Tuesday, May 26, 2009
Friday, May 22, 2009
Out of time and not enough money
Out of time and not enough money - How shifting the retirement liability bankrupted the “B” Generation
Of all the economic and political changes that have occurred in this country over the last 35 years, nothing has had more of an impact on the “B” Generation than the demise of the pension and the rise of the 401k plan as the replacement for financing retirement.
There was nothing of substance put in place to assist the boomers with taking over this burden from the corporation. If you think about it, the success corporations had with shifting this liability to the employee gave them the idea that financing other employee benefits, like health care insurance, could also be shifted to the employees, also with little or no assistance for them, and free up even more balance sheet capacity for the corporation.
It is my belief that when the country’s major corporations accelerated the termination of their pension plans in the 1990’s, they disposed of the assets supporting this liability to the employees who were all to eager to buy them for their own retirement account bidding up their price. This partially explains the bull market condition that existed until 1999 and why new, younger and even legacy companies that shed these liabilities saw their stock process rise dramatically during this time.
We see the difference now with many legacy companies that did not or could not transfer these liabilities to their employees now having a significant competitive disadvantage, e.g. the U.S. auto makers, and their stock prices have plummeted as a result.
I honestly believe the next leg of this issue will manifest itself with the state and local governments which are bound by law to retain the liabilities for their employee’s retirement and health care causing massive budget deficits for several more generations. A great time to be a near-retirement government employee because a substantial part of their retirement income and health care benefits have been secured for the rest of their lives. How long before this become a nasty political issue as the private sector employee continues to lose their entitlements and see their retirement assets dwindle in value due to the massive build up of government debt that will have to be financed by higher taxes on everyone sooner or later.
An interesting irony that the private sector employee will see their standard of living decline while supporting the same if not better standard of living for retired government employees through taxation. They will see government services curtailed as more and more of their future taxes go towards paying for public employee retirement and health care obligations carried on the balance sheets of government at all levels. I believe many boomers in the private sector thought it would be the other way around.
To get to the point, the shift of the retirement liability from the corporation to the employee was one of the first transfers of risk to the new ownership society. There after companies became almost completely hands off in helping employees manage this new huge responsibility for their retirement. Guidance on investment selection and risk management were outsourced to a cadre of advisers from the insurance companies, asset managers and brokerage firms who were attracted by the fees and gave largely perfunctory service to employees and many did not even know that advice was available.
But I think the most egregious mistake was that companies never told their employees the amount of the retirement liability that was being transferred to them, putting millions of employees at risk for under funding their retirement. I think most people assumed that if they deferred from their salary the maximum allowed for that year then they were adequately funding the same standard of living they had while employed. How wrong this assumption is. At least with a traditional pension, employees got an annual statement showing them what their pension income would be once they were eligible to retire.
To keep this balanced, I am not totally sympathetic to employees who never embraced this responsibility, or treated it too lightly by not saving enough. But this is where it ends.
Somewhere in the shift of this liability was a breach of a fiduciary obligation by companies for not properly preparing their employees to manage this responsibility and not disclosing the retirement liability the employees had assumed. Would you just hand you car keys over to your teenager whose only exposure to driving was watching how you did it?
It’s imperative that the generation “X” and “Y” cohorts recognize that if they work in the private sector, the self funded pension is here to stay and that meeting your future retirement liability requires almost a century of life of saving. Sad, but true, most have already lost the compounding benefits for a quarter of that century since birth – literally, no different than what happened to the “B” generation who were deprived of compounding benefits during the first 15 years of their career when the traditional pension benefit was withdrawn for most.
Andrew, sorry I still can't find a more positive topic to discuss. But I will.
Of all the economic and political changes that have occurred in this country over the last 35 years, nothing has had more of an impact on the “B” Generation than the demise of the pension and the rise of the 401k plan as the replacement for financing retirement.
There was nothing of substance put in place to assist the boomers with taking over this burden from the corporation. If you think about it, the success corporations had with shifting this liability to the employee gave them the idea that financing other employee benefits, like health care insurance, could also be shifted to the employees, also with little or no assistance for them, and free up even more balance sheet capacity for the corporation.
It is my belief that when the country’s major corporations accelerated the termination of their pension plans in the 1990’s, they disposed of the assets supporting this liability to the employees who were all to eager to buy them for their own retirement account bidding up their price. This partially explains the bull market condition that existed until 1999 and why new, younger and even legacy companies that shed these liabilities saw their stock process rise dramatically during this time.
