How Wall Street Wrecked Your Retirement

The Nation: When Will The Steady Stream Of Savings Erosion End?

(The Nation)  This column was written by Nicholas Von Hoffman.

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Our disfunctional financial system hit a new low last week when Citigroup, the hopeless wreck of Wall Street, announced it had lost $2.5 billion in the past three months -- a cheer went up, and so did the Dow. Only $2.5 billion; people were afraid the losses would be much higher. Happy days are here again.

There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market's downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?

Many of the millions suffering through these worrisome months didn't buy a house they could not afford, didn't speculate on their homes, didn't let greedy impulses lead them to the edge of foreclosure or bankruptcy. Nevertheless, the excesses of their neighbors and the criminal folly of American finance is destroying their plans for retirement. It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort.

For years, the privatization propagandists have been telling people that when the time comes, Social Security will not be there for them. Now many are learning that it's their private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it.

The way the private, you're-on-your-own retirement system was supposed to work had individuals, during their younger, working years, investing in stock through tax-sheltered accounts. Almost nobody who is not breaking the law can choose among individual stocks and make money, so future retirees have been encouraged to buy mutual funds run by professional managers, who are supposed to be able to pick the winners.

Most of them aren't much better at doing that than are their customers, but in a rising market, a chicken pecking at stock tables can pick winners. In boom times, it doesn't matter that the future retiree must choose among thousands of mutual funds, many of which carry ruinously high fees. The damage to people's savings goes unnoticed until the market begins to go down.

Even as the market falls, future retirees are told not to panic, to keep their money where it is, because in the long run the value of their accounts will go up and they will have many a happy sunset year traveling the globe and showering their grandchildren with presents.

As the retirement date comes near, they are advised to begin selling stocks and buying fixed-income securities -- as bonds are sometimes called -- because these pay the interest they earn on a fixed schedule, providing a regular income.

For this to work, stock prices must be high when the holdings are sold and the bonds purchased must pay high rates of interest. But what happens when the stock market is in a nosedive and interest rates are half of the inflation rate, as is the case right now? Panic and worry, no golden years of travel, no presents for the grandchildren. The energy that was to be expended on leisure activities is spent instead trying to figure out how to make ends meet.

The bright spot is Social Security. That check does come with the regularity of the calendar, whether the market is up or down, whether interest rates be high or low and if, as is the case now, the Greenspan-Bush inflation is destroying family budgets. Social Security adjusts for the rising prices.

But Social Security is too narrow a ledge to stand on through the years between retirement and death. It was designed as the base on which other retirement savings were to be built.

Those savings -- the house and the tax-sheltered retirement accounts -- are shriveling up and blowing away. The persons for whom Americans' savings have been a reliable source of income are the brokers, the lawyers, the account administrators, the whole tribe of Wall Street fee farmers. They get other people's retirement money regardless of the direction the market may be moving in.

You can't call it a broken system because it was a bad one from the start. It is failing, just as its critics said it would. And what lies ahead for those whose retirement savings are gone may be a very unpleasant old age.

[tomar0317]

Seems as if the American taxpayer get the ultimate screw again. Our elected officials have tapped into social security, tax what social security benefits we get and don''t worry because they''ve put themselves into a retirement system that is untouchable no matter what and we the taxpayers are again paying the way. I never liked the 401K because it gives people with money, the use of our money while their money is not at risk. I can only imagine the folks turning over in their graves from our founding fathers to Franklin Roosevelt. I''m no longer surprised by what our elected folks do. They are doing a terrific job of using their "experience" to screw us. It''s their experience that got us in this mess. Hopefully come November we''ll have learned our lesson and vote them out, all of them! They belong in jail with no benefits, period!

[greeneyes222]

It''s not the first time the interests of Wall Street have been in direct conflict with American citizens, and I suspect it won''t be the last as long as greedy institutions like Citibank go unregulated.

We''ve been Enron-ed. Again.

[wogerwabbit]

This administrations neocon experiment has turned us into sheep for the shearing. Between war profiteers and wall street our wallets and indeed, our whole national treasury is being drained. The Constitution is in shambles and our government is corrupt. It''s time for a change.

[lochlan-2009]

No one invested in the comodities or foreign exchange markets?

[jmurrieta1]

Bushed!

