Government confiscation: The final assault on retirees' financial independence and peace of mind?
By John Bellinger
Retirees do not want to start over in life and are, therefore, typically risk-averse. Their priority, even above increasing their wealth, is to hold on to what they have.
Webster defines opportunity as "a combination of circumstances favorable for the purpose." Today, a retiree's number one documented fear (greater than death or public speaking) is running out of money. There are 34 million retirees, 76 million baby boomers, 300 people turning 60 every hour, someone retiring every 15 seconds for the next 15 years, and 10,000 baby boomers becoming eligible for Social Security and Medicare every day.
A recent survey from Go Banking Rates found the average APY on U.S. savings accounts is currently 0.21 percent. Approximately $6 trillion sits in interest bearing accounts earning less than 1 percent. America's deficit is well above $16 trillion, and if you add in unfunded liabilities for Medicare, Social Security and public debt, the deficit leaps to more than $58 trillion. No wonder confidence and peace of mind are practically non-existent.
Their number one fear is real, as private pensions are basically gone. Pensions have been largely replaced by 401(k) and IRA plans, and the risk is now in their hands. The peace of mind expected in retirement has been replaced by a fear that market volatility (among other factors) has created a near perfect storm:
- Investors don't know what their investment returns will be.
- They typically have a limited amount of money to draw income from.
- They don't know how long they're going to live.
Reports about this have been rumbling around since 2008 when Senate Bill 1148 introduced the Guaranteed Retirement Annuity (GRA). A 2012 GAO report tells Americans: "Buy more annuities!" In explaining the possible nationalization of retirement accounts, economist Teresa Ghilarducci (an early advocate for the GRA) suggests, "The coming retirement income security crisis is a shared problem ... My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security."
We should be paying close attention to what is happening. Just last week, our office received an email from a producer in the Midwest. The subject line was, "This is not a joke." Forwarded from the National Seniors Council, it was an article titled "Obama Begins Push for New National Retirement System." Discussing a hearing held several years ago by the Treasury and Labor Departments, it essentially "advocated for more government regulation over private retirement accounts and even the establishment of government-sponsored annuities that would take the place of 401(k) plans." A representative of the Pension Rights Center, Rebecca Davis, testified that "the government needs to get involved because 401(k) plans and IRAs are unfair to poor people." National Seniors Council Director Robert Crone concludes, "It feels just like the beginning of the debate over health care and we all know how that ended up." Crone warns, "Such reforms would effectively end private retirement accounts in America. The government could take trillions of dollars and redistribute them through this new national retirement system."
Will this ultimately happen? Probably not. But when you think about it, even a portion of the $19.4 trillion could put a significant dent in the national debt, so it will remain a desirable target for a Treasury starved for cash. As we approached the fiscal cliff in December, the Treasury announced that it would begin "using the Federal Employees Pension Plan reserves as a bank — though it has promised to pay back the money once the fiscal cliff issue is fixed." No mention is even made of the debt ceiling impending crisis.
The ramifications of such "confiscation" make for spirited debate and discussion, but what does it all ultimately mean for our prospects and clients? Doesn't it add one more element of fear, insecurity and doubt to an already uncertain retirement environment? Talk of accumulation phases, distribution phases, crediting rates and methods, and lifetime income benefits don't mean a great deal to a retiree worried about Social Security, market volatility that could crush next month's retirement check from his 401(k) plan, and the devastating effects of the price of food, gas, and living in general.
Opportunity: "A combination of circumstances favorable for the purpose." What are the circumstances? What is the purpose? We all know that once one is retired, there is a huge difference between wanting to go to work and having to go to work. Retirees are dependent upon Social Security, whatever pension they may have, and their savings. For the most part, they do not want to start over in life and are, therefore, typically risk-averse. Their priority, even above increasing their wealth, is to hold on to what they have.
Our challenge is to provide security, safety, control, guarantees, flexibility and some growth potential by offering products from highly-rated, financially stable companies. If you believe, as I do, that events since the dot.com bubble — the housing and banking crisis, the war on terror, the Lehman Brothers collapse, the market meltdown and accompanying devastation of 401(k) and IRA plans, a recession that arguably hit the baby boomer generation the hardest, and now the potential for "confiscation" of what's left of their retirement plans — have created "a combination of circumstances favorable for the purpose," then don't we have a tremendous opportunity and an obligation to tell our story?