We see the difference now with many legacy companies that did not or could not transfer these liabilities to their employees now having a significant competitive disadvantage, e.g. the U.S. auto makers, and their stock prices have plummeted as a result.
I honestly believe the next leg of this issue will manifest itself with the state and local governments which are bound by law to retain the liabilities for their employee’s retirement and health care causing massive budget deficits for several more generations. A great time to be a near-retirement government employee because a substantial part of their retirement income and health care benefits have been secured for the rest of their lives. How long before this become a nasty political issue as the private sector employee continues to lose their entitlements and see their retirement assets dwindle in value due to the massive build up of government debt that will have to be financed by higher taxes on everyone sooner or later.
An interesting irony that the private sector employee will see their standard of living decline while supporting the same if not better standard of living for retired government employees through taxation. They will see government services curtailed as more and more of their future taxes go towards paying for public employee retirement and health care obligations carried on the balance sheets of government at all levels. I believe many boomers in the private sector thought it would be the other way around.
To get to the point, the shift of the retirement liability from the corporation to the employee was one of the first transfers of risk to the new ownership society. There after companies became almost completely hands off in helping employees manage this new huge responsibility for their retirement. Guidance on investment selection and risk management were outsourced to a cadre of advisers from the insurance companies, asset managers and brokerage firms who were attracted by the fees and gave largely perfunctory service to employees and many did not even know that advice was available.
But I think the most egregious mistake was that companies never told their employees the amount of the retirement liability that was being transferred to them, putting millions of employees at risk for under funding their retirement. I think most people assumed that if they deferred from their salary the maximum allowed for that year then they were adequately funding the same standard of living they had while employed. How wrong this assumption is. At least with a traditional pension, employees got an annual statement showing them what their pension income would be once they were eligible to retire.
To keep this balanced, I am not totally sympathetic to employees who never embraced this responsibility, or treated it too lightly by not saving enough. But this is where it ends.
Somewhere in the shift of this liability was a breach of a fiduciary obligation by companies for not properly preparing their employees to manage this responsibility and not disclosing the retirement liability the employees had assumed. Would you just hand you car keys over to your teenager whose only exposure to driving was watching how you did it?
It’s imperative that the generation “X” and “Y” cohorts recognize that if they work in the private sector, the self funded pension is here to stay and that meeting your future retirement liability requires almost a century of life of saving. Sad, but true, most have already lost the compounding benefits for a quarter of that century since birth – literally, no different than what happened to the “B” generation who were deprived of compounding benefits during the first 15 years of their career when the traditional pension benefit was withdrawn for most.
Andrew, sorry I still can't find a more positive topic to discuss. But I will.
Monday, May 18, 2009
Monday, May 11, 2009
Friday, May 8, 2009
A Century of Life in the Era of The Great Transition
A Century of Life in the Era of The Great Transition
In the 21st century, economic theory has to evlove with new thinking to manage the transition of our society out of the hands of the “B” generation to the generations in waiting – X, Y and Z.
The planning that has paved the way from the end of World War II to the end of the last century raised our standard of living to be the highest in the world – unfortunately, the methods used in this period may not be sufficient to manage the natural demographic changes yet to come.
Going forward different and in many cases experimental planning has to evolve and much of it will occur on a just in time basis. For most individuals this means coming to terms with all of their unfunded life liabilities and then preparing to transition any remaining assets to each successor generation.
The Great Transition will fill the minds of our younger people with tremendous doubt and uncertainty as they struggle to find employment that matches their ever increasing skill levels. Even though our multi national corporations dominant the planet in so many different industries, they have little or no allegiance to any particular country or economy, the U.S. included. Their ability to resettle the production of goods and services to the lowest cost regions around the world, enabled in large part by the vast technology changes since 1980, has forever altered our ability to feel financially secure working for any of these companies.
All the while our legacy industries have accumulated so much unfunded liabilities that the U.S. government will be more a lender of last resort than an enabler of economic growth, as private capital exits the country as the public debt mounts for the next 40 years. Our personal financial security has become a casualty of the political conditions that prevailed throughout the first decade of this young century.
We all have to face the new economic reality that many of us are bankrupt but don’t know it and a vast majority of us will not have the money to sustain the same standard of living we enjoyed in the last two decades of the 20th century.
The Great Transition will be particularly hard on the “B” generation because they had so many promises broken by the government and their employers costing them precious time to find alternate channels for acquiring the resources to maintain their quality of life once in retirement.
