NY Times: The Golden Years, Tarnished

November 18, 2008 at 12:23 pm  ·  Category: Culture and Current Events

In communities like Gleneagles and in the homes of retirees across the country, these are days of fear and uncertainty. In theory, retired people are not supposed to invest much in the stock market; in reality, many millions of them do. With the economy in free fall and stocks down about 40 percent this year, legions of middle- and upper-middle-class people are suddenly worried about having enough to carry them through.

“The Golden Years, Tarnished”, The New York Times, Thursday November 13, B1

People are grieving.  There was a death. Their money died.

Barbara Goldsmith, Psychotherapist, resident of Gleneagles Country Club

The New York Times published an article last Thursday that really got to me.  The real victims of this crisis are older people who worked their whole lives and saved up so that they could retire comfortably.  They played by the rules, they did everything they were supposed to, and now, in what are supposed to be their golden years, they are having to deal with the destruction of their nest eggs and worries about running out of money.  It just ain’t right.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 
No Responses to “NY Times: The Golden Years, Tarnished”
  • Historically speaking, it’s interesting to see how overall employee compensation gets reduced by a slow change of retirement benefits. In the 1950’s and 1960’s you have defined-benefit pension plans based on time of service with the company, etc. These are in addition to the salary and are part of the overall compensation for labor. In the financial turmoil of the 1970’s, with high rates of inflation, these pension plans become much less attractive, so employers introduce 401k-type plans, to be used in addition to pensions. These new plans are to be funded by taking withdrawals directly from the paycheck. Since these plans invest directly in various types of securities, they are touted as something that will keep up with inflation. Consequently the defined-benefit pension plans, which an employee got in addition to the paycheck, slowly disappear during the 1980’s and 1990’s with the understanding that inflation makes them a less reliable source of retirement funds than a 401k. Note that there is a changeover period during which both 401k’s and defined-benefit plans exist. This makes it less obvious what is happening as time goes on and defined-benefit plans go away, forcing many employees to fund their retirement entirely from their paychecks. Now, today, we have deflationary financial turmoil, severely degrading the value of most employees’ 401k’s, and the politicians want to regulate 401k’s so that their retirement benefits become more predictable — that is, we’re going back to something like the 1950’s and 1960’s defined-benefit pension. Pay attention, however, to what’s happened to the salary portion of employee compensation over the last 50 years. Those 1950’s and 1960’s pensions were in addition to the employees’ salary, and now the “new” pension-equivalent, more predictable 401k’s will be funded by withdrawals from the paycheck, just like in the immediate past. Slick, huh? Employees have had their overall compensation reduced over the decades in such a way that only the oldest of old codgers are in a position to notice what’s going on. People who retired in, say, 1970, with a generous defined-benefits pension based on several decades of service, saw the value of the pension severely reduced by the 1970’s inflationary financial collapse. People retiring in the next few years, looking forward to living on their 401k’s, are now seeing their 401k values disappear in a deflationary financial crash. Sometimes I think there’s a lot to be said for John Derbyshire’s observation that modern society often looks like a conspiracy of the more intelligent against the less …

    D. Cohen  ·  Nov 19, 2008 at 10:46 am  ·  Permalink
  • It’s brutal. Everybody has their nest eggs in financial markets, including a lot in stocks, and this kind of volatility is just stomach churning. Especially if you are retired or close to retiring. It’s ugly.

    Greg Feirman  ·  Nov 20, 2008 at 1:01 pm  ·  Permalink

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