The year's scariest (retirement) news.

[Wretched Wrench]

Just when you thought it was safe to retire:

In http://articles.moneycentral.msn.com/Inves....aspx?GT1=33002 Jim Jubak writes,

"The Pension Benefit Guaranty Corp., the government agency that protects the pensions of 44 million workers in case their employers can't (or won't) pay promised benefits, has announced that to avoid going bust it will double the percentage of its portfolio -- to 45% -- that it puts into stocks. An additional 10% will go into alternative investments, including hedge funds.

In other words, facing a $14 billion deficit and even larger projected shortfalls, the Pension Benefit Guaranty Corp., or PBGC, decided not to save (by raising premiums) or to live within its means (by cutting benefits) but to gamble in the financial markets by taking on more risk. The PBGC was so proud of its new strategy that it announced it on Presidents Day, when the U.S. financial markets were closed and almost no one was paying attention.

So why is this so scary?

Because as a result of 10 years of booms and busts -- the Asian currency crisis, the Long Term Capital Management hedge fund disaster, the tech stock bear market of 2000-02, the housing smash-up, the debt market debacle -- I've increasingly come to believe that those of us who play by the rules (work hard, live within our paychecks, save) are chumps. The way to get ahead is to gamble big and then, if you lose, find someone to cover your losses.

Anger and fear

I've been hearing the same thing in e-mails from some of you. There's sympathy for families that were defrauded in the housing boom and now face foreclosure. There's a willingness to fix the system so that buyers with a mortgage they can't afford don't lose everything. But there's also a deep anger from those of you who played by the rules and didn't buy more house than your paychecks would cover and are now paying the price in falling home values, a slowing economy, jobs lost and a sinking stock market.

Some of you are afraid -- for good reason -- that you'll be picking up the tab not just for honest mistakes but for greed and fraud as well."

 

[FWAAA]

Just when you thought it was safe to retire:

Then you should be glad that AA has improved the funding of its DB pensions to 96% as of 12/31/07 and that Kang and Kodos have a better chance at being elected President this fall than the odds that AA terminates its plans. B)

An investment mix that consists of, gasp, 45% stocks, now that is scary. 😀

 

[Wretched Wrench]

Then you should be glad that AA has improved the funding of its DB pensions to 96% as of 12/31/07 and that Kang and Kodos have a better chance at being elected President this fall than the odds that AA terminates its plans. B)

I guess it all depends how long-term your view is. But, yes, I feel safer than I did a few years ago.

An investment mix that consists of, gasp, 45% stocks, now that is scary. 😀

Again, it all depends how long-term your view is. Many reputable writers and advisers would say that 45% in stocks is a bit much for a retiree, particularly an older one.

I follow Jubak, and value his opinions, but he does seem a little alarmist on this issue, even though I see his point.

 

[MMB]

Good post.

Put me in group 2:
played by the rules and didn't buy more house than your paychecks would cover and are now paying the price in falling home values, a slowing economy, jobs lost and a sinking stock market.

 

[eolesen]

Call me an optimist, but the stock market is usually a decent gamble, especially if you're dealing with a hedge fund that isn't investing in US stocks... Some pretty good companies get hammered by the market, which can make for a good mid to long term investment. I hate to say it, but look at AMR.... tenfold increase in 2007 over where the stock was in 2003, and almost twentyfold if you sold in 2006.

 

[UAL_TECH]

Just give me my SS beneifits and I'll double down in Vegas 😛
Worst case is the penal institution which will give me free meds, three hots and a cot!
Better than VA

B) UT

 

[FWAAA]

Again, it all depends how long-term your view is. Many reputable writers and advisers would say that 45% in stocks is a bit much for a retiree, particularly an older one.

While that might be true for a single retiree (like in their own IRA), keep in mind that the PBGC money at issue (the premiums and the assets turned over to it during plan terminations) is held not just for retirees, but also for active workers who are 50 or 40 or 30 or even 20. Considering the mix of retirees and workers, prudent money management might call for holding as much as 45% in stocks.

My guess is that the PBGC sees their timeline as infinite. Or until global warming drowns everyone and makes pensions irrelevant. B)

I follow Jubak, and value his opinions, but he does seem a little alarmist on this issue, even though I see his point.

I agree. My first thought was "maybe the PBGC has breached its fiduciary duties by holding only 22% or so in stocks and is now trying to get on the right track by doubling that ratio." Jubak didn't mention that possibility (unless I inadvertently overlooked it in the article). I'm certainly worried more about the multi-hundred billion dollar writedowns in mortgages and other very large transfers of wealth we're gonna see in the short-term. The PBGC screws up and it could ask for a bailout. With our federal budget now approaching THREE trillion dollars each year, a bailout would be a drop in that bucket.

 

[UAL_TECH]

Just wait for the future 401K scam.

There is just 'wayyyyyyyyyyyyyy' too much cash in these plans that go unfettered and the 'plan' managers get rich while the plan participants loose their a$$.

I am a 'very' conservative investor with only a few plans (Fidelity) to choose from and am down (-)3+% YTD.

Guns, Gold and Oil are not an option (My best choices).

B) UT