[chrisbieber]

the siren song of MORE GOVERNMENT and MORE GOVERNMENT CONTROLS....ala Weimar Republic in Germany after WW1...NOT "free market" but state capitalism/socialism...carts of worthless pieces of paper(FRN''s??) for a loaf of bread..and look at what followed Weimar...NATIONAL SOCIALISM...led by strong eloquent polished leaders who promise to "fix" things..with "help" from "advisors"...WHO HELPED CREATE AND STRENGTHEN THE SOCIALIST MONSTROSITY FEDERAL GOVERNMENT(like..Paul Volker!!!!)

and to think WStreet shill Malcolm O is for "change"...

he is FOR "change"...MORE state socialism and SOVIET CENTRAL PLANNING.....

just like the Madman candidate from Manchuria er Arizona...

[ubrew12]

The Nation: "[Ordinary taxpayers] are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it."

Wall Street bankers must have learned a thing or two from the Japanese Yakusa, who strong-handed their way into tapping the HUGE Japanese workers legendary savings in the 1980''s, and went on a spending (sorry: ''investing'') spree that wrecked the Japanese economy for 10 years.

The difference here is: the Yakusa had the grace to call themselves ''gangsters''.

[dashortround]

You can never trust "business" to put what is best for the country ahead of it''s own profits.

That is just a given.

Business will screw the country over every chance it gets.

The only protection that the American people have from predatory business concerns is a strong central government and intense regulatory oversight with real teeth.

[newview08]

And to think that these people wanted to send Social Security over to Wall Street. Enough with this "free market" garbage, I want something I can count on.

[kawosa]

So the Social Security is almost bankrupt too? Wow, we have such great deal to look forward to under the Bush regime.

[veteran188]

Wall Street?

Are you crazy? Remember the wall street bail out for the

wealthy?

This disaster is just one more disaster from the conservative agenda,

GW Bush/McSAME/Krystol, the conservative deregulation

and "free markets" brought you this and all the other

nightmares that have visited our once great nation in

the last eight years.

only a fool will vote republiCON again

[jesterbelle]

I would imagine most investors are republicans,so who really gives a sshit?

[alanrobisch]

would imagine most investors are republicans,so who really gives a sshit?


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Posted by jesterbelle at 07:02 PM : Jul 28, 2008
+ report abuse
most retirement systems are invested in the stock market and maybe you forgot but the depression was triggered by the crash on the stock market

[alanrobisch]

The only protection that the American people have from predatory business concerns is a strong central government and intense regulatory oversight with real teeth.


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Posted by DaShortRound at 05:24 PM : Jul 28, 2008
+ report abuse
I now know that this publication and people like you believe in a strong central govt sort of like a country ruled by a king. Individuals are allowed to take action only at the permission of a govt employee.

Corporations are not to be feared govts that have too much power are.

[jesterbelle]

most retirement systems are invested in the stock market and maybe you forgot but the depression was triggered by the crash on the stock market


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Posted by alanrobisch2 at 07:17 PM : Jul 28, 2008

So what''s your point?You have no point when you consider that you are talking to someone that wants the collapse of the whole one-sided mess.

[alanrobisch]

only a fool will vote republiCON again


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Posted by veteran188 at 06:39 PM : Jul 28, 2008
+ report abuse
if obama loses what will you say then

[alanrobisch]

So what''''s your point?You have no point when you consider that you are talking to someone that wants the collapse of the whole one-sided mess.



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Posted by jesterbelle at 07:22 PM : Jul 28, 2008
+ report abuse
Better hope you are not on the bottom. what do you hope will replace it communism. Every country in western europe and south america have their own free economy and a stock market.

[alanrobisch]

ps most countries in southeast asia do and china is letting free enterprise flourish. they have one small fault state run slave labor industries

[Syndicate]

I know people with mutual funds which are still worth quite a bit more than they paid for them. I guess if you started saving last year you probably lost your ***. But if you started saving when we elected Reagan president you are probably doing very, very well. If you bought a house last year, like I did, you paid to much and you probably have negative equity. If you bought one in 1960 for ten thousand dollars its probably worth a half million today depending were you live. As for picking stocks I must be that nobody who can make money legally. Buy Ford or GM. You can sell it a a couple weeks or in a month at a profit. Actually just buy Ford. I don''t follow GM too closely. If you want long term Buy Toyota and hold it for a few years. If they don''t get stupid it should make you a very nice profit. In the interest of complete honesty I own Ford stock and I''m doing pretty good with it.

