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Guest Post: Are We Approaching Peak Retirement?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
If stocks, bonds and real estate all decline going forward, where are pension funds going to earn their 7+% annual yields?
If we look at the foundations of retirement--Social Security, stocks, bonds and real estate--it seems we may have reached Peak Retirement. Let's start the discussion by noting that the primary Federal retirement programs--Social Security and Medicare--are "pay as you go," meaning the checks sent out to beneficiaries this year are funded by payroll tax revenues collected this year from workers.
As Mish and I (as well as others) have tirelessly pointed out, the "trust funds" for these programs are phantoms of imagination. When these programs run deficits, the government raises the money to fund the deficit the same way it funds all its deficit spending--by selling Treasury bonds.
These programs were founded on a demographic illusion, i.e. that the number of retirees (beneficiaries) would magically remain a small percentage of the workforce paying payroll taxes. Alas, the number of beneficiaries is rising fast while the number of full-time workers is stagnating.
Full-time employment and the number of Social Security beneficiaries: the ratio of full-time workers to beneficiaries is already 2-to-1, and set to decline. Below 2-to-1, either payroll taxes will have to icnrease or benefits will have to be trimmed, or some of both.
Public and private pensions are based on earning 7+% returns on investments in stocks, bonds and real estate. Let's look at each asset class and reckon the likelihood of it earning 7+% into the future.
The stock market has traced out a multi-year megaphone pattern that presages a decline to a new low: if this megaphone pattern plays out, the S&P 500 could plummet from its current level around 1700 to the 600 level. Were that to occur, pension funds holding stocks would suffer catastrophic losses.
Bonds are ripe for a reversal: as bond yields decline, the market value of existing bonds rises. This also works in the other direction: as yields, rise, the market value of all existing bonds declines. If the god-like powers of the Federal Reserve turn out not to be so god-like and interest rates rise, the market value of all existing bonds could fall dramatically.
Bond market trends rarely last 30 years, so the trend of falling yields is extremely long in tooth and ripe for a reversal, for example, 10 to 15 years of rising interest rates and declining bond values:
Housing has rebounded weakly, but only as a result of unprecedented intervention by the Federal Reserve and the Federal government: The Fed drove mortgage rates to historic lows, bought over $1 trillion in mortgages and Federal housing agencies such as FHA guaranteed 3% down payment mortgages to just about anyone with a full-time job and a middling credit rating.
Banks have held tens of thousands of defaulted homes off the market to induce an artificial scarcity to drive prices higher. Meet The Monster Of The Housing Market: Presenting "Vampire REOs" Where Half Live Mortgage-Free (Zero Hedge)
All this trillion-dollar manipulation and intervention generated the weak bounce that is now ending.
If stocks, bonds and real estate all decline going forward, where are pension funds going to earn their 7+% annual yields? Please don't say "emerging markets," for those markets are imploding (see India as an example) under the weight of speculative excess, asset bubbles, capital flight, and to-the-moon credit expansion.
If pension funds lose significant percentages of their assets to market declines, earning 7% will be the least of the problems. As for the Federal retirement programs: if the erosion of full-time employment continues as a long-term trend, Social Security and Medicare will both start running massive deficits as the number of Baby Boomer beneficiaries continues rising while the payroll tax base shrinks.
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Peak Empire
“The Anatolian nobility let down their own emperor, deliberately sabotaging the battle plan. The elites were so caught up in their own jockeying for position that they lost sight of the real threat. It was not debt that destroyed the Western and Eastern Roman Empires, each in turn. It was faction.”
The elites are jockeying because we are beyond peak empire urban ponzi. There is no private demand for public debt. The Fed is left ‘printing’ both ends, capital for Wall Street and interest payments for local governments, in a contracting feedback loop. And the empire herd cannot change its behavior in real time so it has little choice but to go along for the ride, preferring magic to work. Peer pressure has always been about extortion. Only the emotional investor is surprised.
You have nations built on DNA by new family formation, and nations built on artificial geographic borders by legacy capital in its attempt to remain solvent. A vortex is like a spring coil with a contact set. Careful what you wish for; there are trade-offs and unintended consequences everywhere.
OK, so, which came first, debt or faction? Where is point C removing observers prism at a given time? What happens when you drive a new car off the lot? What are people buying a new car every few years really getting? Have you been to Spokane? What is the relationship between speed and position in the vortex? Where do you expect to find gravity?
