On December 19, 2019, Alessandra Malito writes on Market Watch:
For many Americans, the reply is: I don’t have any money in a 401(k)
President Trump likes to ask, “How’s your 401(k) doing?” But the answer for most Americans is, “What 401(k)?”
Granted, if you participate in your company’s 401(k) plan and are invested in equities, you’re likely up a healthy amount this year. But the majority of Americans either don’t invest in a 401(k) plan — or don’t have one to invest in, either because their employers don’t offer the retirement account or because they work in an industry that doesn’t allow them, which is the case for government workers. In total, only 14% of companies had 401(k) plans for their employees in 2012, according to a January 2017 report from two U.S. Census Bureau researchers who reviewed all W-2 tax forms in the U.S., and those are mostly larger companies. Of those, only about a third of workers are contributing to those plans.
Put another way — only about 54 million American workers put money into a 401(k) plan in 2015, according to the Investment Company Institute, while 150 million were employed in that year, according to the Bureau of Labor Statistics).
See: This is what income inequality means for your 401(k)
Trump has been asking about 401(k)s at campaign-style rallies and fundraisers, apparently because of Wall Street’s current record-setting performance and its impact on investment accounts.
But 401(k) plans represent only 19% of the $26.6 trillion in retirement assets in the country (which includes pensions and individual retirement accounts, as well as annuities), according to the Investment Company Institute.
However, Trump’s question could resonate with more people in the future. More employees are beginning to participate in their plans, according to the Center for Retirement Research at Boston College, thanks in part to automatic enrollment and contribution increases some companies enforce. But 401(k) savers could do more to help themselves. Balances are lower than they could be, because employees don’t contribute the maximum amount, or they pay high fees or take money out of the plans before retirement age, Alicia Munnell, the director of the center, pointed out in the report.
Of all generations, millennials (roughly 20 to 36 years old) are more likely than their older counterparts to make contributions to their 401(k) plans. Why? They saw the financial collapse of 2008, and are trying to protect themselves if something similar happens again. But it’s hard for millennials to save as much as generations before them did at their age, with crippling student debt and other financial obligations. Sometimes, people of this generation can only contribute $5 a month.
This isn’t to say that money doesn’t add up over time — the average amount in employer-sponsored accounts for baby boomers was $263,000 this year, according to a survey of Legg Mason investors, and that’s with conservative investments (which means they grow more steadily and without much risk). Unfortunately, that money must last through the potentially three decades of retirement, and doesn’t account for health care costs, which are estimated at $275,000 for the average couple in retirement.
Gary Reber Comments:
I’ve said it before and I’ll say it again: It’s great to be unemployed and retired if you can afford it!
So far the attempts to address the fact that Americans are not saving enough for retirement do not address the REAL cause. And the proposals put forth fall far shot by “trillions” of dollars.
The plain truth is that more than four in five older Americans expect to keep working during their latter years, a sign that traditional retirement is out of reach for vast swaths of society. According to a recent survey poll conducted by the Associated Press-NORC Center for Public Affairs Research, among Americans ages 50 and older who currently have jobs, 82 percent expect to work in some form during retirement.
In other words, “retirement” is increasingly becoming a misnomer.
For those who have been dependent on employment and/or welfare, the problem is that financially sustainable retirement is and will no longer be a reality. Even with Social Security, which is funded through payroll taxes called the Federal Insurance Contributions Act tax (FICA) and/or Self Employed Contributions Act Tax, (SECA), one must have had a job to be eligible for the entitlement––and the amount of Social Security is based on the income level generated from one’s employment record of payroll tax contributions.
Employer-provided pensions continue to decrease and personal savings is not the norm among the vast majority of American households who must spend virtually every earned dollar on living expenses, and incur consumer debt to secure automobiles and housing, as well as other consumption. While increasingly individuals are finding it necessary to continue working in retirement to supplement their income, most older Americans discontinue full-time career work and struggle to meet obligations with minimum-pay part- and full-time jobs. A proportion of retirees also receive income from welfare programs, such as Supplemental Security Income and other life-support services funded through tax extraction and government debt.