[jedelfelt-2009]

I can see from the number of comments that the author, Nicolas Von Hoffman, has received on this article that he has returned to a more comfortable role as provocateur and oracle of doom. This may be due to the public obloquy Von Hoffman received for his predictive skills, which Andrew Sullivan (Atlantic Monthly) has parodied with his Von Hoffman Award given for egregiously bad predictions. However, Von Hoffman is right that only so-called "Wall Street professionals" are making any money on investments these days (through the fees they charge customers). That''s why I have always advocated keeping an eye on the fees that brokers and mutual funds charge and invest in good individual stocks and low fee index funds whenever possible. While I would never attempt to predict the future, I expect the stock market''s problems to be resolved eventually and that it will continue its historical upward trend. If everyone believes, as Mr. Von Hoffman apparently does, that the world is going to hell in a hand basket, then it probably well. Sure, the markets are going through a rough patch right now, but I don''t believe the sky is falling. You shouldn''t either.

Jonathan Edelfelt
Author of Who Said You Need Millions? Retirement Strategies for the Rest of Us
www.WhoSaidYouNeedMillions.com

[platteman]

just work until you 75 or so and then you will have pleanty of money. BO will take care of everyone. His raising capital gains will make the retirement accounts go down farther. As he redistrubutes income from those who have to those who have not, all will be great.

[simplemind2]

Thank God that I''m not a big fan of Wall Street stock brokers.
And I''ve never attended those free Steak invitation sent to me by those greedy Financial Consultants.
I also pay no mind to those so-called Pundit''s suggestions.
I happen to follow my home-grown "Valedictorian"''s suggestion a few years back - as I was giving my youngest daughter a ride to visit her friend, I mentioned
how unfortunate that my 401K lost bunch of money in the "stocks" and her suggestion "Dad, why don''t you invest in fixed category then" - I moved all the
"stocks" into fixed that night and have no regret since.
As I explained to my better-half the other day, so long as none of us have a gambling habit, we should be ok.

[samthetvcat]

---"Even as the market falls, future retirees are told not to panic, to keep their money where it is, because in the long run the value of their accounts will go up and they will have many a happy sunset year traveling the globe and showering their grandchildren with presents."---

You know what I realized is that those financial advisors that you see on tv and who sell books aren''t really at liberty to tell people what''ll REALLY maximize their portfolio.

Like isn''t there maybe some unspoken rule that public experts really can''t say that everybody should invest in foreign markets because sometimes they have higher growth rates? So instead they urge everybody to invest in real estate.

You know who I partly blame for the big housing bubble are the experts like that Rich Dad Poor Dad guy who made it sound like easy credit meant it was virtually risk-free to invest in real estate because over the long-term real estate always rises in value. But aren''t housing values only expected to rise at an average rate of return of 3%pa over the next 10 years at best, meaning that a lot of people with mortages are actually still going to have a net loss even after 10 years? So like that wasn''t very good advice, then was it?

As for not cashing out mutual funds, aren''t almost all the mutual funds flat right now? So wouldn''t that actually make short-term bonds and money market funds the best bet if you''re not into short-selling, etc?

I don''t know . . .

[veteran188]

it is called socialism or perhaps fascism when the stock ''market'' and in fact all the major corporate ''markets'' are bailed out and therfore controlled by the republicon government,

what about the "FREE MARKET" they like to speak about?

It does not exist, its a scam, trillions of borrowed dollars to bail out theenrons and the wall streets and the bear sterns, but not one dime for a poor american working person

fascism

[irliberal]

if obama loses what will you say then

Posted by alanrobisch2 at 07:22 PM

I''d say exactly the same thing as if the moon crashed into the pacific ocean.

Wow! And ouch!

[veteran188]

if McSame wins we can say the same thing we said when McBush won,

How can so many Americans be so Dumb?

[neobrian-2009]

Without Question,The GOP Sect Has,..
Devastated Our Nation & The World Economy.
Has left the general public completely untrustworthy of all government activities.
Shown itself to be Totally Corrupt
Shown itself to be Unethical,Immoral and Illegal.
Embarrassed our people world-wide.
Yes,The GOP Sect is without a doubt the Worst Ever in our once proud history.

