Page 17 - The Great 401k Rip-Off

That, along with the fact that the average life expectancy was in the low 70s meant that the average
retirement was generally fairly short and sweet for most individuals. People did not have to take
undue risks with their retirements, nor would they have if you’d suggested it to them. Imagine
getting your father to forego his pension for the ability to put his hard‐earned savings into the stock
market? I don’t know about yours, but mine would have disowned me.

Somewhere along the way this bargain was forgotten. Somewhere someone decided it was okay to
just ignore the social contract and leave it all up to us. Pension plans that had been in place for years
closed to new employees. In other cases, they were “bought out” with settlements of “present
value.” Some were just canceled through bankruptcies (think GM and the City of Detroit!) or just
plain raided (whatever did happen to that nice Jimmy H. guy?). [7]

Why and how did this happen? Why and how was the risk of employee retirement savings dumped
on individual workers—and then taken off companies’ books—in and since the 1980s? As we’ve seen
in this report, the 401(k) was the key. Having that to offer employees was the employers’ ticket out
of having to pay billions in retirement obligations. We understand this was a bad deal for us, but
what can we do?

Wall Street saw the potential for company‐sponsored and individual retirement accounts before
nearly everyone else. It’s very enthusiastic and nearly instantaneous embrace of this opportunity
completely changed the landscape in less than a generation. Before we knew it, the great 401(k) rip‐
off was complete. Pensions were decimated and the market had sucked trillions of dollars that
translated to hundreds of billions in annual fees and bonuses for the lucky people who help us lose
our money. However, the job was not yet completed.

That brings us to the present, and the ongoing battle between the people who want to speculate
with your money, and those who want to help you preserve it. Frankly, there isn’t as much money to
be made for the people who want to help you preserve it, but we believe it’s the right thing to do.

The answer, of course, is the pension, that has expert institutional money management of a very
large portfolio in very safe investments while at the same time leveraging the longevity risk that
provides the super‐charged income you simply can’t get from rates of return. Where can you get a
pension? It’s easy. Just buy a good, well‐suited annuity from someone who understands them and
how to use them in retirement plans. All pensions are, after all, annuities.

This is where it gets hard. The answer is easy, but convincing people is really, really hard. That’s
because Wall Street spends hundreds of millions a year trashing annuities so you will keep your
money there.

Want convincing? Go back and reread the section about Wall Street’s response to the breaking down
of the 4% Rule: spend less. Don’t change how you manage your money, just spend less. Or, take
more risk. Or, buy our bonds. Try real estate. Gold. How about some of these nice little derivatives.
Anything. Anything but an annuity. (Well, sort of. Anything but a fixed annuity. Variable annuities are
fine, because we get to put our mutual funds and other products in them. We still get to charge
really exorbitant fees. And you still get to take all the risk. So just stay away from fixed annuities,
where we can’t make any money.)

The question, and it’s a critical question for your future, is why? Why does Wall Street have such a
loathing for fixed annuities? What’s so wrong about a product that protects your money, pays you

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