Though millions of Americans own diluted stock value through the “stock market exchanges,” purchased with their earnings as labor workers, their stock holdings are relatively minuscule, as are their dividend payments, if any, compared to the top 10 percent of capital owners. Statistically, stock market wealth is held by a relatively small number of the most affluent. In reality, most Americans don’t have any stocks to their name. In fact, many Americans don’t even have any savings to their name. Pew Research found that 53 percent of Americans own no stock at all, nor have any retirement accounts, and out of the 47 percent who do, the richest 5 percent own two-thirds of that stock. And only 10 percent of Americans have pensions, so stock market gains or losses don’t affect the incomes of most retirees.
This perspective should serve as the “reality” from which to explore prospects for effectively dealing with eroding retirement security.
Proposals that have received national media attention offer lifetime income security funded out of current savings, meaning further reductions in consumption out of already inadequate incomes. They also aggregates everything into a “private sector” institution that is custom designed to be “too big too fail.”
Such proposals will not succeed in providing any real, substantial retirement security for the majority of Americans whose jobs do not earn more than substance week-to-week and month-to-month wages. The proposals are designed to encourage Americans to save for retirement and require personal savings and denial of consumption. This is unrealistic given that the Americans with the least opportunity must reduce what is inadequate consumption income in order to accumulate savings for retirement, which for most Americans will be inadequate.
Does anyone really believe that the interest rate to be paid under the proposed programs advocated will be sufficient and able to avert the decline in the value of the money as the government continues to flood the economy with increasingly non-asset-based debt?
All proposals put forth by elected representatives rely on the requirement to reduce consumption in the economy at a time when what is needed is responsible expansion of the economy supported by increased responsible consumption.
As my colleague Michael Greaney at the Center for Economic and Social Justice (www.cesj.org) states, “under the prevailing Keynesian paradigm, of course, ‘saving’ is always defined as the excess of income over consumption. If you want to save, then, the iron assumption of Keynesian economics is that you must consume less.”
The American consumer is being put into an impossible situation of being asked to consume more to drive the economy and reduce saving, and at the same time are being told they must reduce consumption dramatically in order to accumulate sufficient savings for retirement.
Of course, the whole problem would go away if we financed both retirement and wealth-creating, income-producing physical productive capital needs out of “future savings,” thereby increasing the capacity to consume and support the economy while simultaneously building financial security for every American citizen.
A far better and productive approach would be to create a new way for working and non-working Americans to start their own retirement savings: MyCHA. CHA stands for Capital Homestead Account. It would be a super-IRA or asset tax shelter for citizens. The Treasury should start creating an asset-backed currency that will enable every child, woman and man to establish a CHA at their local bank to acquire a growing dividend-bearing stock portfolio comprised of newly-issued stock representative of viable American growth corporations to supplement their incomes from work and all other sources of income.
We can create new asset-backed money for investment through the existing but dormant Section 13(2) rediscount mechanism of each of the 12 regional Federal Reserve banks that would be backed by “future savings” (that is, future profits from higher levels of marketable goods, products, and services).
The CHA would function as a savings and income account that effectively would build a nest egg over time, using interest-free, insured capital credit loans. A CHA would be offered to EVERY American, whether employed or not. Of course, those employed may also have additional opportunities to acquire personal ownership in their companies using a justice-managed full-participation Employee Stock Ownership Plan (ESOP) trust financial mechanism.
The CHA would process an equal allocation of productive credit to EVERY citizen exclusively for purchasing full-dividend payout shares in corporations, both established and viable start-ups, needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition interest-free loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares. There would be no prerequisite requirement to qualify for an annual, set capital credit loan other than American citizenship.
This idea to stimulate economic growth and provide retirement security for EVERY American is based on the premise that what is needed is for the system to facilitate spreading the ownership of productive capital more broadly as the economy grows with full payout of dividend earnings, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate productive capital wealth assets. In doing so, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader.
