March 14, 2016

By: Bobby Casey, Managing Director GWP

retirement crisisThere’s a marvelous book called “The Protestant Ethic and the Spirit of Capitalism” by Max Weber. If you get a chance, it’s one of the few sociological reads that speak to the once great American brand of capitalism.

It doesn’t have much to with religion per se, as it does with the puritanical culture that settled these lands. Fear of God aside, much like the religion of Shinto in Japan, certain behaviors were ingrained into society. The last vestiges of this ethic can be found in the commonplace proverbs and adages we use and hear.

“A stitch in time, saves nine.” Invest the time to do the job right the first time, you won’t be wasting your time fixing the sloppy work later.

“A penny saved is a penny earned.” The money you don’t spend is the money you paid yourself.

“An ounce of prevention is worth a pound of cure.” Investing in preventive measures now will save you in more expensive curative measures later.

These aren’t Bible verses. These are just American proverbs. There are the more religious ones too:

“Idle hands are the devil’s playground.” If you’re not occupied with work and production, then you’re probably occupied in trouble and mischief.

These are the roots to American capitalism. When the pilgrims first landed, they were all about that communal life! After starving for a few years – because excuses apparently don’t put food on the tables – someone had the bright idea of making the land parcels private. The rest is history. The tragedy of the commons for them resulted in malnutrition, starvation, and death.

I want to focus on the “penny saved and earned” one in particular though. Biologically, our bodies store fat because it doesn’t know what our food situation is or will be. We are biologically inclined to save for days of scarcity. When it was discovered that salt can preserve food, early man started to save and store food to hold them over between hunts. Saving became external; a deliberate and intellectual practice. This is man using his unique abilities of reason, foresight, and planning.

Saving saves! That’s the bottom line! One of the most lamentable things about the government school system is that this particular practice is not taught. Even in that sad single semester of economics, they don’t tell you how to balance a checkbook much less how to budget your earnings. High school and even college graduates are nothing more than certified social justice warriors who are economically illiterate. And the government programs are keeping pace with that illiteracy.

One of the problems is the disparity in retirement savings to what is actually needed to live. More and more retirees are living in poverty. Evidently, people aren’t saving because they can’t afford it.


Before we go another word into this issue, I want you to think about Obamacare. What brought that particular legislation on? 16% of people were uninsured, and even people with insurance couldn’t afford the out of pocket expenses and were being bankrupted by medical expenses. This is the foundation for the crisis. Never letting a single crisis go to waste, the ACA is introduced and the crux of that plan was what? MANDATORY health insurance. People can’t afford coverage, so we will force them into buying it and fine them if they don’t.

Got that formula in your head? Good. Here we go…

8.9 million American retirees are living in poverty now. By 2050 a projected 25 million will be living in poverty.

Poverty is a sad issue. That’s not even a partisan debate. Republicans, Democrats, and Libertarians alike agree that poverty is a problem and the heart of the solution lies in compassion. How that compassion manifests itself is where the partisan stuff comes into play.

The thing is, not all the political players understand the role government has in perpetuating poverty:

  • The government schools won’t teach you how to properly budget your money and live within or below your means.
  • The government encourages spending beyond your means and living in debt. It lives in debt and considers debt healthy.
  • The government has devalued every dollar you earn through quantitative easing, minimum wages, and zero or negative interest rates.
  • The governments at all levels take in many cases well over 30% of our incomes combined when all is said and done.

And then after all that, there are people who are shocked that we don’t have enough saved up come retirement time? They want to blame Wall Street? Wealth gaps? People aren’t even told about the importance of diversifying their holdings and investments, so they learn to blame the market rather than themselves or the state-created bubbles.

So NOW, because the government has not only failed to take care of you, but has impeded you from taking care of yourself, it is going to FORCE you to take care of yourself.

You read that correctly. Force you to take care of yourself. We all know about the IRAs, Roth IRAs, and 401(k) plans. We even wrote about the lovely “MyRA”: Obama’s answer to the regular IRA. Now there is talk of a GRA: GUARANTEED Retirement Account.

Teresa Ghilarducci and Hamilton (Tony) E. James have come up with a white paper called a “Comprehensive Plan to Confront the Retirement Savings Crisis”. It is the Affordable Care Act of retirement. It is a MANDADTORY savings account that full-time employees and employers must pay into. Much like the way Social Security started out, the funds will not be some government slush account. It remains “your” money (why “your” is in quotes to be explained later). This account will be administered by the Social Security Department – who’s done such a bang up job of defending its funds so far! This is not a replacement for the MyRA or Social Security. It’s in ADDITION to it.

When Social Security runs a surplus, the extra money is used to purchase U.S. Treasuries, and the dollars are used to help finance the rest of the government, which is almost always running a deficit.” (Source: CNN)

But what to stop the government from dipping in anyway? Expropriation of funds? Government using social security surplus to bail itself out?

