NEWSFLASH! When it comes to saving for retirement, our current economic conditions present some major challenges.
Q: Given our massive amounts of national debt, an uncertain economy, low interest rates, and high expectations for a major stock market correction… should managing and preserving your retirement savings be treated as a "do-it-yourself" project?
A: Probably not.
Unfortunately, however, the job of professional pension manager has been placed squarely on the shoulders of American workers and they’re now forced to devote their time to portfolio and pension management... along with performing their real jobs, paying bills and raising a family.
Sounds absurd, right? Nonetheless, that’s exactly the scenario the current 401(k) retirement system has created.
It was the recent financial crisis that also revealed many of the gaping holes in the current “defined contribution” 401(k) retirement system… holes that for many baby boomers will most likely never disappear (specifically, for those who take the risk of assuming their 401(k)s will last as long as they do!).
Short History Lesson. The 401(k) plan was originally created in 1978 to provide Americans with a tax break on deferred income… often with matching contributions from the sponsoring employer.
Now, it’s important to note that the early 1970s were exceptionally slow times for Wall Street, and it was around that time that Wall Street became politically savvy and began to influence Congress through the power of lobbying (this was before Wall Street bankers were perceived as greedy, relentless bastards... and insanely out-of-control in their pursuit of money).
You see, they desperately needed to get people investing in the market again and what they ultimately achieved was something absolutely incredible... for THEM!
With the help of high-powered lobbyists, Wall Street managed to get their wing-tipped foot in the door to what would end up being unimaginable power and control for the next 40 years. They were actually able to convince an asleep-at-the-wheel Congress that 401(k) plans would be more beneficial than our already proven and beloved pension system!
And, with this shift away from guaranteed lifetime pensions to 401(k)s, Wall Street... at the expense of tens of millions of hard working Americans... was poised to have total authority and dominance in the retirement planning arena.
Because 401(k) plans force their participants to decide on their own the investments within their accounts (index annuities and cash value life insurance, by the way, are excluded as options!), the introduction of the 401(k) helped spark an enormous infusion of money going into securities like individual stocks and mutual funds.
Why did this happen?
Quite simply, ALL of these securities are controlled by Wall Street bankers who make money whether your 401(k) or IRA goes up... or down. And, don’t forget that every single automatic withdrawal from a paycheck into a 401(k) results in a fee that’s collected by these guys. So, we’re talking about tens of millions of automatic 401(k) paycheck withdrawals... every single month... by a majority of workers in America.
Of course, most employers loved the concept. Another reason for 401(k)s replacing pension plans is that, with pensions, employers were required to contribute every year to fund the predetermined retirement benefits of participating employees… regardless of a company’s yearly profit or loss.
So, in effect, by phasing out pension plans, companies had taken the burden of guaranteed lifetime income off of themselves and left their employees holding the retirement security bag.
NOTE: Defined benefit pension plans distribute guaranteed lifetime benefits via a fixed income annuity. Using such an annuity, the employee will receive equal (or increasing!) continuous retirement paychecks for the remainder of his life. And, the annuity will also allow joint payments so that a surviving spouse continues to receive those checks for the rest of his or her life.
Mark (you ask), can we create our own Private Pension Plans?
YES! Most of my clients, in search of safety and guaranteed lifetime income, have rolled their 401(k)s, 403(b)s, 457s, TSPs, IRA accounts (traditional and Roth) and other sources of money (both qualified and non-qualified) into fixed income and (world-class) fixed index annuity private pension plans!
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So, my friends, are you getting a sense of the magnitude of what Wall Street manipulated Congress into doing?
By phasing out pensions and encouraging 401(k)s, Wall Street pulled off one of the most enormous and shocking sales accomplishments in American history!
With this new and almost unfathomable 401(k) cash-flow tsunami into the stock market, Wall Street landed a multi-TRILLION dollar monopoly deal that continues to pay these insatiable fat cats hundreds of billions of dollars per year... forever!!!
I'm telling you, ladies and gentlemen, this is a concept so HUGE and inconceivable that most American workers never even think about it. Yet, when it’s pointed out, it becomes completely obvious... and disgusting.
So, let me ask you one final question…
What usually has to happen in a sales transaction for one party to walk away with complete control, unyielding power, virtually unlimited money coming in, and a too-big-to-fail mentality?
Well, duh. It seems to me that someone else (the other party in the transaction) usually winds up getting (expletive deleted)!