Peak obedience.
Peak bullshit.
Right. The bastard progeny of the original and worthy peak oil discussion.
I like Charles, though.
I would suffice it to say, we've reached peak Criminality & morality. Collapse is inevitable.
We will NEVER reach peak bullshit, as the supply is unlimited, can be created instantly, and is completely unaffected by demand.
We may never reach peak bullshit, but I can't wedgie my waders past my crotch no matter how hard I yank 'em.
I assure you, most folks in the world who are struggling to survive aren't engaging in discussions about bullshit (other than that actual thing). If we're running around doing nothing but talking about bullshit then NOTHING gets done, we starve, we die... so, yes, there IS a peak in "bullshit."
I make it a point to not spend any time listening to talking-heads, opting, instead, to watch/work with folks who are doing...
i agree with everythign you say, except, "empire herd cannot change its behavior in real time"...real change is possible and is necessary, it will come from within when it happens...and it is inevitable that it will happen...the only question is when.
"empire herd cannot change its behavior in real time"...real change is possible
I'm not at all interested in the Empire changing. (Maybe I misunderstand, but I think that's what you're saying.)
Fuck the Empire - I want it to crash and burn so that honest people are left alone to rebuild.
Patel is with us, I think. Change is possible to the extent that we recognize that the greatest enemy of the American people is the American Imperial government.
The punch-line was given a long time ago: The meek shall inherit the earth.
Does "Going Galt" count as retirement?
>> As Mish
Fuck Mish.
I plan on never retiring. I already have my plans to be productive right up until complete physical or mental dysfunction. After that, I have it in my will that I can be eaten and any spare parts used for Halloween party props and/or lawn decoration.
Excellent plan. I never thought about the Halloween props bit. That may even generate some revenue for the wife and kids.
ParkAve! You're a hero of the USSA. The order of Obama for you!
With more citizens like you, comrade, the collapse could be pushed back 2-3 years at least!
Forward!
WOW! First time I'd ever heard someone else make the proclaimation of planning to NOT retire. It was a good dozen years ago, after having meticulously planned out my finances up until the day I died, that the light-bulb went off and I figured that "retirement" was an illusion, and better than going down the drain chasing such I'd just figure on BEING PRODUCTIVE until I died. All has been reinforced after being with my [new] wife who is from the Philippines, where "retirement" is a foreign word.
Anyway, it was a big burden lifted. More uplifting was dumping any notion of counting on "hope." This is the kind of stuff that really sets you free.
I hope its peak BS AND LIES
It's alright. The Boomers are starting to show remorse and apologize for all the destruction they have left in their wake. I, for one, would be happy to contribute to their retirement from the salary derived from my future gainful employment as a college graduate. /sarc
http://www.fakenation.info/please/baby-boomer-apology-season
I just had a conversation with a soon to be retiring client who works in the auto industry. At $27.00 an hour, she is one of the last high paid people going out. The only "benefit" that her company had left over was a 401k to which the company doesn't contribute. The "new hires" (I use that term loosely because their title never goes beyond that) are capped at $13.00 an hour. Now tell me, how are these poor schlubs ever going to retire? They won't, and this is the dilemma for most if America. Debt slaves working until they drop over.
they wont 'retire' as the tv commercials would have you believe. the only way the $13/hour crowd will win, is to reduce consumption NOW. save more money NOW. turn off the tv, forget about the Joneses.
shun consumerism ideals and know that consumerism is a sickness.
globalism is competing with the chinese, who might eat 2oz/meat a day and live 3 generations in a 3 room structure, for a $13/hr job.
Debt Bondage & Enslavement. A system of control. A system The Global Criminal Oligarch Bankster Intelligence Crime Syndicate own.
@ Dr. Engali,
Agreed. When I recently retired, it depressed me to hear so many comments from co-workers who told me that I was one of the lucky ones--they saw no hope of any comfortable retirement. That is profoundly peak retirement sentiment.
Doubly bad since I worked for a monopoly, rich in cash. Somehow little was left over for the workers.
Maybe people should aquire better job skills than a $13 an hour working in a factory and not depend on other people to take care of them?
