My father worked at his company for 45 years. Now 82 years old, he still enjoys a healthy pension that provides for him and my mom. Today, if you are one of the 10,000 people turning age 65 each day, your future is likely going to be very different. In fact for most of the middle class, traditional retirement is dead. So what happened? Who stole our retirement? And could something good actually come out of all of this?
First, a little history. Who invented retirement? If the question sounds absurd, consider: in traditional societies, and until recently most modern ones, there’s no such thing as retirement or retirement planning. Things were pretty simple: when you got old, you depended on your family, band, or village to take care of you.
The first groups of “pension” recipients were soldiers. From Roman through Revolutionary times, parcels of conquered or surplus land were often given to retiring veterans. The social and personal benefits of turning warriors into farmers are pretty obvious. I like the almost poetic circularity of this approach – since nearly all of those soldiers were farmers to begin with.
Regular cash payments eventually replaced these ways and the modern pension was born. Over time it evolved to cover widows and retirees across all kinds of industries and government. The concept of the pension became nearly universal on August 14, 1935, when Social Security was established as a federal supplement to other pension plans.
Although it’s nice to think everyone who worked for companies “back in the day” made out as well as my father, even at their peak pensions didn’t cover everyone, and the benefits they paid weren’t always adequate. But on top of any financial rewards, pensions offered a reassuring continuity with the past. In the age of the mass society, social organizations took on the old role of the family.
Then the 401(k) came along. It was almost an accident at first, a clever way to exploit a loophole in the tax code. First gradually, then rapidly, it took off. Lured by the novelty and greed of the stock market, some employees (just a few of the most savvy and insistent) clamored for control of their own retirement money to seek the promised land of greater wealth.
A few smart employers also smelled opportunity, relishing the chance to escape from the long-term financial obligation of pensions. Removing those future liabilities from the balance sheet meant near-term bonuses and stock appreciation for a small minority of the most senior employees and shareholders. It wasn’t long until the financial industry jumped in to join the party. The whole experience was very much in the spirit of the 1980s and 90s, and seemed like a great idea at the time.
Today 401(k) assets total something north of 20 trillion dollars. The impacts on society, the financial world, and government have been enormous. With the increase in the amount of money that has come into these Defined Contribution Plans (which together are called 401 (k) 403 (b) and 457 plans) fees inside of these plans have dropped for the employees but that has had a cost as well. The current lack of support for the employees enrolling in these plans, and advice on investing in these plans, has all but disappeared. So instead of a future of choice, control, and prosperity, the great shift has left us disconnected, depersonalized, and full of fear. What went wrong?
In essence, we traded security for money. We sold out – or got sold out. Retirement income for most people today has little connection to the employer, or society, or anyone else. It’s just numbers in an account. No one besides you is responsible for your well-being, apart from a limited “fiduciary responsibility” that basically means financial providers and employers aren’t supposed to misuse or waste your money. How bad have things become when laws must be enacted to keep employees’ own money safe from their employers?
But the deal has been done. And now that our future depends on managing money, we are all investors. We’re told that if things go wrong, it’s our fault. The problem is that financial markets do go wrong, all the time. Riding the investment roller coaster is a grueling business even for the most conscientious financial professionals, much less ordinary folks.
If this weren’t unsettling enough, we have to keep on managing our money after we retire. So we worry about investing well enough to avoid running out of money. Should I buy an annuity, or invest in large cap, international, or floating-rate bonds? Find an advisor I can trust? Or just hope for the best? These are not decisions most people should have to make. The prospect drives reasonable people to say things like “I’m just planning to die young so I won’t have to deal with it.”
These fears add up to a lingering dread that sucks the promise from our future and the joy from our present. And so there’s a spiritual impact as well. Like an unpaid debt to ourselves, concern about the future takes us away from the moment.
Spiritual teachers tell us the moment is the only true reality, the only time we’re fully alive, and the only path to fulfillment. It’s also a pretty tough place to be. The truth hurts as much as it heals. So we distract ourselves, make excuses, run away. Modern life seems designed to steal our consciousness from the present. Worrying about having enough money to live in retirement makes it even more difficult to truly live, right now or after we retire. And by staking our entire future happiness on events in the artificial world of money, we set up a massive gravitational pull away from the real world. We spin helplessly away from knowing and being our true selves.
Even while we sense it’s unwise, many of us would still be tempted to accept this spiritual debt if the financial side paid well enough. But something went wrong with the money, too. On the brink of retirement, the Baby Boom is looking at a savings gap on the order of ten trillion dollars. Forbes calls it “the greatest retirement crisis in American history.”
There are plenty of reasons: imprudent investments, greater longevity, an ill-timed recession, incessant inflation, and especially inadequate savings. Sadly, the biggest reason might be fallout from “the great takeaway” I’ve just outlined.
Employers who have successfully offloaded long-term financial commitments to our future don’t want to spend a penny more than they have to on our wellbeing. The ancient wisdom of the elder shamans might call it corporate soul loss. Despite lip service to recruiting and retention, bigger 401(k) matches don’t create shareholder value. Since you need a finance degree to understand the numbers, we don’t demand that companies do better. But even though we sense something’s wrong we’re too demoralized to shift our priorities and invest in our own futures.
These days the future is starting to look a lot like the pre-modern past. Moving in with your kids may again become the dominant retirement strategy. It’s happening right now, not just on the news but to people we know. And maybe to us.
Perhaps this wouldn’t be the worst thing that could happen. Think about it. If we maintained stronger bonds with our families, if several generations shared a roof, a table, and all the benefits and challenges that come with that, how would we change? Perhaps we’d all begin to reconnect with each other and remember what really matters. So this great takeaway and pending crisis for millions of Americans could also encourage us to move back in with our own, authentic, present selves. Enlightenment usually happens when you least expect it – perhaps even in your kids’ spare room.
“Lawrence Ford was dubbed the “Shaman of Wall Street” by the Washington Post and has had a long, estimable career in finance and investments. As the CEO of Conscious Capital Wealth Management, LLC, he has advised thousands of people with both their finances and their spirit. He has been a trusted advisor to the rich and famous known as the “Resident Shaman”. So, if you are tired of the same old financial advisor relationship and expect more from the relationship then please visit or call. We’d love to hear your story. Thirty minutes, no cost, and no obligation.”