A Pension plans purpose is to protect and serve it’s pensioners.

The concept of the guaranteed old age pension is historically temporary, and is gradually becoming unsustainable as creation of real capital becomes ever more constrained over time.

A generous old age pension was a product of post WW II America, and our amazing temporary prosperity, born from immense resource exploitation, and banking derived economic imperialism of the Third World.

Two generations from today, the nuclear family model will become the norm again, as it was for thousands of years.

In the meantime, social inertia will preserve expectations, much to the detriment of social stability going forward.

At the present time, there are no secure traditional investment vehicles giving net returns that exceed the real rate of monetary inflation, when all returns are averaged. Private pension plans will therefore become the same kind of Ponzi scheme as Social Security, until income additions from the shrinking production base become unsustainable.

Don,
Social Security and old style pension plans are ‘Best Bets‘. They are backed by the full faith and credit of the U.S. ( pensions through the Pension Benefit Guaranty Corporation).
If Social Security and Pension plans fail. So does the world economy.

What is there to protect your 401k or IRA?

The failure of pensions is not a product of an internal problem  But rather outside forces such as undocumented workers inflating the workforce and creating unjustified competition between workers.

Currently  a fraction of 1 % of an increase to the FICA deduction would make Social Security solvent for many decades.

The idea the a less than 1 percent increase in FICA deductions is unsustainable. Is an argument that can not be supported under any circumstance.

Social Security and old style pension plans are ‘Best Bets‘. They are backed by the full faith and credit of the U.S. ( pensions through the Pension Benefit Guaranty Corporation).

If Social Security and Pension plans fail. So does the world economy. 

The world economy won’t drop dead, but will keep contracting as a product of per capita income. This per capita contraction has been on going since 1973, and corresponds nicely with ever increasing government debt and currency devaluation since then. 

The PBGC is running a huge deficit, which will be remedied by injection of more fiat money, which devalues all real holdings. A slow death spiral, with no real means of repaying the loss. The fixed private pension is on its way out, and that trend is now 20 years old.

Currently  a fraction of 1 % of an increase to the FICA deduction would make Social Security solvent for many decades.

 This is a fantasy based on government derived cash accounting. Using rational accrual accounting, SS obligations exceed constant dollar income projections by over 20 trillion dollars, ongoing to 2050, if a standard currency depreciation of 3% annually is assumed. This value is conservative based on real inflation over the last 20 years. And more importantly, the government fantasy assumes constant real economic growth of 3% net, which is impossible. As it exists now, SS is just an unsustainable Ponzi scheme.

The faith and credit of the US means nothing. Capital can not be created by government decree, or by wishing on a star for that matter. Injecting more fiat currency, or raising the FICA deduction only reduces real value across the board. We all sink on the same boat. Falling government bond values shows that the market isn’t fooled by promises of full faith and credit.

The checks will keep coming, but real purchasing power will decline. Real inflation always exceeds the COLA, and will continue to do so.

What is there to protect your 401k or IRA?

Personal responsibility, and  knowledge. While others lost retirement savings over the last 3 years, I made gains. It really wasn’t difficult, and I’m not an investment expert. Never follow the herd is the main principle to remember. 

The desire for parental authority figures to guarantee a retirement income is a classic moral hazard, and the events over the last few years prove it without question. Most of those who lost retirement savings were letting an institution make all decisions, without taking personal responsibility. Knowledge is mostly free for the taking, but does require some work ethic, and willingness to keep learning.

This is especially important going forward, since buy and hold only works in an economy with real net long term growth. Those days are over for good.

Think that fiat money is somehow magic if created by government decree?

America’s third largest life insurance company disagrees.......

Northwestern Mutual Makes First Gold Buy in 152 Years  

By Andrew Frye

June 1 (Bloomberg) -- Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. 

Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York.

“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”

Policyholder-owned Northwestern Mutual, based in Milwaukee, ranks third by 2008 life insurance premiums according to data from the National Association of Insurance Commissioners. The data excludes annuities.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

Don,

Gold as a hedge?
Brilliant. (just don’t forget that gold is still cheaper today than in the 80’s)
Commodities as a investment  in lieu of gold. Has been a disaster.