We have this idea that every job should somehoe work out where the person gets to retire at 65 in Florida, play golf everyday, have free healthcare and prescriptions, cash pension checks and drink Pina Coladas, etc. That might have worked a few short years after WWII in the US when the rest of world was still smoldering, but it's always been an illusion for the long term.
Unfortunately, a lot of boomers are expecting retire in the same style that their parents did. It's understandable, but I feel sorrry for gen X/Y/Z, whose paychecks are going to drained to pay for it.
If everyone had a PHD then you would have PHD's washing dishes and cleaning bathrooms for minimum wage.
I'd had a retirement strategy, one with selling my house. When I'd seen that the UAW had negotiated away the future of the new-hires (old-timers selling out future folks) it dawned on me that there wouldn't be a bunch of money to buy up my house in the future. I sold my house: did so at the national top in the market (tough decision that ultimately ended one marriage- looking back I'd make ALL the same decisions again, as I'm in a MUCH better situation now).
Learn to accept "working." We all need to stop thinking in terms of "jobs." The notion of "retiring" ALWAYS means that others will have to work in order to support you: I don't like this notion.; and, as what is now becoming very clear, it was all a big sucker play, a distortion (another great one by TPTB so we'd carry their lame asses around).
The end game for the FED is to close the gap on the Banks' books of non-performing loans / mortgages and the asset value of the REOs. Another primary aspect to the FED's grand plan is to manipulate asset prices higher in order to close the unfunded pension / retirement problem. Essentially creating enough paper money and debt to create the illusion of prosperity, yet failing to realize the holes in the balance sheets may be closed, and pensions paid, BUT the value of the dollar will have dropped so much that no one will be able to live with any semblance of dignity in retirement. The debacle going on in Washington only highlights the need to increase debt in order to perpetuate the myth of prosperity; where the illusion may work in the near term, but those most effected are too young to vote, and the current embarassment of politicians will be long gone with the can they kicked into their childrens' mouths.
You're correct in your assessment that the Fed is trying to help fill in the bottomless holes in the banks' books, but the more assets they shovel the more assets crumble and less and less will have jobs, which will only further kick loose more assets... I don't even think that the USD needs to collapse before it all folds. Everyone is busy filling banking potholes on this bottomless pit economics system. At some point it will be clear that we're wasting time shoveling shit into endless holes. It's not confidence in the "dollar" or currency but in the entire "system." Nothing quite like what we'll be seeing has ever happened. It's going to get "interesting."
Remember you heard it from me: Economies of scale in reverse.
The FED can and will be forced to keep interest rates low forever. Look at Japan as what our future will look like. Low growth muddle through for the forseeable future.
A Japanese style slow motion collapse ?
Unfortunately that option is not possible for the GRC host country.
Hard as they try , there is only a quick violent adjustment ahead., however long they can delay only
increases the ferocity of that event.
More and more people are falling out of the system. Yes, there is likely going to be a "last one out turn out the lights" moment and the switch -throwing will most certiainly be quick and decisive, but by that time folks won't be hanging around.
Agree. the fed will do everything in its power to preserve the status quo which includes keeping rates materially low.
once the private pension funds start to fail, they will either turn over to the govt pension rescue....which is a massive reduction in benefits; OR the pension funds will massively reduce benefits to prevent them from having to turn it over to the govt--probably with hopes that if the can earn enough, they will increase benefits. so the solution is obvious and unavoidable, benefits and associated purchasing power will be reduced.
post WW I most countries devalued their currencies/ deflated bond values to restore govt finances. today they seem to be unwilling to do this. in the distant past, equity investments were made to recieve dividends. revaluing govt bonds vs a gold-backed currency was easy as one just repegged to gold at a diff exch rate. everyone got paid 100cents, but 100cents didnt buythe same amoutn of gold. today no such mechanism exists. other countires could devalue vs the $, but a strong dollar isnt what they want. no one seems willing to take bond haircuts, or force haircuts upon TPTB (themselves)......the only viable option so far is the 'super-tax' on depositors. redcution of savings, reduction of benefits by tptb to preserve their status quo. this is also known as 'playing with fire'
Retirement is a 20th century invention. Do you want to stop working before you die? Save up and pay for it yourself. Pensions, 401k's, all of this crap is designed to try and force people that are incapable of saving on their own to do so.
that's it..one dime out of every dollar earned, converted to PM, would do it
No, IRA's and 401K's were designed to provide gambling chips for Wall Street, and tax revenue for .gov.
