How Wall Street Wrecked Your Retirement
Today's subject title is from this essay published in The Nation. The writer, Nicholas von Hoffman, bills himself as a "Pulitzer Prize losing author" of 13 books. [Note the word "losing"!]
Hoffman's gloomy essay makes some telling points. He notes that everyone is suffering from the current economic malaise, even those who didn't speculate on their homes or buy a home they couldn't afford. But because of the excesses of their neighbours that did and "the criminal folly of American finance" their retirement dreams nevertheless are being destroyed.
One of the big arguments the financial industry has made in encouraging people to invest for retirement is that America's Social Security system may not be there for them when it's the boomers' turn to retire. The situation was nicely summarized by Scott Burns and Lawrence Kotlikoff in the 2004 book, The Coming Generational Storm. The fact that the Canada Pension Plan is on a somewhat sounder footing is another topic, since Burns and Kotlikoff, as well as Hoffman, are far more concerned about the situation in the States.
The irony, as Hoffman notes, is that the way things have been unfolding lately, "the bright spot is Social Security." Unfortunately it's "private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it."
Hoffman says Social Security cheques will be there whether stocks are up or down and the benefits are indexed to inflation to boot. However, it is "too narrow a ledge to stand on through the years between retirement and death." It was only meant to be a base to complement employer pensions and private savings. But instead, America's tax-sheltered savings have been vaporizing along with the value of their homes. Meanwhile the "Wall Street fee farmers" get rich no matter what happens to their clients' retirement plans.
In short, not a fun read. One hopes essays like this turn out to be the kind of gloomy consensus that characterizes market bottoms. As we noted in this piece last week, the fund manager of the late Sir John Templeton's Templeton Growth Fund felt the news couldn't get worse and therefore investors should invoke Templeton's famous maxim that the best time to buy stocks is at the point of maximum pessimism. Note too that part 2 of the video interview with Lisa Myers is now up and available here. The focus of the second segment is on why there are no Canadian stocks in the Templeton Growth Fund currently.
If indeed the news does get worse, then all bets are off. If that's the case, for many the only solution will be to delay retirement and keep working as long as possible.
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