Retirement savings risks?

What do you think the risks are regarding shifting demographics and retirement savings? It has been noted recently in the news that people are having to borrow from their retirement accounts in order to make ends meet in basic needs, often at the risk of having to pay heavy tax penalties for not being able to pay it back. Do you think that given the profound economic leverage certain industries (i.e energy)exert on the world economy, and the increasingly heafty amount available in 401Ks puts the individual at greater risk? In other words is the time for the baby boomers to move their money to a safe vehicle upon us given the fact the energy industry is capable of causing a world recession that would force them to use their retirement money at great loss to themseleves? What would be the market repercussions of such a move? Many economists, as recent news organizations have reported, support the idea that the energy sector has profound economic power in a vast array of markets. Due to their profound ripple effect on the economy, I chose this sector as an example. There may be other risks out there of which I am unaware. As suggested, the rampant consumerisim of the American needs to slow, but that will probably result in a contraction of the world economy before a rebalancing occurs. Also the irresponsible behavior in the corporate sector will undoubtly have its impact as well, forcing a reduction in consumerisim simply due to lack of planned income. I think it would due the inordinately wealthy of the world well to revisit the history of the '29 market crash in order for them to see what side their bread is buttered. I also want to point out that I am asking this question in reference to those who are struggling to meet basic needs, not those few people who "can afford" such luxury items as those mentioned. Heaven knows I can't, yet my 401K is 10x the average baby boomer if commenters are providing correct information.