"Retirement is a 20th century invention."
And it's not universal either. My wife is from the Philippines. There the notion of "retirement" is a foreign word. And then there's the 750 million folks in India (2 1/2 times the entire population of the US) who live on $0.50/day! Why is it that we're so special that we not only live much better lives but that we also get to "retire?" Oh, that's right, because we're "exceptional!"
Obviously, Zimbabwe Janet has to keep generating double-digit nominal equity returns forever.
C - Death Panels, coming soon to a health care exchange near you!
I don't think death panels will even be necessary. When I look around me, very few of the over-40 people look healthy. Most of them are overweight or otherwise look like shit. Those people aren't going to live into their 80's. I expect the life expectancy to start trending down in this country.
And then we've got the stockpile of folks who are looking to take it out on others. Sadly, I'm afraid, it's going to get ugly... Of course, there's a couple of possibilities:
1) The alien customers come for the harvest (well, OK, not OK if you're one earmarked for the stew pot);
2) "God" finally shows up and puts us all in our places. (I'd be happy with this one, though I don't think that things would turn out badly for me with option #1)
Peak Bonds? Peak PIMCO? Peak Gross?
Ewe!
As peak retirement approaches, SS Ponzi fund depletion accelerates.
With 2.6 TRILLION in the TRUST fund, that depletion curve is a long slow slope. Several interesting people generated that trust fund surplus, Robert Dole, David Stockman, etc.
What is this "Trust Fund" you speak of? The only way SS benefits get paid in full is if the purchasing power of said dollars is debased, which means the benefits really aren't getting paid in full.
The trust fund IS 2.6 Trillion in (sadly) NON-marketable U.S. Treasury Bonds. They not only exist in digital but paper coupons as well.
I do understand your point very well. The MAGIC Asterisk that David Stockman called the S.S. trust fund surpluses from 1984-till today SHOULD have been budgeted for as any debt should be. However, the trust fund exists and is a debt due no matter how you slice it. This debate is probably the most important debate in my lifetime. I wish it had started when the cabal high-jacked our government banks! They are criminals there can be NO doubt!
SS funds are calculate based on BS "inflation." It's all growth-based. And how the fuck could any growth-based system work when there's no/negative growth?
It was ALL based on an improbable/impossible premise: perpetual growth on a finite planet. EVERYTHING that is based on perpetual growth is a PONZI! It's ALL fake! No matter how much whining, no matter how many people whine, it's -POOF, and it's gone!
The unwinding of Ponzi Growth accelerates. All in accordance with the exponential function.
We need some new articles updating us on parked ships, the baltic drys index, and railroad shipping with up to date details in the numbers please. Walmart here had 50% off clearance announcments here for several weeks and there was news about them possibly ordering less for Christmas. Please email your reporter friends to get us the scoop on this data. Should be interesting. Please friend me if your looking at the same trends there is so much data to review its a bit much for one person to monitor. We have Housing hitting new all time highs in the UK Canada, and Austrailia, a farmland bubble, currency bubbles, BRIC bubble, and a stock bubble going all at the same time! When one of these bursts I suspect it will have a domino effect bumping and richocheting off other market bubbles. Riding the markets down when this sucker finally blows will be quite profitable if you use the correct financial instruments. What has truely amazedme though is how far they have been able to take things by removing mark to market and squeezing small banks whle printig lots of money and inflation at the same time. I am not a firm believer precious metals either after seeing how many years the governemnt fixed gold prices. I dont think it will crash overnight fully either because the system is so damn big and so many sectors are inflated. Although sharp corrections that hurt like hell would not be suprising especially if your concentrated in the sector thats blowing. Just my opinion.
The info is readily available for anyone who wants to see/find it.
I believe that Walmart just announced that they expect to generate lower revenues for FY14.
Baltic, last I looked, looked bad.
China is threatening to withdraw liquidity from their banking system (again?).
Rebar forecasted to be lower than expected.
"Riding the markets down when this sucker finally blows will be quite profitable if you use the correct financial instruments."
You can go for the wild ride (ala Major Kong). I'll just stay on my farm and keep working... if I make it then any youngsters will find something to carry on a future with.
Back in the day when Social Security was invented, most people were expected to be dead by the age of 65....oops!
