bringing up the average pretty dramatically, making things look better than they really are. It's when we look at the median figures that things get truly scary:



Nearly half of families have no retirement account savings at all. That makes median (50th percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013. For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.

(Source)

The 50th percentile household aged 56-61 has only $17,000 to retire on. That's dangerously close to the Federal poverty level income for a family of two for just a single year.

Most planners advise saving enough before retirement to maintain annual living expenses at about 70-80% of what they were during one's income-earning years. Medicare out-of-pocket costs alone are expected to be between $240,000 and $430,000 over retirement for a 65-year-old couple retiring today.

The gap between retirement savings and living costs in one's later years is pretty staggering:

  • Nearly 83% of retired households have less saved than Medicare costs alone will consume.
  • One-third of retired households are entirely dependent on Social Security. On average, that's only $1,230 per month a hard income to live on. (source)
  • 34 percent of older Americans depend on credit cards to pay for basic living expenses such as mortgage payments, groceries, and utilities. (source)
As for Medicare, the out-of-pocket costs could easily soar over retirement. The Wall Street Journal reports that the current estimate of Medicare's unfunded liability now tops $42 Trillion. Such a mind-boggling gap makes it highly likely that current retirees will not receive all of the entitlements they are being promised.

And the denial being shown by baby boomers entering retirement is frightening. Many simply plan to work longer before retiring, with a growing percentage saying they plan to work "forever".

But the data shows that declining health gives older Americans no choice but to leave the work force eventually, whether they want to or not. Years of surveys by the Employment Benefit Research Institute show that fully half of current retirees had to leave the work force sooner than desired due to health problems, disability, or layoffs.

Add to this the nefarious impact of the Federal Reserve's prolonged 0% interest rate policy, which has made it extremely hard for retirees with fixed-income investments to generate a meaningful income from them.

The number of Americans aged 65 years and older is projected to more than double in the next 40 years:



Will the remaining body of active workers be able to support this tsunami of underfunded seniors? Don't bet on it.

Especially since their retirement savings prospects are even more dim. With long-stagnant real wages and punishing price inflation in the cost of living, Generation X and Millennials are hard-pressed to put money away for their twilight years:



(Source)

Public Pensions: Broken Promises
And for those "lucky" folks expecting to enjoy a public pension, there's a lot of uncertainty as to whether they're going to receive all they've been promised.

Due to underfunded contributions, years of portfolio under-performance due to the Federal Reserve's 0% interest rate policy, poor fund management, and other reasons, many of the federal and state pensions are woefully under-captialized. The below chart from former Dallas Fed advisor Danielle DiMartino-Booth shows how the total sum of unfunded public pension obligations exploded from $292 billion in 2007 to $1.9 trillion by the end of 2016:





(Source)

And the daily headlines of failing state and local pension funds (Illinois, Kentucky, New Jersey, Dallas, Providence -- to name but a few) show that the problem is metastasizing across the nation at an accelerating rate.

Affording Your Future
The bottom line when it comes to retirement is that you're on your own. The vehicles and the promises you've been given are proving woefully insufficient to fund the "retirement" dream you've been sold your whole life.

That's the bad news.

But the good news is that the dream is still attainable. There are strategies and behaviors that, if adopted now, will make it much more likely for you to be able to afford to retire -- and in a way you can enjoy.

In Part 2: Success Strategies For Retirement, we detail out these best practices for a solvent retirement, including providing 14 specific action steps you can start taking right now in your life that will materially improve your odds of enjoying your later years with grace.

For far too many Americans, "retirement" will remain a perpetual myth. Don't let that happen to you.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
 

solarion

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#3
The problem comes when you count on goobermint in any way at all to provide for your future, rather than creating your own nest egg.

Pensions, IRAs, 401k plans...all of these things can and will be raided by goobermint goons...if not directly, then by utilizing their stealth inflation tax to reduce the purchasing power of your savings to insignificance.

No thanks, I prefer my own "savings plan" consisting of PMs, Pb, cryptos, etc resting comfortably at the bottom of a large body of water.
 

