Jobless youth and oldsters who can’t retire

Thomas Geoghegan, a labor lawyer in Chicago, wrote a good article for The Baffler about the connection between low wages, high youth unemployment and older people (such as himself) being unwilling to retire.

Thomas Geoghegan

A reporter asked Pope Francis to name the single biggest evil in the world.  Secularism?  No.  Abortion?  Not even.  Here’s what he said: “Youth unemployment—and the abandonment of the elderly.”

OK, that’s two evils.  But aren’t they really one thing?  Unable to get a start, boomerang kids move back home—while their grandparents hang on to their jobs.

Why hang on?  They fear being abandoned.  They didn’t save.  The young have always had to wait for the old to retire in order to move up a notch, but in the twenty-first century, that wait is getting longer, increasing the competition for scarce jobs.

For the state to shrink, the old must work more.  It’s a neoliberal axiom.  Call it the New Old Deal.

As a labor lawyer, let me defend my clients.  The working-class people I represent are dying sooner, not mucking up the labor market by living too long.  Alcohol and heroin are partially to blame, and trending stories on epidemics afflicting the white working class make easy fodder for TV newsmagazines.

But let me tell you what I more often see happening to non-college whites: those who do hard physical labor for an hourly wage go lame.  By age fifty-five, or certainly sixty, many are just done.

And when they go lame, they have no options.  They have no union-bargained pensions anymore.   They certainly have no 401(k) retirement accounts.

Maybe the country should be grateful; to the extent that they die prematurely, they help shore up Social Security.  And hey, should the GOP make it harder for them to receive workers’ comp or disability, these high school grads may die even younger.

The whole article is worth reading.  Click on Exit Planning to read it.

Wall Street brokers free to rip off retirees

One of President Barack Obama’s top economic advisers said abusive trading practices are costing workers billions of dollars in retirement savings each year and called for stricter rules on Wall Street brokers.

Jason Furman, chairman of Obama’s Council of Economic Advisers, drafted a Jan. 13 memo citing research that says some broker practices, such as boosting commissions with excessive trading, cost investors $8 billion to $17 billion a year.  The document was circulated to senior aides and indicates the White House may support tighter oversight of brokers who handle retirement accounts.

The memo, obtained by Bloomberg News, makes the case for a Labor Department regulation that would impose a fiduciary duty on brokers handling retirement accounts, requiring them to act in their clients’ best interest. Under current rules, brokers are held to a ‘suitability’ standard, meaning they must reasonably believe their recommendation is right for a customer.  [snip]

The document says researchers’ estimates of up to $17 billion in investor losses are “quite conservative.”  Investors lose five to 10 percent of their long-term savings due to conflicted advice, according to the memo.

“Academic research has clearly established that conflicts of interest affect financial advisers’ behavior and that advisers often act opportunistically to the detriment of their clients,” the memo says.  That includes the practice of brokers receiving payments for selling certain mutual funds.

via Bloomberg Business.

Financial ripoffs in the recent past have been justified on the groups that clients were sophisticated investors who should have know what they were getting into.  But the average American working person, saving for retirement, is not sophisticated.  I don’t think many realize that their brokers were not required to act in their best interest.

The Obama Labor Department could have changed the regulation at any time during the past six years.  Will it act now?  It will be interesting to see.

LINKS

While Deflategate and Chaitgate Rage, America Quietly Robs Its Elderly by Matt Taibbi for Rolling Stone.

White House Aide Calls for Stricter Broker Rules on 401(k)s by Dave Michaels and Margaret Collins for Bloomberg News.

Forgetful mutual fund investors perform best

Proponents of Social Security privatization say that the average investor will do better investing the money that goes to Social Security taxes in the stock market.  The chart above, which is from Business Insider, shows the problem with this.

It is true enough that, over a long period of time, stock market averages, such as the Russell 2000 or the Standard & Poor’s 500, do better than Treasury bonds.  But most of us don’t do that.

We get overoptimistic when stock prices are going up and panic when stock prices are going down.  So we buy high and sell low—the opposite of what a smart investor should do.

The following is from an exchange between Barry Rithotz, a financial adviser and blogger, and James O’Shaughessy, of O’Shaughessy Asset Management, on Bloomberg Radio.

O’Shaughnessy: “Fidelity had done a study as to which accounts had done the best at Fidelity.  And what they found was…”

Ritholtz: “They were dead.”

O’Shaughnessy: “…No, that’s close though! They were the accounts of people who forgot they had an account at Fidelity.”

via Business Insider.

Ritholtz told about some of his experiences in estate planning, where a family fought over inherited assets for 10 or 20 years, didn’t touch them in the meantime and found those 10 or 20 years were the best period of performance.

Reasons to worry about retirement

Double click to enlarge.

Hat tip to The Big Picture.