Sunday, April 29, 2012

"My Faith Based Retirement"

Since it is Sunday, I'm going to take a break this morning from writing a longer post and instead allow op-ed columnist Joe Nocera do the talking from a column published on Friday in the New York Times:
My 60th birthday is less than a week and a half away, and if there is one thing I can say with certainty it’s that 60 is not the new 50.

My body creaks and groans. My eyes aren’t what they used to be. I don’t sleep as soundly as I did just a few years ago. Lately, I’ve been seeing a lot of doctors, just to make sure everything still more or less works.

I’ve also found myself with a sudden urge to get my house in order — just, you know, in case. Insurance, wills, that sort of thing. Sixty is when you stop pretending you’re going to live forever. You’re officially old. Or at least old-ish.

The only thing I haven’t dealt with on my to-do checklist is retirement planning. The reason is simple: I’m not planning to retire. More accurately, I can’t retire. My 401(k) plan, which was supposed to take care of my retirement, is in tatters.

Like millions of other aging baby boomers, I first began putting money into a tax-deferred retirement account a few years after they were legislated into existence in the late 1970s. The great bull market, which began in 1982, was just gearing up. As a young journalist, I couldn’t afford to invest a lot of money, but my account grew as the market rose, and the bull market gave me an inflated sense of my investing skills.

I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.” It was only right, I argued, that the little guy have the same access to the markets as the wealthy. In the book, I didn’t make much of the decline of pensions. After all, we were in the middle of the tech bubble by then. What fun!

The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half. A half-dozen years later, I got divorced, cutting my 401(k) in half again. A few years after that, I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today.

When I related my tale recently to Teresa Ghilarducci, a behavioral economist at The New School who studies retirement and investor behavior, she let out the kind of sigh that made it clear that she had heard it all before. The sad truth, she told me, is that I’m the rule, not the exception. “People have income shock, like divorce or loss of a job or a health crisis,” and those crises tend to drain retirement accounts, she said.

But even putting income shocks aside, she said, most human beings lack the skill and emotional wherewithal to be good investors. Linking investing and retirement has turned out to be a recipe for disaster.

“People tend to be overconfident about their own abilities,” said Ghilarducci. “They tend to focus on the short term rather than thinking about long-term consequences. And they tend to think that whatever the current trend is will always be the trend. That is why people buy high and sell low.”
Because I don't want to reprint the entire article, I'll now flash forward to the money quote, so to speak:
What, then, will people do when they retire? I asked Ghilarducci. “Their retirement plan is faith based,” she replied. “They have faith that it will somehow work out.”
In yesterday's post, I asserted that people who have bought houses in the past couple of years in the mistaken belief that the "bottom was in" on the housing market are like sheep being led to the slaughter because of their blind optimism. This column makes it plainly apparent just how widespread the problem really is. Obviously, I don't know Joe Nocera, but if he is writing op-ed pieces for the New York Times he must be a pretty smart guy. If he got tripped up by his own stupid blind faith, what hope is the for the average mope?

Bonus: I may end up linking to every song on this album before its all over


  1. Yesterday I had a chat with a Chinese waiter. He said"'Xiang yo Lao ,'xia yo xiao"'which means above me is old, below me is young, its his responcibity to support 3 generations.
    His advice for those Americans who want to survive.


  2. "But even putting income shocks aside, she said, most human beings lack the skill and emotional wherewithal to be good investors. Linking investing and retirement has turned out to be a recipe for disaster."

    Substitute gamblers/gambling for investors/investing and you go right to the heart of the matter.

    All "investment instrument" are a chips. All "investing" is is trading your money for them. All Wall Street is and ever was a dressed-up, rigged casino designed to rake off your chips before you ever get the chance to cash out.

    Also...I love Ghilarducci's explanation of how this happened to millions of people: They lack the necessary skills to succeed.

    So this situation was caused by the personal failure of millions of individuals...not the fault of the criminal elite that stripped them of their savings and the corrupt politicians that protect and cheerlead for them.

    Bullshit. Another shill for the largest criminal enterprise in human history.

    1. I actually think she is half right. Yes, the criminal enterprise was designed to rip people off...but many of them would have gotten fleeced anyway in their blind greed. Otherwise, Nigerian e-mail scammers would have gone out of business along time ago. :)

    2. Totally agree with what you say about greed. I would go further and say I agree with Morris Berman when he suggests greed and get-rich-quick schemes are integral to American character (or whatever you want to call it).

      However...calling gambling bets in a crooked casino "investments," modifying the tax code (making 401K contributions tax deductible) to incent people to participate in "plans" that generally offered nothing but speculative choices, and allowing the corporate media to use the public airways to bombard the public with Wall Street propaganda, certainly inspired a lot of people to take a seat at the table that would otherwise never have gotten involved with the Wall Street con.