[drivelphobe]

cbscrash07,,,,,

Good morning!

Ford has been and will be a good one. I''ve been both holding and, buying and trading Ford for over 5 years, and you''re right. It''s fluctuations offer great opportunities to make money. I haven''t listened to a stock broker since they "professionally" advised me to sell AAPL at $20, after which it split and went to $200. Follow your own gut feeling and intuition. Do your homework and think. It''s not that hard to make it work and those bozo brokers only want one thing, your transaction fees in their pocket. They are truly the worst of the commissioned sales people, hiding under the guise of professional financial advisors. Only a fool would let them influence one''s portfolio activities.

[whitemale08]

Wall Street didn''t wreck my retirement plans. I saw these crooks for what they are long time ago.

That''s why I don''t have a 401k or retirement pension fund. I only invest in precious metals and plan to buy a nice piece of farmland in a valley somewhere outside the country.

There I can grow my own food have lots of children and not worry what the politicians do to America.

We have too many idiots in the country who elect idiots to run the government. Time to look outside for a better way.

[mbburch06]

"Almost nobody who is not breaking the law can choose among individual stocks and make money."

Is this idiot serious?

[omega39-2009]

It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort.

Relax, those wacky financiers have come up with the solution to rob your estate, reverse mortgages.

[jmurrieta1]

The stock market has been completely subsidized and inflated by government policies favoring the rich.

This is because the law demands that your IRA or 401(k) money (about all that''s left for retirement, ever since the masters of industry eliminated the actual "pension plan" from Americans'' vocabularies) MUST be invested in a vehicle from which you can receive no benefit. Therefore, you can''t put this money into buying yourself a piece of land you can retire to, but are forced to buy stocks and bonds (or just put it in an IRA savings account, now paying less than 1% interest).

Since the Republicans and Bushites have made sure that the average American won''t be able to retire (while richly feathering the nests of their cronies), it is time to demand that retirement savings be freed to purchase real security for retirees, instead of the fake, inflated mutual funds and stocks that have made the Bushites so rich and have impoverished so many Americans.

[markangeloo]

Envious of their fathers, the baby boomers wished to surpass the great generation so they asked for a war
to test their metal. Not satisfied with that they had to know if they were smart enough to survive a great depression like grandma & grandpa; so here comes the
New Deal hippie retirement plan.

[terrapin78]

It won''t end until all of our balances have been moved to the Rich Folks accounts.

Bu$h calls them "his base"

[veteran188]

this should read,
"How the Greed Driven Conservatives" ruined america

for generations to come

[kennickell]

AARP has launched Divided We Fail to raise the voices of millions of Americans who believe that health care and life-time financial security are the most pressing domestic issues facing our nation. Learn the issues, add your voice and find out how you can get involved at www.dividedwefail.org

[tawpdawg111]

July 28, 2008

"Obama now holds a 6-point lead in CNN''s average of national polls, 45 percent to 39 percent, "

*******************************


lets see here.... 45 plus, uh...39....equals...yep ...84. When those 16% undecided all side with McCain it will be a LANDSLIDE on November 4.

[gaye5]

I have been warning people for many years to not put their money into shares. What better way to cripple the world and bring about globalism than to make everyone''s hard earned money go into thin air... Every man and his dog have been putting money into shares, hoping to have better superannuation''s, and wham it is all gone.. they say it will come back and it might do but we will see....

[hypnotoad72]

Thinking in the long-term, things WILL be all right. I am so sick of yellow knee-jerk journalism.

That''s not to say there aren''t problems, but jeez!

[Netterz]

Do yourself a favor. IF you want to ever retire, best go back to the old ways of putting your money in a mason jar and bury it in the back yard, or under your matress, then the only person you have to worry about, is the neighborhood common criminal stealing your hard earned $, instead your Gov''t. The days of you being able to leave your kids and grand kids ANYTHING, is now going to be taken by your friendly Gov''t. Used to be the only 2 things you could count on happening in your life was death and taxes. Now..its death WITH taxes. its far better to help your kids and grand kids in your young years, because now, they have the right to go back thru your finances for 10 years, to be sure that ANYTHING you gave your family?? They got there fair share of in Taxes. When you write your will, you might as well add Gov''t as one of your children, that you intend to leave atleast half of what ever measly money you MIGHT have left.