The generations in waiting – X, Y and Z, will alter the economic landscape in ways that are far more exciting and unpredictable than we can imagine, and they will also have their moments of discontent and muted euphoria just as the “B” Generation had.
With 4 generations coexisting side-by-side, the amount of bargaining amongst them will determine each generation’s financial security. We are about to undergo an economic transition over the next 10 to 15 years that the U.S. has never experienced before with its government implementing policy on a just in time basis. Anyone who thinks that history will repeat itself is dead wrong.
The Great Transition will fill the minds of our younger people with tremendous doubt and uncertainty as they struggle to find employment that matches their ever increasing skill levels. Even though our multi national corporations dominant the planet in so many different industries, they have little or no allegiance to any particular country or economy, the U.S. included. Their ability to resettle the production of goods and services to the lowest cost regions around the world, enabled in large part by the vast technology changes since 1980, has forever altered our ability to feel financially secure working for any of these companies.
All the while our legacy industries have accumulated so much unfunded liabilities that the U.S. government will be more a lender of last resort than an enabler of economic growth, as private capital exits the country as the public debt mounts for the next 40 years. Our personal financial security has become a casualty of the political conditions that prevailed throughout the first decade of this young century.
We all have to face the new economic reality that many of us are bankrupt but don’t know it and a vast majority of us will not have the money to sustain the same standard of living we enjoyed in the last two decades of the 20th century.
The Great Transition will be particularly hard on the “B” generation because they had so many promises broken by the government and their employers costing them precious time to find alternate channels for acquiring the resources to maintain their quality of life once in retirement.
The generations in waiting – X, Y and Z, will alter the economic landscape in ways that are far more exciting and unpredictable than we can imagine, and they will also have their moments of discontent and muted euphoria just as the “B” Generation had.
With 4 generations coexisting side-by-side, the amount of bargaining amongst them will determine each generation’s financial security. We are about to undergo an economic transition over the next 10 to 15 years that the U.S. has never experienced before with its government implementing policy on a just in time basis. Anyone who thinks that history will repeat itself is dead wrong.
The grandparents of the “B” Generation still living today will face their ultimate demise in this time. They are the only living generation that is solvent and whatever resources they have that have not been consumed by their long term care needs will be left in the hands of the “B” Generation so they can pay off their debts.
This may be too little and too late as the unfunded liabilities of this generation continue to build. When it’s their time to retire, their unencumbered assets – primary residences and diminished retirement accounts – will be put out to bid to generations X and Y in what is likely to be the largest bargain basement sale ever in the world. There just will be more sellers than buyers for the next 30 to 40 years! How the younger generations manage this economic calamity is beyond my imagination. They lack the formal economic education to manage demographic changes of this magnitude.
I honestly believe that if the government of the United States were to offer every citizen a life time of financial security, albeit with a lower standard of living, 80% of the population would say yes.
So let’s get on with the hard work of making sure this is a decision you never have to make. Remember we are in an economic transition period that no one has ever dealt with before. The more you learn - the more you know - and the more you are prepared: help yourself with the struggle to achieve financial security in this country.
This may be too little and too late as the unfunded liabilities of this generation continue to build. When it’s their time to retire, their unencumbered assets – primary residences and diminished retirement accounts – will be put out to bid to generations X and Y in what is likely to be the largest bargain basement sale ever in the world. There just will be more sellers than buyers for the next 30 to 40 years! How the younger generations manage this economic calamity is beyond my imagination. They lack the formal economic education to manage demographic changes of this magnitude.
I honestly believe that if the government of the United States were to offer every citizen a life time of financial security, albeit with a lower standard of living, 80% of the population would say yes.
So let’s get on with the hard work of making sure this is a decision you never have to make. Remember we are in an economic transition period that no one has ever dealt with before. The more you learn - the more you know - and the more you are prepared: help yourself with the struggle to achieve financial security in this country.
As the path ahead becomes shorter for many of us, does that mean the end is in sight and the journey is almost over? Or, is it just another stop along the way? Or, maybe it’s both.
Thursday, May 7, 2009
Tuesday, May 5, 2009
What Say You
There are those of us that do (Y Squared) and there are those who criticize what we do (X).
I remember what my old friend who was an executive where I worked said to me - "Tom, there are people who never do anything but criticize what other's do because they are afraid to take a risk."
What say you?
I remember what my old friend who was an executive where I worked said to me - "Tom, there are people who never do anything but criticize what other's do because they are afraid to take a risk."
What say you?
Monday, May 4, 2009
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