Absolute MUST SEE TV plus updated MUST READs on the website:
http://www.pbs.org/wgbh/pages/frontline/retirement/view/
This is a look at how middle class workers in America are finding they will have to work more years for less pay with fewer benefits.
Especially hurtful to watch is the saga at United Airlines where bankers, management and the new CEO walked away with millions based on new bankruptcy laws which gave them "Superpriority" claims to any money unleashed through bankruptcy. (“Superpriority” claims allow CEOs and management to be treated as Super-mortals who require safety and no risk to their own pay and pensions while cutting the pay and benefits of Lesser Mortals, i.e., the working class stiffs loading the underbellies of planes, standing on their feet all day taking abuse at ticket cues, fueling and maintaining airplanes, etc.)
In segment two, for instance, we learn that bankers and lawyers walked away with $400 million in cash after United comes out of bankruptcy. We also discover the new CEO, Mr. Tilton, made sure his pension was shunted into a protected pension plan while his workers were fooled into working 2 1/2 years during the "workout" of bankruptcy as their pensions were slashed.
United workers have taken big paycuts. You will see and hear many a story of loyal longtime United workers who are now on the short end of a stick, learning what loyalty gets you in the end: benefits were slashed with workers picking up more of the costs. Longer hours must be worked. And the worst thing one worker says is the uncertainty of not knowing whether she will be working for United into retirement.
Meanwhile, United executives and bankers were paid bonuses for staying on with United during the “workout”.
Watch this investigative piece and witness a bigshot banker literally pull his collar to let out embarrassing steam when the Frontline host asks a hardball question whether CEO Tilton's "pension" was given preferential treatment and protection while workers were required to give up one thing after another. The banker stumbles in his answer and looks like a greedhead prevaricator protecting the guilty, which he is.
The program begins with a former United mechanic who retired at age 55. He tells how United patted him and other workers on their backs while calmly goading them to take retirement early. Now this ex-mechanic cannot retire. He and his wife live in a trailer. He drives an 18 wheeler to make ends meet simply because his pension from United was not protected like CEO Tilton's.
The Do It Yourself 401k Retirement
Part Three of this Program focuses on the new retirement hope which replaces the company pension all across America: The Do It Yourself 401k Retirement.
This is where it really gets interesting as this shows you how a national social security plan where individuals (with little investment knowledge) direct their retirements and end up hurting themselves in retirement.
Frontline visits National Semiconductor down in Dallas . . . which we are told . . . has one of the best 401ks in the nation.
We meet the company's Benefits Manager.
National has been aggressive with promoting its 401k with employees. They have achieved an incredible 90% participation in their company plan. They went beyond the typical company, dollar for dollar match, in 401ks. The company raised their match level to $1.50 put into an employee's 401k for every $1.00 the employee put in.
Sounds good, right?
National has mandatory meetings with 401k "Managers". National goes to great length to educate their employees on retirement.
We eavesdrop on a meeting where a rep from Fidelity Mutual Funds is explaining different funds. He tells the employees straight up that the way to invest is entirely up to them. They are "in the driver's seat" . . . and many of them do not look like they are happy to be driving.
You can see many of them are puzzled and frightened.(I stopped the video here and multiplied this room by tens of millions of mixed up Americans being asked by stock brokers, bankers, and other sharpies to “direct their own retirements.” You know who ends up richer and who ends up broker in this scenario.)
Then we meet two National retirees living nearby the plant in Dallas.
Some Do Okay Investing on Their Own . . .
The first guy we meet is a former customer tech rep. This guy is surfing his portfolio on Yahoo during his segment. He did his own personal research on the computer. In short, he's smart and savvy like many sharp investors who learn to invest on their own on the Motley Fool website.
(By the way, if you are a novice investor looking to learn what are the very best, safe, big cap stocks to buy for your retirement or regular accounts, go directly to a discussion board on Motley Fool called "The BMW Method Board." When you get there, lurk for a week or so before tagging the board with questions. To become a member of Motley Fool's discussion board which allows you ask those questions, the cost is something like $29.00 per year. It's the greatest community of individual investors on the planet connected by the Internet and I highly recommend one and all to become a member today if you are not already a member.)
The 401k was made for this former customer tech rep, an Engineer graduate with a Masters in Business Administration. He was making more than $90,000 a year. After 14 years, he built up a portfolio balance of $450,000 for his retirement.
. . . While Others Can't Seem to Master Just the Basics of Investing
The next retiree is a guy who lives in a smaller home with his wife. This guy is the face of what I would expect to be the average American who is told to direct their own 401k.This sad looking gentleman was a $50,000 a year Equipment Technician. During 16 years at National Semiconductor, he "faithfully funded" his 401k plan.
His "assumption" was, that at age 65, there would be this one big lump sum of money that he could take out of his 401k, then put into his bank, for "whatever".
