The TreeceCo Report
By Tony Treece
When your savings and retirement money is in an IRA or 401k it is captive until you reach 59.5 years old. At the onset this may seem like a great way for the government to incentivize saving for retirement. On the other hand you are limited.
If you think long on this the natural question will be, “How did this start?” In the late 1960s Wall Street began seeing challenges to their business model, and they began looking for new ways to grow Wall Street.
They had already tried introducing “no load” mutual funds and discounted brokerage fees but that was not enough. Wall Street began lobbying Congress for changes to retirement tax laws. Eventually in 1974 they were successful and the Employment Retirement Income Security Act (ERISA) was passed.
Previously from the 1930s to 1974 a system of retirement was in place that worked well. Most employers had a pension program in place. Employees knew that if they worked X number of years, upon retirement they would receive Y dollars per month for the rest of their life. It was a carefree system, and the pension manager was able to spread risk over a hundred-year period. Therefore economic issues worked themselves out.
ERISA changed everything and created a “do it yourself” approach. Suddenly with little notice of the change, employees had to become their own pension managers. Who do you think stood up to help employees learn how to invest for retirement? If you guessed Wall Street, then you are right.
But the $1,500 tax credit people received was not enough for Wall Street. They became greedier. In 1980 Wall Street had Congress implement the 401k. This gave Wall Street an advantage no other industry had by deducting income from an employee’s paycheck and creating a tax incentive.
Wall Street and Congress got companies to buy in to this plan by allowing companies to fund their employee’s 401ks with their own stocks. Many American workers gambled their retirement on their company stocks. Enron was the biggest example of why this was a bad idea for retirement savers.
The most surprising thing is that with Wall Street now consuming retirement savings money, this ushered in the longest bull market in history, from 1980 to 2000. Notice that ERISA started a few years before this bull run began.
The tech bubble that burst in 2000 was evidence that much of the market was based on speculation. It was not rooted in sound business principles. Then, the mortgage meltdown in 2008-09 revealed that the issues had not been solved.
The takeaway is that the conventional Wall Street method of retirement planning creates retirement losers. Leaving your money in the control of someone who does not have your best interest in mind is ludicrous.
You are responsible for creating an income for the rest of your life once you retire. If you cannot answer how you will do that, then it is important that you develop a plan. Wall Street cannot guarantee you an income for the rest of your life, but there are retirement planning strategies out there that can. In fact Wall Street hates them so badly that they have lobbied Congress to have them muffled. If you would like to discuss how to have guaranteed income for life, give us a call at 855.534.4653.