Bman33

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#4
The problem comes when you count on goobermint in any way at all to provide for your future, rather than creating your own nest egg.

Pensions, IRAs, 401k plans...all of these things can and will be raided by goobermint goons...if not directly, then by utilizing their stealth inflation tax to reduce the purchasing power of your savings to insignificance.

No thanks, I prefer my own "savings plan" consisting of PMs, Pb, cryptos, etc resting comfortably at the bottom of a large body of water.
Agree, but what is with all the large bodies of water references on this site?
 

solarion

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#5
Agree, but what is with all the large bodies of water references on this site?
A warning to those that come after. Do not behave as recklessly as have I...no matter how great an idea it may seem...do not take your stack sailing. Many of us have had to suffer through great personal loss when we mistook our PM stacks for boat anchors.

I've done that several times...with and without fermented molasses assistance. sux.
 

solarion

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#7
I sincerely hope so. It can happen faster than you can imagine.

One second you're just innocently trying to see how many skips you can squeeze out of st. gauden, the next your entire nest egg is smiling up at you from the bottom of the lake.
 

solarion

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#9
Ever go Ice fishing? Sounds like that can happen pretty quickly!
I have! However on those occasions I was protected from loss by my inability to feel my fingers. Plus skipping a double eagle over the ice wasn't nearly so entertaining as skipping it over the aforementioned waterscape...irrespective of rum intake.
 

solarion

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#11
I always wonder what motivates people to buy gold when the GSR is tipping 75+.

Any response? I mean the chart is pretty clear on this:

 

solarion

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#13
Very fine.

Your dime, but there's no mistaking what happens when the bull starts to run and the ratio falls like a rock. Those with stacks of silver can exchange them for stacks of gold at very favorable rates. This was true in 2011 and will be so again in due course.
 

smooth

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#14
1482535595449.jpg

I dont even have a boat. But gold can be very slippery....... I believe it is one of the elements properties that makes it so rare....
EDIT: Dont even think about it Irons, that pond has no bottom.
 

Goldhedge

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#18
Very fine.

Your dime, but there's no mistaking what happens when the bull starts to run and the ratio falls like a rock. Those with stacks of silver can exchange them for stacks of gold at very favorable rates. This was true in 2011 and will be so again in due course.
Trade implies 1:1, however I seem to recall the 'vig' making an appearance for every coin traded....
 

solarion

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#19
Trade implies 1:1, however I seem to recall the 'vig' making an appearance for every coin traded....
Hmmm...I've never gotten that. To me the term "trade" as a verb exists to denote the act of swapping one thing for another, not necessarily in even quantities.
So are the GSR guys trading your gold for silver right now?
I would be looking into it...if I had any gold left. The GSR tends to climb slowly and fall abruptly.
 

smooth

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#20

gringott

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#21
I remember a story about Davy Crockett in the Congress and his opposition to a move to allow widow of military veteran [Naval War Hero] to get a pension when the veteran died [In a duel with another Naval Officer]. We have moved a long way from that position now. I am unable to find the story, which was quite good, but below are a couple of facts about the matter.

He [Crockett] spoke out against Congress giving $100,000 to the widow of Stephen Decatur, citing that Congress was not empowered to do that.
Decatur's widow, Susan, tried for several years to receive a pension from the U.S. Government. By an act of Congress on March 3, 1837, she was granted a pension retroactive to Decatur's death.
 

nickndfl

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#22
I don't think I want to retire. I would like to work less days, but love running my own business. I could probably get away with working 12 days per month and go fishing the rest of the time.
 

Alton

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#23
Retirement is over rated. What is worthwhile is perhaps a change in activity. Family's grown, kids out of college, mortgage is paid off or nearly so, little challenge in your current occupation and little to no room for advancement. Must be time to "punch out for good". Time to chase your own dreams and your own interests. Make whatever money you're comfortable with and simply do the work you truly love. Far more rewarding.

Yes, mind your stacks. Boating accidents are far more common than one may think...
 