Unfortunately, this did not happen.
The market bombed two years before this guy's retirement.
At one point, the maximum in his 401k was $120,000. The wife said, "That was our goal". When the market dumped, that $120,000 became $45,000. They built that $45,000 back up to $64,000. And then on the day this former Equipment tech drew out his money from the 401k, there was only $52,000.
It gets worse.
This middle class guy had debts to pay. (Think about how we are now a nation of negative savers living on borrowed debt.) Then he got hit by the government with a tax bill when he cashed out the 401k in a lump sum.
You learn quickly that this guy . . . as nice a fellow as he is . . . was no financial whiz kid and that he was simply going on the little bit of information he understood clearly to prepare for his life in retirement.
Wait. It still gets worse.
So, after everything was said and done, he wound up with about $26,000 at retirement from National Semiconductor.To make ends meet, he had to take on a couple of jobs. His wife works now. The jolt of reality smacking this couple in the face made this guy do things like sell off his beloved gun collection for $12,000. As he relates, this "was a hobby of mine since I was about 8 years old."
Experts Take a Closer Look at This Financial Cancer Called "Yield Disparity
The Frontline investigator became curious as to why these two National Semiconductor retirees had such different results from their 401k plans. In Dallas, the reporter meets up with a corporate benefits consultant who has the answer.
Originally, this corporate benefits consultant was a big believer in the self-directed 401k. But by the mid-1990s, he began to see troubling differences in employees results in the 15 corporate 401ks which he helped to oversee.
This specialist in corporate benefits dug deeply into every single plan he helped oversee. He investigated yields for every single worker in every single plan. No one in a plan was overlooked.
He saw the same thing over and over at all 15 companies:The bottom 20% of the plans had an average return at the end of the year of 4%.The top 20% would be anywhere between 20-28% return.
In every case, those at the Top 20% not only had the most investment income (that is they put more into their plans) . . . they also had the highest average annual pay.
The lowest 20% had the lowest annual average pay. And they had the lowest returns on investment.
Those with the most investment savvy and money to invest for retirement were in the offices directing the worker bees. The best paid people were getting richer in their retirement plans.
Those with the worst retirement results were the guys and gals who not only received less pay, but they were not schooled in investing.
Hence, middle class workers are falling way behind in self-directed 401ks.
This consultant calls this self-directed 401k "Yield Disparity" and a "Financial Cancer" in this 401k movement.
This yield disparity was everywhere he looked. He said this financial cancer will destroy what would be an ordinary opportunity to retire with dignity. He tells you the middle class worker "cannot get there from here.
"This is a national crisis," he forewarns.
Yet there is an even more scary fact than investing for yourself in a company 401k plan: half of all Americans are not covered by any retirement plan.
Only 40% of Americans are enrolled in some kind of self-styled 401k styled plan.
According to the Federal Reserve, the average family's retirement account balance is only $29,000. Mind you, that is not a figure for individuals. The Fed says "family retirement accounts" . . . on average . . . have only $29,000 at this time. And keep in mind this figure is the "average" for those families who have any kind of retirement savings at all.
This $29,000 "average" does not include all the goose eggs in retirement savings from the 60% of Americans with no 401 retirement type savings plans at all.
Furthermore, it's not just average Americans who have trouble making the 401k plans work well. Not all highly educated people were schooled in investment planning, financing, banking, or accounting.
A College Professor Afraid of Directing Her Own 401k
Our Frontline reporter interviews a professor from a Boston college.
She relates that she has made many mistakes herself in her own 401k.This educated woman lives a busy complicated life. Planning and "saving for retirement is a really hard thing to do."
As she explains, everything that can go wrong usually does go wrong.
As the Professor tells it:The individual has to make a choice every step along the way and stay full aware of where their retirement is and how it is doing.
For instance, you have to decide:
- Whether to join the plan?
- How do you contribute?
- How do you allocate those contributions?
- How do you change those allocations over time?
- What to do when moving from one job to another?
- You have to think what to do about your last company's stock?
- And the hardest thing to think about is "What do you do at retirement when somebody hands you the check form your 401k plan? How do you figure out how to use this money over your retirement span?"
Mind you, readers, these questions and points are made by a college professor who is obviously worried about her own retirement.
How Much a 65 Year Old Retiree Needs to Survive To Age 82
Our investigative reporter then visits the Employee Benefit Research Institute . . . a leading think tank on employee issues. This Institute is not using small samples of 401ks around the country to formulate their opinion on what Boomers should expect at retirement.
The Employee Benefit Research Institute has data on about 16,000,000 401k participants from about 45,000 401k plans across America.
The head researcher says in the current batch of retirees. . . ages 60 to 65 today and the last of the generation preceding the Baby Boomers into retirement . . . those who earned $40,000 to $50,000 per year have on average about $125,000 saved in their 401ks.