Don says:
Personal responsibility, and  knowledge

TK says:

That has been the problem since the inception of 401’s and IRA’s. Fund mangers have provided false information to a unsuspecting public. Who have not the time to work 2 jobs and manage their managers.

To put it more precisely.:
Personal responsibility, and  knowledge hasn’t kept one person from jumping off the cliff since 1980 and the failed Reagan economic model.
401k’s and IRA’s were the start of the current bubble era.

Social Security will not fail unless America fails on all it’s foreign guarantees.
That means a total destruction of the world economy.

The current talk by wall street concerning Social Security is intended to put off the inevitable Social Security tax increases.  
Wall street wants Social Security to fail.

They need more fish in the barrel. They have their finger on the trigger and are ready to blast the wealth out of the publics pocket.

I find it very telling that Wall Street welcomes the individual Social security investor.
But absolutely refuses government investment into the stock Market in the name of social Security.

I will warn you once again. It is private firm accounting and estimates that caused this current depression. Not government.

Why do you call government prediction fantasy. Social Security is still here and good for decades without change.
When we both know that private predictions have a history of being fraudulent. And we know what has happened to 100’s of thousands of 401k and IRA’s such as the Enron junk.

Social Security has enough money as is through 2040. A less than 1% increase in deduction will carry it through the century.

I am not a socialist. But I refuse to keep doing the same foolish thing over and over again. That is insane.
The private sector has to come up with a new way. They have to return to capitalism.

We can’t have a nation built on a 100 fiefdoms.

Gold as a hedge?

Brilliant. (just don’t forget that gold is still cheaper today than in the 80’s)

Commodities as a investment  in lieu of gold. Has been a disaster. 

Yeah, right. I’m up over 100% on gold investments. Up 40% on shorting the financials and banks. The trend was obvious. No disaster here. It’s not 1980 BTW. As I said before, buy and hold is for idiots. 

Or, I could have let an investment firm lose 30% for me.

How’s your investments doing?

That has been the problem since the inception of 401’s and IRA’s. Fund mangers have provided false information to a unsuspecting public. Who have not the time to work 2 jobs and manage their managers.

As I said before, you have to do it yourself. 

Fund manager lied? Don’t use a parental authority figure. Figure it out yourself.  Unsuspecting public?  Stupidity is no excuse. Books are free at the library. A fancy suit and office are no proof of expertise.

I work long hours, but have time to manage my own retirement money. It only takes a couple of hours per month to do it yourself. Those that lose to a bad manager have only themselves to blame. Children blame others, adults take responsibility for their own mistakes.

Why do you call government prediction fantasy.

Learn some basic accounting theory and get back to me. 

I will warn you once again. It is private firm accounting and estimates that caused this current depression. Not government.

Not government?

I suggest you learn the difference between an inventory derived recession, and a credit derived depression. Hint: Revue US Treasury Dept. and Federal Reserve monetary policy 1999 to 2007, and 1923 to 1929. 

Don,

Are you suggesting that the general public can personally invest in the market and make money?

If so:

Learn some basic accounting theory and get back to me.

As for the cause of this depression.

It has nothing to do with capitalism nor any accepted business practice.
It has everything to do with greed and fraud.

Government must regulate. That is a basic tenet of Capitalism. But it has not and will never rule with an iron hand.  Until business fails. Then for the sake of the taxpayer. It must set the rules most favorable to the taxpayer. That is no different than the fiduciary duty of the broker to his client.

Don, Government does not force you to run a car wash. Or a mortgage company. But if you do, it must conform to the rules.

Nothing done by government. Caused the fraudulent appraisals.
And those of us on this blog knew of those fraudulent appraisals years ago.

Nothing done by the government caused mortgage lenders to make loans to anyone who could not afford them.

 Bush did help the speculators  raise crude to criminal prices by not releasing the SPR, until the damage had been done, and the bottom started falling out from crude.

But that was the work of, ’A’ man, influenced by his petro buddies. Knowledgeable people in the private sector and government screamed to let the SPR go.
But Bush had a private agenda.

Don, 

For the sake of the long term investor. Adjust this chart for inflation. Then compare it to income derived from CD's or T-bills since 1975.