We addressed this not that long ago, “Government Intrusion & the Erosion of Economic Freedom”. Here is what I said:

The less obvious issue is the potential back door the federal government is building into pensioner fund management, and ultimately to control pensions universally. I didn’t see it at first, I’ll admit, but it is there. It starts with scrutinizing the pricing model and schedule. Next determining what the priorities of fund managers should be. Next applying the vague guidance of a 44 year old law arbitrarily. After all, can you concretely define what ‘care, skill, prudence, and diligence’ are exactly? And can you universally define it for all people ‘acting in a like capacity and familiar with such matters’?

I’m curious, if the problem indeed was that people could not afford to put the money away, what makes them think they can afford it if it’s mandatory? A tax credit isn’t going to mitigate that at all.

For the sake of round figures, let’s say your mandatory contribution is $1000. Before this plan was imposed, you were paying $250 in taxes on that $1000, and then using the balance to pay for whatever it is you needed. You still have $750 left in wealth to spend. But in the case of the mandatory retirement, the entire $1000 is gone, only the government doesn’t tax any of it, and you get a credit of up to $600, which still leaves you short $150 assuming you’re eligible for the full credit.

How does the tax credit make the $1000 contribution any more affordable?

Unlike the 401(k) plan that you can draw from if necessary (albeit with penalties), this one is off limits. You cannot draw from it at all. The money is dead to you, only to be resurrected at a later date.

At this point to hire someone on at $10 per hour, the employer is paying something like what? $14 per hour? Between the payroll taxes, any sort of ACA fines and fees, and now this mandatory savings match program, an employer has to find an employee who is willing to do a minimum of $15 per hour of work, for $10 per hour to make it worthwhile to hire them in the first place.

It gets better: if you are a contractor or self-employed, you have to pay the full 3%. Whereas if you worked for someone, you’d pay 1.5% and the employer would pay 1.5%… if you work for you, then you pay the full 3%. Couldn’t afford to save? Here give me 1.5% more of your earnings.

The idea is that everyone would be invested in low/no risk, relatively even returns products rather than the more “risky” 401(k) plans where people can lose everything or pay higher fees.

“[T]he GRAs would be risk free. At the time of an individual’s retirement, the federal government would guarantee that each individual has earned a minimum return of 2%.”

This is like the FDIC. It was created after the run on the banks during the Great Depression. Here’s the problem, it can’t afford a run on the banks. So why would we think that the Social Security Administration can handle this when it can’t even keep its own surplus?

If everyone does the same thing, is there enough of those things for everyone? If everyone has mandatory health insurance, and decides if I have to pay, I’m going to max out the use of it, do we have enough doctors to accommodate this? If everyone is buying X stock at Y price, is there enough for EVERYONE to buy? If you artificially up the demand, doesn’t the price go up anyway?

“The Plan directly supports low-wage workers in three ways. First, the refundable tax credit offsets a worker’s contribution into the GRA up to $600 every year—significantly fairer than the current tax deduction model. Second, for low-wage earners, the Plan sets the employer contribution (normally 1.5%) at a minimum of 20 cents per hour, further augmenting their retirement savings. Third, the Plan redistributes annuity payments after retirement from high-income retirees who don’t need them to lower-income workers with insufficient savings.”

*And this right here is why I had “your” in quotations earlier.

How is it YOURS if a government bureau can redistribute it to someone else? The Plan touts itself as NOT being a tax, but bow is that not a tax?

Mandatory savings administered by the government.

This isn’t a resolution or bill even being considered. It’s just something that has been widely shared and published. But I find it all too interesting that so many articles are rolling out corroborating our concern for “government controlled retirement”.

That they would have SO much say and control over how each person allocates and spends their resources is really disconcerting.

Retirement Savings Plan would help savers make the right choices to guarantee lifelong income when they retire—and will end the challenge posed by rising life expectancies.”

No. It will FORCE people to “save”. The word “choice” has nothing to do with this proposal. When something is mandatory, that’s social engineering straight up. Heavily taxing cigarettes and alcohol to “discourage” people from consuming them. Adding a “redemption value” to all canned, glass, and plastic good to “encourage” people to recycle. “Encouraging” school and property debt with tax write offs. Fining people for not having health insurance. This is ALL social engineering: focused on getting the desired behavior out of people, rather than instilling this ethic in them from the beginning.

Are we on our way to outlawing risk? Are we on our way to government run retirements? I sure hope not. While this plan is not a sure thing by any means, the sad part is, there really is NOTHING prevent it from being enacted. No protections against it. The idea of Guaranteed Retirement Accounts has “bipartisan” appeal according its authors for crying out loud.

I have no real consolation. We can’t stop this runaway train. We can try to help you get out of the way of said train, however. Perhaps even save some of your assets from getting crushed by said train as well. If you agree that the US economy is heading to a very bad place and these policy makers do NOT have your personal best interests at heart, let’s talk. Click here to set up a consultation.