When asked how long that would last in retirement, the research said, "About 7 or 8 years . . . and then you would have to rely on Social Security entirely."
Question: What is life expectancy if you retire at 65?
Answer: At 65, the average life expectancy is another 17 years.
So we are talking a gap of 10 years or so where these retirees will be down to just social security levels.
The Retirement consultant says workers need to really save up about 8 times their average pre-retirement salary.For that, you need to sock away a lot more than most people are doing.
This specialist is telling us you need to put in about 14 to 15% of your life's salary for about 30 years in a row to retire happily.He does state, "combined employee/employer deposits, that is correct." (Meaning a worker would contribute 7 to 7 1/2% to his 401k which would be matched by their respective company.)
The famed retirement benefits consultant puts the figure even higher. He says 15 to 18% of pay should be put away. (Or the employee/employers toss in 7 ½ to 9% each on payday.)
Whatever the case, Middle class America heading into retirement now is in for a rough ride.
The biggest problem is low participation.Masses of workers have no plans whatsoever.
Even those who are offered one do not put in enough money.
Between 25 to 30% of people offered 401ks, do not join the plans.
Of the possibility of contributing the maximum? Less than 10% of workers in plans do that.
Another problem is "leakage".
Too Often the 401k plan Becomes the "Rainy Day Plan".
Half the people, who move form one job to another, take their money out of their 401ks. They might use it for further education. They might use it for a downpayment of a house.
But it means it's not there when they come to retirement.Add to all this the difficulties normal Americans have in doing their own investing.(Boo-yah, Jim Cramer, what should I buy today?)
At the end of Segment 3 of this Frontline special, the sharp retirement benefits consultant tells of a common question he pops on CEOs and CFOs at all 15 firms he helped to oversee.
The setting: he is meeting in private with the CEO or CFO. An underling would come in with coffee and doughnuts, a document needing an immediate signature, whatever. After the underling would leave, this guy would ask the CEO or CFO, "Mr. So and So, would you let that fellow who just left this room direct your own retirement plan?"
And as usual, the incredulous bigwig would look aghast at this consultant and say things like, "Of course not you big dummy. Don't they teach you anything down in Texas? I wouldn't allow him near my account with a ten foot pole."
To which the consultant would respond, " . . . but your force your employees to direct their own?"
I've given you pretty much the transcript of Segment 3, which is the most eye opening warning shot about Boomers going into retirement without enough preparation for the New Reality.
The whole series is worth watching today, right now, at this very moment.
Segment 4 explains how the 401ks came about and how they originally were not plans for retirement for average Americans when passed legislation in 1978.
Watch this entire Frontline special and shake your head.There are no commercials. You will be able to view this in an hour.Do this for yourself and your family.And then put on your thinking cap.How do you get there from here?
Thinking Locally and Seeing Nationally
And also think with empathy about all those you work alongside who have no retirement plans whatsoever, who don't have the smarts to self-direct a 401k if offered one, who have not dental or health insurance.
In Key West alone, I know of no bartenders or waitresses or security guys or strippers or maintenance men or janitors or room attendants or cab drivers or barkers or fishermen or shrimpers or captains of fishing boats . . . and on and on . . . who receive any kind of retirement benefits help. In fact all of the above just mentioned do not receive any medical or dental.
Go into any bar in Key West and ask any of the above mentioned workers what they have done for retirement or what happens when they have a medical emergency. Ask any taxi driver what kind of retirement plan they have. Ask the bi-lingual maids and cleaners of hotels how they expect to retire. Ask a toughened fisherman what he's doing for retirement. Ninety percent of these people have nothing saved for retirement.
Multiply Key West's population (28,000) by 1,100 and you get a feel for what this Nation is like.
We are not prepared to retire. More people will be forced to work during their "Golden Years".
And this could get a whole lot worse if the Ponzi Scheme of Credit Manufacturing comes tumbling down and leaves America begging for scraps from Creditor nations who tell us, "Enough is enough. No more EZ Credit for you Debt Addicts. We're turning in our dollars for more of your assets and for safer currencies. You guys are going a diet. Good luck to you suckers who lived beyond your means for too too long."
In the near future, I will be looking at the issue of deflating prices on homes . . . which too many Americans think of as "investments". Homes are to be lived in. The average American home for the last 100 years has barely kept up with inflation. And the real inflation rate is not reported by our Federal Government which has ample help form its Bureaucrats and those at the Federal Reserve Bank. Nevertheless, the Housing Bubble has sucked in millions of homebuyers into believing Housing is an investment which always goes up.
We will look closely at what is happening in not only Key West, but all across the nation, as the chimera of EZ Credit for millions of unqualified buyers has turned the "American Dream" into the "American Nightmare".
