Now, how about something perhaps a little closer to home for the middle-aged middle class?
The economic policies of this country have you on a path headed toward elder poverty and deprivation, and you will be told that it is all your own fault.
There was a time when companies paid pensions. A pension is a "defined benefit" system. Based on your years of service and income, recipients get a check for as long as they live: a defined benefit. Social Security is a defined benefit system. Under a defined benefit system, employers paid into a pension fund, which professionally invested the fund to make it grow.
Some 30 to 40 years ago, defined benefit plans were phased out and defined contribution funds were established to take their place. The employer gave each employee a certain contribution every year, not as cash, but as a tax-free deferred compensation which was invested in special type of investment account. All of us would each have our own little stock portfolio. We could also choose how much additional money to save into our account.
Here is Matt Yglesias's summation of the experiment:
One of the reasons why the financial sector does so well, and has the money to support the extravagant lifestyle of the 1% is that billions of our retirement dollars are pouring into Wall Street every payday. In fact, every since the defined contribution retirement system took hold, the financial sector has grown much larger and the income inequality in the country widened, with the financial sector garnering much of the wealth. Connection?
Here's the essential shape of 401(k) as a backbone of the retirement system:
— Poor people get absolutely nothing.
— Wealthy people who would have had large savings anyway get a nice tax cut that offers no meaningful incentive effect.
— For people in the middle, the quantity of subsidy you receive is linked to the marginal tax rate you pay—in other words, it's inverse to need.
— A small minority of middle-class people manage to file the paperwork to save an adequate amount and then select a prudent low-fee, broadly diversified fund as their savings vehicle.
— Most middle-class savers end up either undersaving, overtrading, investing in excessively high-fee vehicles or some combination of the three.
— A small number of highly compensated folks now have lucrative careers offering bad investment products to a middle-class mass market based on their ability to swindle people.
Because most employees lack the knowledge and the experience to make money on Wall Street, most of our retirement savings are drained away by poor investments and by fees paid to the professionals who managing the money on our behalf. We might as well mandate that companies pay into employees retirement accounts with poker chips from nearest casino. The house always wins.
We do have a defined benefit plan for our retirement: Social Security. Thank you.
The goal of the finance industry, of course, is to privatize Social Security and turn into a defined contribution plan. Think of the fees that they collect from that dollar stream.
We face a crisis of elder poverty in the future, not because people haven't saved for their retirement, but because of much of our savings has been diverted into the pockets of the 1%.
We should be planning to increase the benefits paid by social security, not decrease them, and pay for it by taxing the wealthy, especially the financial sector.