Goldhedge

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#24
Hmmm...I've never gotten that. To me the term "trade" as a verb exists to denote the act of swapping one thing for another, not necessarily in even quantities.

I would be looking into it...if I had any gold left. The GSR tends to climb slowly and fall abruptly.

I didn't mean oz for oz, but 1 oz of gold for $1300 swapped for 75 oz of silver.

i.e., I give 1 oz of gold and get 75 oz silver. There's going to be vig is there not?
 

Hystckndle

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#26
Retirement is a scam.
Those that HAVE saved,
Become a big target for the system.
Fees, insurances, taxes, medical costs, scammers,
Inflafion ( a real moving target )
Becomes a full time chore to keep what you have.
Agnut says:
" Its impossible( relatively so ) for the majority of honest people to
plan for their future using a dishonest monetary system "
Gotta agree with that premise.
 

Ensoniq

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#27
Article is heavily biased against corporations.

(Shed liability, dump costs etc)

The fiduciary liability the company has is huge and its personal liability for the administrator. So to provide a 401k for my employees for the right to match 6% one-for-one the savings the employee makes toward their own retirement, I gave to have plan testing, fund offering testing and a myriad of technical mandatory disclosures

The writer comes off like its the company's obligation to care for the employee/retiree for life. The company has but one function and that's to turn a profit for the investors. Throw stones, call games ok but you'll only be behaving like the liberals who think they have a right to decide what others will do what their own money.
 

Ensoniq

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#28
Retirement is a scam.
Those that HAVE saved,
Become a big target for the system.
Fees, insurances, taxes, medical costs, scammers,
Inflafion ( a real moving target )
Becomes a full time chore to keep what you have.
Agnut says:
" Its impossible( relatively so ) for the majority of honest people to
plan for their future using a dishonest monetary system "
Gotta agree with that premise.
I do agree with this and fear those beady eyed grubby handed Gooberment types salivating after my 401k balance
 

EO 11110

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#29
the new rich are the fs army. their gov annuities, if sold on the open market, are worth hundreds of thousands....even over a million

back of the envelope for clarity -- fs army leach gets 3,000/month in free sh-t. the annuity market value of that is $800,000 to $1,000,000. that's how much it would cost us to replicate what they get
 

gringott

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#30
the new rich are the fs army. their gov annuities, if sold on the open market, are worth hundreds of thousands....even over a million

back of the envelope for clarity -- fs army leach gets 3,000/month in free sh-t. the annuity market value of that is $800,000 to $1,000,000. that's how much it would cost us to replicate what they get
Hey I resemble that remark [army leach]! lol
Except cut the monthly in half. And it is taxed as earned income.
You are still correct, at today's return rates you would need a sizeable annuity to produce that income. Blame ZIRP.
However, to pay me or any Joe, the FedGov doesn't need any annuity - they just electronically create the digital FRNs.
Obviously, taxes aren't a factor, they just tack it all on the deficit/debt.
 

Goldhedge

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#32
here's a ratio question.

10 maples for a $1k face bag of junk.

Good or bad exchange??
 

JayDubya

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#34
10 maple leafs equal $12927.00 (at melt/spot)
While $1000 face value of 90% silver coinage is currently at $12507.44
 

Goldhedge

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#35
10 maple leafs equal $12927.00 (at melt/spot)
While $1000 face value of 90% silver coinage is currently at $12507.44
So what you are saying is $419.56 is quite a large vig...

What would be an acceptable vig?
 

JayDubya

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#37
A (roughly) 3.25 % vig isn't horrible. But the figures I posted don't tell the whole story.

I was just posting the flat "values" figures.

Keep in mind that you "should" get more than spot for maple leafs. Also keep in mind that unless you're dealing private person to private person there will be additional fees for the transaction.
 

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#38
I rather have a 200 ounces of gold than 15k ounces of silver. If you needed to sell quickly, you can do it much easier with the gold.
 

Silver

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#39
I rather have a 200 ounces of gold than 15k ounces of silver. If you needed to sell quickly, you can do it much easier with the gold.
Easier to steal also.