As a general principle, I’ve always tended to avoid entrusting others with
my money. I’ve avoided funds, as they are
often based upon investments that are peaking or close to peaking. I’ve avoided
pension funds, as they’re often structured in a similar manner.
And whenever by law I’ve been required to be invested in such funds,
they’ve rarely been successful over
the long term. In the end, I would invariably have made more money
by pursuing those investments that had great promise but at the time were
unpopular (and therefore underpriced).
As dubious as I tend to be of conventional investment schemes (and those
who broker them), I am
doubly dubious of any government-run scheme. Governments,
historically, have proved to be poor money managers, and politicians tend to
place more value on big promises that garner votes than on delivering on those
promises.
And so, I’m predictably biased as to the likelihood of any form of fund
that any government may be involved in. Even if it’s structured well, which it may well not be, governments, if
they have the power to do so, will tap into the fund, draining it of the
intended recipient’s contributions, leaving the fund exposed, should a crisis
occur.
And, periodically, crises do occur. Presently, the First World is facing an economic crisis of
unprecedented proportions.
As someone who advises on internationalization (the practice of spreading
one’s self both physically and economically over several jurisdictions in order
to avoid being victimized by any one jurisdiction), I’m regularly asked what
the optimum level of diversification might be for an individual in a given
situation.
Whilst many of these individuals can unquestionably benefit from such
diversification, there are quite a large number of people who are in the age
sixty-and-over category who state that they’re hoping to get by solely on their
Social Security and their pension. (If the investor is an American citizen,
this often means a 401(k) or similar fund.)
For these individuals, I’m afraid it’s difficult to provide encouraging
advice, as their retirement is rooted in what I consider to be dead-end
investments that will diminish drastically, or disappear, long before the
individual reaches his own demise.
Social Security
The Social Security fund of virtually every country that has one is
woefully underfunded. Typically, these funds
have relied on the next generation’s contributions to pay for the benefits to
those presently retired or retiring.
Unfortunately, the original premise, back when Social Security was
introduced, was that the population would always increase. During the
baby-boomer years, benefits were ramped up dramatically, as there were so many
younger workers per retiree.
But now, that relationship has reversed. The baby-boom generation lasted for 18 years, so each
year, for 18 years, the ratio of working people will diminish against those who
have retired.
Ergo, each year, those working will need to be taxed more heavily if the
system is to continue. Unfortunately, at some point, we reach the tipping point
and the concept itself is no longer viable. After that point, benefits will be
reduced and, possibly, eliminated altogether.
When retirees first hear this, their reaction is usually, “But that’s not fair.
I paid in, all my life. They can’t do this to me.” Unfortunately, it is not a
question of “fair”. It’s a question of arithmetic. The promised benefits will
decline. As a result, those who are counting on Social Security to sustain them
in their retirement will find themselves short.
Pension
Similarly, pensions are at risk. Most pensions are invested, to a greater or lesser degree, in the stock
market. Most funds pride themselves on being “diversified”, by which they mean
that they are invested in a variety of stocks.
Unfortunately, when a stock market crashes, good stocks often head south
along with failing stocks, as brokers seek to save their skin by unloading
portfolios. (This does not mean that some potentially solid stocks will not
experience a recovery in time, but few will ride out a crash unaffected.)
At present, the stock market is being propped up artificially and is
overdue for a crash. Although it would be
impossible to predict a date, a crash, if it occurs, would have a major and
permanent effect on a pension scheme. But, wait… there’s more.
As if these threats to planned retirement were not enough, there’s a
further threat. As previously stated, many governments are financially on the
ropes, and historically, when governments find themselves on the verge of
insolvency, they invariably react the same way: go back to the cash cow for a
final milking. Each of the jurisdictions that is in trouble at present, has, in
its playbook, the same collection of milking techniques.
One of those will have a major impact on pensions: the requirement that
pension plans must contain a percentage of government Treasuries.
Political leaders have already announced that there’s uncertainty in the
economic system and pensioners may be at risk. Therefore, whatever else happens
to their plans, it’s essential that a portion of them be guaranteed against
failure. Therefore, legislation will be created to ensure that a percentage be
in Treasuries, which are “guaranteed”.
Sounds good. And people will be grateful. Unfortunately, the body that is
providing the guarantee is the same body that has created the economic crisis.
And if the government is insolvent, the “guarantee” will become just one more
empty promise.
Recently, the US Supreme Court ruled that
employers have a duty to protect workers invested in their 401(k)
plans from mutual funds that perform poorly or are too expensive. By passing
this ruling, the US government has the power to seize private pension funds “to
protect pensioners”. It also has the authority to dictate how funds may be
invested.
The way is now paved for the requirement that
401(k)s be invested heavily in US Treasuries. (Some are already voluntarily
invested, as much as 80%.)
Game Over
And so, those who hope to fund their retirements primarily with Social
Security and 401(k)s, may well find themselves virtually without retirement income.
The question is whether this means “Game Over” for millions of Americans
(and since similar developments are taking place in many other countries in the
world, millions more in the EU, Canada, etc.)
And, yes, it does mean “Game Over” for many, unless they choose to exit a
system that is set to collapse like an old mine shaft, trapping its occupants.
Still, there remains a brief window of opportunity, and that opportunity is
to pay the penalty for exiting the system and internationalizing whatever level
of wealth can be salvaged.
Ideally, this means physically moving to a jurisdiction where such
conditions do not exist, but a more limited escape may be created by removing
as much money as possible from the retirement fund, moving it to a less risky
jurisdiction and converting it to those forms of wealth storage that are least
likely to be targeted by rapacious governments and corrupt banks.
Accepting the realization that the piggy bank will be less full is a
painful one but is far less painful than to face the day when the piggy bank is
all but empty.
http://www.zerohedge.com/news/2015-07-27/beware-disappearing-retirement-fund
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