Public Comments

1. If Obama gets in and raises your taxes more, you're finished anyway. The young dumbsters voting for that creep are a bunch of stupid idiots.
2. First, let me ask, by "energy sector" if you mean big oil? Yes, I do believe that the baby boomers and now there sons and daughters have failed to put enough savings away, into 401Ks especially, as that is "untaxed" savings. I believe most people are under the misconception that their home equity is a viable source of "income" at a later date, but fail to realize that, for the most part, their homes are in jeopardy even if they miss as few as 2 or 3 paychecks (unless they tap into their other nest egg, the 401K). I don't think there is a "hefty amount" in 401Ks, with the average, according to a 401K book from my investment firm, balance around $25 - 35,000, not enough to maintain retirement. But, indeed, it does present an easy solution to another serious problem. It would be like saying, you MIGHT die in ten minutes if you don't drink this poison that will for sure kill you in ten days. Financially speaking, that is what a bunch of people do, cash in their long term savings to cover short term expenses. I think the 401K rules really do a good deal to prevent early withdrawals and is a very safe vehicle for savings, and your thesis about the oil industry using its weight to sap American savings accounts is a bit strong without supporting documentation. I think we are already seeing in the market what the effects of high utility (and oil) prices have on the US economy and savings. My opinion, as I alluded to above, is that people seem more concerned about the here and now rather than the future, expecting either children or the government to cover their financial irresponsibility. Regardless if the energy sector or Obama or Opec is causing a recession and we don't have enough money to pay out bills, my feeling is that we should just get less bills, like getting a smaller boat rather than trying to keep the Titanic afloat. Society, it seems, puts a spotlight on us needing a huge house, eight cars, a yacht, and other luxury items now, while we aren't putting enough away for retirement. Anyways, hope I helped.
3. Pension Funds Collapse in the United States Many news agencies carried the The Washington Post (12 June) article entitled “Human Toll of a Pension Default”, referring to the effects of the elimination of the United Airlines pension fund upon workers. Showing the photograph of Ellen Saracini, widow of pilot Victor J. Saracini, who died when his flight 175 crashed into the World Trade Center on September 11, 2001, the article added: “Now she stands to lose more than half of her widow’s pension in a very different kind of crash — United’s default of its $9 billion pension obligations.. the largest in U.S. History.” The default of United’s pension fund is not only the largest in U.S. history. It is, above all, an advance of what is to come: “This ruling could be the prelude to a succession of similar decisions in airline transport, the automobile sector and in industry as a whole” (Le Monde, 11 July). Because according to an independent study, 81 percent of the private corporate pension funds are underfunded; among them are to be found monsters such as GM, Ford, IBM, Motorola, US Steel, and Lockheed Martin (ídem). Actually, the percentage of funds with financial problems is even greater since “the corporations voluntarily overestimate the assets of their pension funds” (ídem). A year ago, the bourgeoisie was saying that the pension fund crisis had already been solved: “Nothing like a recovering stock market to boost the funding of many pension funds” (CFO Magazine, 4 Aug 04). But during 2004, “more than 40 bankruptcies in the steel industry and those of 5 airlines have contributed to a deficit of 23 billion dollars of the PBGC (Pension Benefit Guaranty Corporation)”, a deficit which Congressional analysts foresee reaching 71 billion dollars in the next decade. The PBGC is a public body in charge of paying retirees the benefits due them from private pension funds when the latter, such as that of United, declare default. It already pays the pensions of more than a million workers. In 2004, the number of companies whose pensions were paid by this body jumped from 155 to 192. The passing of a pension fund over to the PBGC is, for the workers, a confiscation of their contributions: the insurance pays a maximum pension of 45,000 dollars annually, a much lower figure than the pension fund commitment (which stands in relation to the wages of active workers). The Government Accountability Office estimates that “U.S. companies underfunded their plans by about $600 billion last year” (Denver Post, 12 Jun). Even the “optimistic” CFO article admits that “the possibility that more big airline defaults will hit the federal insurer has some experts fearing a pension crisis akin to the one accompanying the collapse of the savings and loan industry of the 1980s”. Associated Press (7 Jun) says: “The pension funding problem recalls the savings and loan crisis of the 1980s, when hundreds of thrifts became insolvent and were taken over by the government. A congressional study in 1996 put the price tag for the S&L bailout at $480.9 billion.” The cause, explains The New York Times (6 Jun), is very simple: “More than half of the nation’s biggest companies with pension plans sailed through the boom of the late 1990s and the bear market that followed without putting any cash into their pension funds. They used loopholes in federal law to skirt a requirement for annual contributions”. The magazine Forbes (7/7) adds that “out of 365 index members with defined benefit plans, 311 left the plans underfunded at year’s end”. This conscious underfunding of the pension funds anticipates default: “It does not mean that all companies may not be in conditions to pay pensions, but rather that they expect, one day, not to” (Le Monde, 12 Jul). The magazine explains what will occur in the best of cases: “Contributions five years ago represented just 2 percent of cash flow. That left plenty of money for new workers’ salaries and equipment purchases”. But last year contributions represented 10 percent “leaves a lot less”. Bush has proposed a new “reform” bill which would force an increase in corporate contributions to their own funds and to the PBGC, but which would also oblige plans undergoing deficit to go into default. The companies say that if they are obliged to pay their contributions, they will have to declare bankruptcy. For example, Gerald Grinstein, president of Delta Airlines, speaks of the possibility of taking the company into bankruptcy within the next four months (Cincinnati Enquirer, 8 Jun). But pensions are only one aspect of the U.S. “social security crisis”; another is the health care funds. GM declares that financing the health care plans of its employees and retirees adds an additional cost of 1,500 dollars to each automobile produced. It is pressuring the trade union bureaucracy to accept, in the next contract, substantial reductions in health care plans. “If we do not reach agreement, they threaten, we will have to consider other alternatives; the most extreme is to declare the elimination (of the health care plan)” (Le Monde, 12 Jun). Now that the situation has become “untenable”, the U.S. bourgeoisie has now discovered that “the principle of linking health plans to jobs is arguable and perverse.” It did not, of course, think so when the number of beneficiaries was low and they pocketed the difference between the wages and salaries deductions and the services provided. The trade union bureaucracy refuses to put forward a plan of struggle. The most recent declaration (30 Jun) of the United Master Executive Council of the Association of Flight Attendants (http://www.unitedafa.org/) -which denounces that the default was allowed in exchange for United’s 1.5 billion dollar payment to the PBGC-, shows a preference for “challenging the company and the PBGC in court” before opting for direct actions, and says it will consider a call for a strike “if that’s the only way to persuade the Company to restore our pension plan.” The incapacity of the U.S. bourgeoisie to face its pension and health care commitments to its workers is the manifestation of the weakness in the rate of profits. Its recovery demands the liquidation of historic gains of the U.S. working class. As the Prensa Obrera Nº 905 article (http://www.po.org.ar/poen/2005/poen905/poen905007.htm) entitled “General Motors: Plants to close and 25,000 lay-offs” said, “The world crisis places the US proletariat before fundamental clashes.”