January 22, 2018

∴ NYT: The Market Isn’t Bullish for Everyone

Steven Rattner — The New York Times:

To be sure, rising stock markets help many Americans in other ways. Perhaps most importantly, they secure pension benefits for those fortunate enough to participate in corporate or municipal plans.

However, the percentage of workers covered by these programs has been declining, from 62 percent in 1983 to 17 percent in 2016. Only about 22 percent of Americans below the median even have an individual retirement account.

These numbers will come back to haunt us not long into the future.

Corporate America did away with the defined benefit plan, aka a pension, years ago in favor of a market-based system including IRAs, 401(k)s, and the like. The effect transferred the financial, intellectual, and moral burden of securing retirement income to the employee. It was around this time that cooperate America relabeled their personnel departments “human resources,” marking their labor pool as akin to raw industrial materials and electricity to run their machinery. All became resources to use until expended. The last vestige of humanity fell away from capitalism.

These investment products require workers to become part-time money managers – a skill the eludes even some in the investment industry – to their detriment. Many don’t know where to begin, or simply don’t give it any thought. In times past these skills weren’t a worker’s concern. Payroll withholding into a pension plan happened without direct employee involvement. At the end of a career, retirement income was secured.

There were many, too, who were invested, but who walked away from their investments during the last recession. A lot of paper wealth evaporated between 2008 and 2013, as many amateur investors didn’t have the stomach to ride out the crash. They sold into the decline, or worse, near the bottom. Most of them haven’t returned to the markets.

We can’t blame these workers for turning their backs. It’s a rational short-term response to a problem they could not get a handle on. I do fear for their (and our) long-term financial future, though.

We all get to the point in our working years when it’d be nice to throttle back, leave the full-time rat race and go do something else, perhaps a labor of love that doesn’t pay much or a volunteer gig serving others. That’s not going to happen for workers who could have secured their retirement years, but who walked away from the markets. This problem will spread and worsen as more Americans reach what used to be considered “retirement age.” And with a live birth rate below the replacement rate there will be fewer young workers to fund increased need.

The plight of impoverished seniors who cannot work, and yet who cannot afford to stop working is going to have a ripple effect on the greater economy. There’s no safety net for them, no guaranteed income beyond Social Security, which will itself be strained. There’s no protection for the greater economy when their impoverishment raises the need for federal and state social benefit programs, and lowers our GDP. The markets will respond accordingly, lowering investment value here as money moves to foreign markets where labor and retiree stability is stronger. The greater financial benefit of the European-style social safety net will finally become evident to even the most fiscally conservative Americans.

And this doesn’t begin to address American workers whose income isn’t sufficient to cover their family living expenses, let alone make deposits to a retirement account they won’t be able to use for decades. Nor does it address the changed nature of employment itself, where a lifelong career has given way to the gig economy.

There will be a reckoning when uninvested workers are of a ripe age, health and age issues intervene, but they cannot afford to stop or slow working. That day isn’t so far off.

#economics #retirement #markets #equities #investing

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