Pension Risk Matters
$89 For An Umbrella and No Money To Retire
In between business meetings in Greenwich, Connecticut the other day, it started to rain heavily so this blogger walked a few blocks to an upscale department store (the closest in sight), in search of a reasonably priced umbrella. Since I have so many umbrellas already (but had forgotten to pack one), I figured I would spend a modest $15 or $20 to buy another umbrella to keep me dry. How much could an umbrella cost after all? To my surprise and shock, none of the umbrellas came in at less than $89 (plus tax of course). For some people, that's a tiny price for protection. Certainly this merchant was thriving with designer attire, shoes and jewelry finding its way into shoppers' bags.
However, the reality is that not everyone is going to shell out 89 big ones for an umbrella, no matter what the brand. For a large segment of the U.S. population, money is a scarce resource and confidence in a secure future is low. According to the results of a recent Wells Fargo/Gallup Investor study, optimism is down and pessimism is up. At the same time that 68% of respondents say they have "little to no" confidence in the stock market as a way to prepare for retirement, 80% of investors urge lawmakers to act now so that savings is encouraged.
Unfortunately, most of the initiatives that individuals cite as "must have" elements of a national retirement readiness program are in direct conflict with the political grab to raise taxes. Consider a few examples.
- Sixty-nine percent of the survey respondents say it is "extremely" or "very important" that politicians encourage every company to offer a 401(k) plan to its employees. Since there is already talk in Washington, DC about stripping companies of the tax benefits associated with offering retirement plans, it is unlikely that employers will realize further tax advantages at the expense of big spenders having to lose tax "revenue."
- Sixty-six percent cite the need for the government to figure out how Americans who participate in 401(k) plans can get "more quality investment advice." Anticipating increased regulations as relates to investment fiduciary duties, some financial advisors are becoming less generous with information for fear of being sued. As described in "401(k) Lawsuits, Investment Advisers and Fiduciary Breach" (November 18, 2012), breach of fiduciary duty is cited as the top complaint in FINRA arbitration matters.
- Sixty-nine percent want the government to establish initiatives that will motivate individuals to participate in their employer's 401(k) retirement savings option, assuming that they work for a company that offers benefits. Yet here we are, talking about a fiscal cliff that could impact millions of people with incomes below the magical "rich" benchmark of $250,000. For one thing, in the absence of inflation indexing, the Alternative Minimum Tax that was enacted decades ago will show up as a nasty spring 2013 surprise for countless tax-paying middle-class households. Then there is the issue of jobs not created because employers will be writing larger checks to the IRS instead as various tax rates go up.
The United States is not alone in having to tackle difficult problems. The list is long and includes (but is not limited to) insufficient aggregate savings, underfunded social programs that are not sustainable safety nets without reform, high unemployment, corporate jitters about parting with cash, uncertain tax and regulatory environment and conflicting interests that make it almost possible to come up with near-term solutions.
There is a way forward to expand economic growth but that will require political courage. Let's hold our policy-makers accountable in 2013.
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