Then again they did NOT pay 7.5% of their salary either!
What is truely funny, YOU think Social Security is some kind of FUCKING gift! We paid into this system not only for ourselves but for widows,orphans and the disabled not to mention earlier generations that barely contributed to the fund. Slice this any way you like it is one of the most effiecent, popular and effective programs any government in any country has created. I would suggest people STOP voting for people that do not budget our national budget realistically!
And POOF, it's gone!
Are you a US citizen? If so then you should get periodic statements from SS. Look closely and you'll notice that the forecast numbers are MUCH bigger than those that you're actually plugging into the system. Just like Bernie Madoff's guaranteed returns we're tossing unrealistic COLA forumlas at all the SS contributors (in order to keep them cranking at the wheel).
I suggest you adjust your thinking to more closely match the real numbers that you're contributing. What you'll find is that just as we'd have inflation to pump up the numbers we'll have deflation to pump them down: the COLA numbers are going to get smashed, if reality has a say in the matter. And with deflation we'll have less people paying in to the system.
I don't care whether people like this or not. I don't advocate for a fucking thing (other than to work to achieve a sustainable life- one has to figure this out on their own). If you quit letting your emotions run roughshod you'll be better off. And while there are likely plotters against your "position" it is not they who will win out, but "mother nature" and the realities of failing systems based on perpetual growth.
You're NOT entitled to a damn thing. That others conned you into thinking it is YOUR fault: and that it was done on a national level is clearly a national failure (groupthink).
SS was NEVER meant to cover EVERYONE. It was supposed to be for poor widows and such. (and, sadly, more and more people are starting to look the part- all those obese people with "handicapped" stickers as they pull into McDonalds with their SUVs... (yeah, there really are people who are in need, but we've literally "created" way more than would otherwise exist)
I've paid a fair amount IN and I expect to get ZERO out. Basing my future on something that just might not be there is a pretty stupid thing. I think that LIFE is all about beiing productive (that could be for others or it could be for just yourself, which, duh, you'd have to do in order to survive).
the empire rose first on the backs of the immigrant doughboy of ww1 and the first generation grunt of ww2. the baby boomers have been the charmed generation. born of the need to fornicate in new prosperity post war, the needs and wants of the baby boomer has driven the world economy since ww2.
it is no mistake the end of the world economy coincides with record sales of viagra. with the aging and dying of the baby boomers the only thing that can keep the world economy going is more viagra while a new boomer generation is cultivated somewhere else. it could be china but the west would lose dominance if china is the new boomer generation. the only other catalyst for a new boomer generation is a western initiated massive capacity destruction event that leaves the usa and western europe as the only intact regions left in the world.
It's not clear what generation you're from, but your education in history seems to have overlooked a few things about baby boomers (of which I'm one, leading edge). What exactly was the charmed part of growing up into the quagmire in VietNam, the second war America chose not to win, or even try to win. Don't overlook the fact that that war was run by the prior generation, good old JFK and LBJ and Nixon. OK, it was France's fault we ended up there, but the Truman crew presided over Korea and prevented MacArthur from fighting to win. And just who was it that brought up the boomers to be such degenerate sex addicts (Bill Clinton), choomers (Barack Obama) and proficient liars (Hillary Clinton)? Or boozers (G.W. Bush)? Maybe you should reserve your ire for those boomers who went to Ivy League schools (all of the forementioned, plus luminaries such as John F. Kerry) and not Joe or Jane Average, who tried to play by the rules and got screwed by the system anyway.
Some boomers favored the Progressive impulse, some chose the small government model, but most were too busy trying to simply have a life. It's the first group that should be pilloried, not the whole generation. They're the same scum that arise out of every generation and try to rule the rest. Take your preconceived notions and sit on them.
But hey, a guy's got to blame someone! </sarc>
I'm sure that every generation blames the one(s) before it. The exponential curve has us stacking tighter and tighter against the time element. Pressure's building. It's a connected line that was set upon this path a LONG time ago.
No realistic discussion on how to "correct" things can be had without questioning how we can go forward without growth: we have to come to the realization that basing everything on the premise of perpetual growth on a finite planet is a BAD strategy. Those that don't understand this will continue to blame others for their not getting "theirs" (when there is NO MORE to be had because Mother Nature is out of capital).