This would benefit the traditionally disenfranchised poor and working and middle class, who are propertyless in terms of owning productive capital assets. It would also result in tremendous economic growth, which would benefit everyone including the already wealthy ownership class, and create opportunities for ownership of expanded technologically advanced “machine” automation innovations and inventions, and real jobs, not make-work as an expanded economy is built that can support general affluence for EVERY American citizen. Thus, as productive capital income is distributed more broadly and the demand for products and services is distributed more broadly from the earnings of capital, the result would be the sustentation of consumer demand, which will promote economic growth. That also means that over time, EVERY child, woman and man could accumulate a diversified portfolio of wealth-creating, (full earnings) income-producing productive capital assets to provide economic security in retirement and not be dependent on having to work during retirement or rely on government-assisted welfare.
One might ask how we failed to grasp the significance of productive capital’s input and the necessity for broad private sector individual ownership? Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on full production and broader productive capital ownership accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Yet, the wealthy ownership class knows that this notion is idiotic.
In real productive terms, productivity gains are the result of tectonic shifts in the technologies of production, which consequently eliminates the need for mass human labor, destroys jobs, and devalues the worth of labor.
One should ask what form would the structural reforms take. Employment in this new enlightened age would start at the time one enters the economic world as a labor worker, to become increasingly a productive capital owner, and at some point to retire as a labor worker and continue to participate in production and to earn income as a productive capital asset owner until the day you die. As a substitute for inheritance and gift taxes, a progressive transfer tax would be imposed on the recipients whose asset holdings exceeded $1 million. This would encourage those owning concentrations of productive capital assets (effectively the 1 to 10 percent) to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
Other stipulations for the structural reform would entail tax policy reform to incentivize corporations to pay out ALL profits to their owners as taxable personal incomes to avoid paying stiff corporate income taxes and to finance their growth by issuing new full-dividend payout shares for broad-based individualized employee and citizen ownership with full-voting rights.
We need to encourage the insurance industry to expand their product lines to market Capital Credit Insurance to cover the risk of default for banks making loans to Capital Homesteaders under the proposed Capital Homestead Act. Under the provisions of the Act, risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance issued by a new government agency (ala the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation –– the Capital Diffusion Reinsurance Corporation (CDRC) –– through which the loans could be guaranteed. The CDRC would reinsure any portion of any financing risk assessed as reasonable and insurable but not already insured by the commercial capital credit insurance underwriters. In establishing the CDRC, the federal government would not be undertaking a new responsibility but merely simplifying and rationalizing an existing one. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
The Capital Diffusion Reinsurance Corporation would function similar to the Federal Housing Administration, generally known as “FHA”, which provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. The FHA insures mortgages on single family and multifamily homes including manufactured homes. FHA borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.While pay-downs on home mortgages require a separate source of income, capital credit for productive capital formation is self-liquidating, with the earnings from the investment the source of the pay-down.
The end result is that ALL American citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing our country’s trend where all citizens are becoming more dependent for their economic well-being on the “State,” our only legitimate social monopoly.
Implementing the Capital Homestead Act would significantly empower ALL Americans to accumulate over time a viable, diversified ownership portfolio in our nation’s growth companies and create a truly unique, global-leading just and environmentally responsible Ownership Society that fosters personalism, creativity and innovation. Embarking on a new path to prosperity, opportunity and economic justice will expand growth of our market economy in ways that democratize future ownership opportunities, while building a future economy that can support general affluence for EVERY American.
In conclusion, the conventional savings required –– denial-of-consumption –– programs would be completely unnecessary if we had Capital Homesteading. We need elected representatives to instead advocate for the passage of the Capital Homestead Act.
See references to the Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/.
For more on how to accomplish such structural reform, see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at http://www.foreconomicjustice.org/?p=17032 and “The Income Solution To Slow Private Sector Job Growth” at http://www.foreconomicjustice.org/?p=9872.
For an in-depth overview of solutions to economic inequality, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.
