Remember meForgot password?
    Log in with Twitter

article imageOp-Ed: Forget about retirement? Impossible, due to lousy economics?

By Paul Wallis     Jan 29, 2013 in World
Sydney - If you’ve got savings, stocks or other hobbies which you are hoping will tide you over when you retire, you may look for that elusive silver lining. It’s supposed to be there, but people are finding that it isn't. Some are finding that it never was.
A lot of older people who thought they’d retired have been effectively forced back into the workforce. I know one guy who works as a courier and a few others who are well past work expiry date, well into their 70s and still working. They don’t want to have to do it, but they have no choice. They don’t have the money and their savings evaporated after retirement, courtesy Wall Street and the other economic geniuses.
Sydney Morning Herald explains some of the problems of investment, and they apply very much to retirement investment:
Nearly every textbook and investment theory equates risk with market volatility. If a stock goes up or down more than the rest of the market, it's said to be riskier. If the stock market has a down year, people start talking about the risks of owning stocks.
But this is a weird way to think about risk, especially if you're a long-term investor.
Charlie Munger, Berkshire Hathaway's (NYSE: BRK-A, BRK-B) vice-chairman, describes risk like this: "Using volatility as a measure of risk is nuts. Risk to us is (1) the risk of permanent loss of capital, or (2) the risk of inadequate return."
The other risk is based on real living costs, which have gone totally gaga in the last decade or so. The theory seems to be that anyone can charge anything for anything, and the public have no choice but to pay. If returns on your investments don’t match your expenses, you eat into your investments to meet the shortfall, and wind up with less money, earning less money.
The big question  no answers
The big question, no answers
The word to watch in Munger’s comment is “capital”. The dubious logic of the past was that retirement funds would prepare for retirement- According to the values of the last 40 years, not now. The amounts saved were also based on old currency prices, not today’s. A dollar today isn’t worth anything like what it was when most retirees planned their savings.
I remember a superannuation rep, a good one, telling me in the early 1980s that people our age would need at least a quarter million on which to retire. Consider what’s likely to have happened to that quarter million since then, particularly since 2008. It’s worth, in real terms, less than half the value of a house, in Australia, and perhaps no more than a reasonable/OK apartment.
You’d have no cash left, though. You’d be entitled to the age pension or equivalent, but that barely qualifies as an insult, let alone a living wage. You’d also have sinned against the anti-welfare people who assume that everyone is a multi-millionaire and nobody could possibly ever be short of money at any point in their lives unless they actually want to be poor. These are the same people who pay the policymakers.
What, you may ask, is wrong with a sane system where people can actually save enough money to retire?
Everything. The Australian system is better than most, but it makes a point of obstructing savings.
For example:
1. You pay tax on your wages.
2. You deposit funds in your super.
3. You pay 15% on price values on your super if they increase.
4. You can’t deduct losses.
5. You pay about 2% to the super fund for the privilege of giving them the money with which they make billions.
6. If you have a degree, you may also have to pay the never-sufficiently-damned Higher Education fees, aka HECs, introduced by a generation of politicians who got free tertiary education and were sufficiently talentless to believe funding estimates by university administrators.
7. You may have times of unemployment during the average 30 year life of your superannuation policy. That trashes any planning model and means you’re short before you even get to the finish line.
8. No, a college education is not a defense against unemployment. Quite the opposite, when you hit 35-40, it’s a guarantee of unemployment. You’re old news.
9. You may have life events which cost you large amounts of money.
10. You may have expenses like legal or medical expenses which destroy any savings.
11. You pay 15% when the money comes out or roll it over into an Approved Deposit Fund where it cannot possibly earn as much as inflation and will be eroded by your expenses.
12. This is in effect triple taxation, and that 15% has a hell of a lot to do with reducing real dollar values over time.
13. The government then bitches that so many people are on welfare because they can’t support themselves and has to balance revenue. It then, with staggering insincerity, claims that taxpayers are “supporting” the old, when they’re doing nothing of the kind.
14. Most people also take out their own health insurance and pay their way with accommodation and food if they can, so that’s not true, either.
Income to super funds doesn’t and can’t keep pace with inflation. It keeps pace with whatever harebrained investment strategy is in vogue when you take out your policy.
The fact is you can’t save enough money on which to retire unless you have a virtually charmed life and a more charmed income for a few decades. Chances of future generations doing that are zip or less for all but a microscopic percentage of people.
The Boomers had it all- Assets, jobs, careers, etc. Their kids got the cheap and nasty version. Future generations won’t even have that, or anything like it. Retirement will become a meaningless word to a lot of them, unless something brutal and permanent is done about the irresponsible social financial management of Western nations.
Explain, using diagrams if necessary, what’s so great about a financial model where just about everybody loses.
Answer, if you can, the value of having large numbers of poor people in a society.
Extrapolate, if you’re stupid or masochistic enough, the likely state of a global economy where everybody is effectively poor.
Retirement used to be a mechanism for letting young people into the workforce. It worked. People would retire and everyone would step up a notch, with new kids coming in at the bottom. The fact is that nobody now wants to leave. They don’t have the money, they don’t have the security, and they’re not idiotic enough to think they have.
Retirement money, when there was enough of it, was a boon to the old economy. Retirees would spend on things they’d always wanted. They’d buy yachts. Now, they can’t do that. They may not buy shoes unless they have to. Costs have gone up so far that any spare cash is gone before they get a chance to spend it.
I’m sure there’s some ridiculous neocon justification for other people being poor in any circumstances, and some hypocritical cure, like “they should have saved more”. They can’t. They never could. You can’t raise families on thin air. You can’t drive a car on rumours.
This is the worst form of pseudo economics. All this so-called “growth” simply equates to spending more for the same things. If an apple costs $10, you can say the economy is expanding. The apple rots because nobody will buy it, but you’ve got the numbers to show “growth” in value of product and who gives a damn if there’s a tomorrow, anyway?
You should. Like it or not, unless you’ve got a great way of getting around tomorrow, it will happen. To you. Less bull, more balls, thanks policymakers, and remember you can be unemployed tomorrow, too.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
More about retirement savings, superannuation, old style superannuation, financial planning, pensions and revenue