      9 out of 10 may have gotten what they deserved, but fraud and theft are still fraud and theft...and those that committed them are still criminals.

  3. The author, Nocera, indicates he is 60, so this us a pretty good time line of the comedy of errors, also know as Joe Nocera’s life. Let me count them:

    Error (1)—investing too heavily in one sector: 2000 (48 years old) “My tech-laden portfolio was cut in half”

    Error (2)—doing one of the most expensive things you can ever do: 2006 (54 years old) “I got divorced”

    Error (3)—jumping into a major debt obligation at an older age: 2008 (56 years old) “I bought a house that needed some costly renovations”

    Error (4)—cashing out your retirement plan too early: 2008 (56 years old) “I threw another chunk of my 401(k) at the renovation”

    Error (5)—waiting far too long to act on your financial problems: 2012 (60 years old) “I’ve also found myself with a sudden urge to get my house in order”

    Error (6)—assuming that you will still have a job in the future: “I’m not planning to retire."

    WHEN, not if, Joe losses his job, because the NYT is bleeding red ink, and needs to again cut back its staff, he will no doubt turn to relatives and the government to “bail him out.” Good luck with that.

    Many folks are actually worse off than Joe. After all, Joe’s story didn’t have Error (7): “I co-signed my kids college loan, but after 5 years, they dropped out of school without graduating and moved back home.”

    But, I can’t say that I feel particularly sorry for him—Joe’s a smart old man, but, he acted like a dumb-ass when it came to planning and taking personal responsibility for his own future.

    Unfortunately, I know plenty of folks just like Joe, some 20-30 years younger, and perhaps with enough time to turn things around.

    But, I have found it to utterly pointless and futile to talk to people about these kind of issues—its not that they haven’t been warned. So, I watch then make one error after and another, until they drive off the preverbal financial cliff. And then I watch them claim “special victim” status.

    Is it just that Joe had faith that “things will just work out,” or, a lack of "skill and emotional wherewithal?” Or, was this just another example of human greed—why save money and think about the future, when I can go out and spend and have fun now?

    1. Your experience and mine are very similar, CW. I sounded a lot of warnings with friends and colleagues back in 2008 & 2009, only to have many of them throw those warnings back in my face after the stock market rebounded. Trying to tell them that the rebound is merely the result of reckless and unsustainable fiscal polies does absolutely no good. Which is why I've mostly stopped discussing these issues in meat space unless I know the listener is receptive.

  4. Well, I finally got arrested at Occupy on Friday, and even though I was there to protest the ruination of the environment, my cell mates were largely oblivious and far more concerned about health care, student loans, social security, retirement, and economic injustice.

    I tend to think none of those issues will amount to diddly squat when major cities and the most arable land are underneath salty water. But it's true, most people don't look very far ahead.

    I heard an interview with the author of a new book called "Subliminal: How Your Unconscious Mind Rules Your Behavior" that sounds fascinating and pertinent to this topic. You can listen to it here:

    1. Gail -- you are a true American hero of the kind that has become all too rare these days. I admire your determination not to remain silent even in the face of overwhelming apathy and ignorance.

    2. Aw shucks thanks Bill. I'll send you a "wish you were here" postcard once they activate the FEMA camps!

  5. "They have faith that it will somehow work out" That's about all that's keeping the economic show on the road these days. And yet it's this blind faith that is stopping people from acting to try and find new ways of living and working. How bad will it have to get before this faith is dented, as bad as Greece perhaps.

    Gail, can I endorse Bill's statement that you are a "true American hero". I admire your courage and resolve.

  6. You shouldn't be always dumping on real estate investments in the US. It just takes a lot of investigation to make smart choices. I did loads of work, and settled on the Miami area as a place to invest. Lo and behold! prices are going up there. In the future there will be more opportunities for people who think before they buy.

    1. Check back with me in five years and let me know how that works out for you. ;)

  7. Thank you, irishwildeye! I'll be headed back to NY tomorrow, I am starting to think May Day General Strike will be huge and hugely exciting. Please everybody, if you can't take the day off, or get to a protest, DON'T BUY ANYTHING. Let's scare the crap out of the 1%.

  8. Hi Bill,
    I loved reading this piece! Well written! :)

    rescue my pension

  9. Well, I think everyone got a lesson into just what our officials would do to maintain the status quo for the wealthy investor class. Nuff said on that one Miss Gail.

    Myself, I do have a retirement plan. It won't work for most others, because it assumes willingness to work for ones self in retirement and also willingness to change lifestyle. The major error most people age 55 to 60 is thinking they can't do that. The second error they make is thinking they must depend on external resources when they really don't have to do so in most things. But a hint I'll give, people, you CANNOT live in any real kind of way in New York City on Social Security not even two people with maxed out Social Security. You'll wind up eating cat food to pay the rent and utilities. Plan to move out, sell everything you have if you must, but leave.