Cycling in the South Bay

The more you read about retirement, the more you understand that it is a huge rip-off.

Its recent history comes from the origins of capitalism, which was designed to extract maximal labor at minimal cost and resell it at maximal profit. Once the worker had been shorn of his efficiency through disease, injury, decrepitude, or cost, capitalism traditionally turned him out to the care of his family if he had one, or the streets if he didn’t.

Yet retirement’s earliest roots lie with the Roman empire and the stipend it paid old soldiers, or, prior to 14 BC, a plot of land. In one form or another, a few societies recognized that the people who fought for a nation somehow deserved security in old age. The U.S. enacted a pension law in 1776 for soldiers injured in service and unable to work, and in 1832 created a general pension scheme retroactive to veterans of the Revolutionary War. A new system of veterans’ benefits was begun in 1917 and consolidated at the end of World War I into the congressionally-created Veterans Bureau. The VA was created in 1930, five years before FDR signed into law the Social Security Act, America’s first expansion of retirement benefits to the general working public.

A Bloomberg Business article shows how magnificently the program has worked.

In 2019, Boston College estimated there was a $7.1 trillion retirement-savings shortfall among American households, with half of them facing a lower standard of living once they stop working. That number likely hasn’t changed much since then, despite the increase in stock and housing prices over the last three years, according to Munnell.

Bloomberg US Edition, 8/16/2022, https://www.bloomberg.com/news/articles/2022-08-16/do-i-have-enough-money-to-retire-americans-face-massive-retirement-shorfall

If a $7 trillion shortfall, with a quarter of U.S. households having zero retirement savings sounds bad, rest assured that the system is working perfectly. What system? It’s called “capitalism.”

Without over-bludgeoning the obvious, retirement, which is only for the non-rich, requires a sum certain. The Internet is groaning with calculators and advisors who can tell you exactly how much you need. In fact, so can I: You need more than you have. But like most scarcities, it’s manufactured in order to keep all but the richest locked into one of three funnels, which are the tranches of work, financial services, the healthcare industry, or all three.

Let me explain.

Four of the six retirement paths available to Americans involve work. Those six paths are:

• Continue working
• Work part-time
• Work for free (volunteer)
• Start a new business
• Recreate
• Do nothing

It doesn’t take the sharpest analysis to see that four of the six retirement options are not retirement at all. They are options that mean you work for the same wage, or much less wages, or no wages at all. For retirement to result in a continuation of work makes sense because it keeps capitalism humming. And since very few people who continue at their job do it at the same wage/salary, retirement is simply shorthand for “massive pay reduction,” although in lower paid jobs the absence of social security taxes can mean that a part-time retiree makes almost as much as a full-timer before retirement. In either case, it’s work for less money, which is the inexorable trajectory of the relationship between capital and aging labor.

The flip side to work is of course consumption. Capitalism exists not to make sure you have a great life, but to make sure that you spend your life working in order to pay for the things that the capitalist is selling. This vicious cycle intensifies during retirement despite the imperative that retirees must “cut back” and “learn to live with less.”

However, unlike the young worker whose discretionary income is spent on gewgaws, houses, clothing, and schools, the retiree spends his income (if he’s still working) and his savings on the financial services industry and the healthcare industry. The profits from both sectors are inordinate, keep the rich getting richer, and keep the retiree from retiring in a meaningful way.

The financial services swindle began in 1978 with the passage of an amendment to the Revenue Act, adding Section 401(k), which would almost wholly subvert and replace the existing system of corporate pensions. Section 401(k) was enacted primarily because it created a huge tax benefit to corporations, and because it relieved them of funding pensions, an expensive proposition and one made untenable by poor corporate management, risky investment, and bad business decisions that left many major pensions unfunded. In other words, corporate America stole workers’ retirement funds and then turned to Congress for welfare. In order to do this, they had to use the same terms that we’re still using today to further befuddle and confuse the already ignorant masses.

On the surface, the 401(k) gave workers the power to decide how to spend their money and whether to save it or not. Many opted to save it, with a catch. Saving in a 401(k) now means that in order for the fund to grow sufficiently, it has to be invested. Pensions of old simply guaranteed a payout. And guess where the 401(k) is invested? Yep, the stock market. And guess what? The stock market goes up and down. And, equally shocking, IRAs and 401(k) accounts are not federally insured, so if you pick poorly, or your manager picks poorly, you just lost your retirement security.

Need proof that this sucks? The markets today are down 20% and falling. Will they return your lost investment by the time you retire? No one can say. Oh, well!

By giving Americans “freedom” to do what they want with their money and removing the “socialism” of “big brother” caring for their financial well-being in the form of pensions, Section 401(k) made it possible for Americans to do what Americans always do. They spent their money. A few saved, but the net result of the elimination of pensions for the freedom of private savings has meant that 25% of all working people now have nothing saved, most don’t have enough, and a few are secure as they look ahead to retirement. Of course the rich, who never retire, simply got richer, and they continue to do so.

This means that workers are now forced to become experts on investing, a sick joke of the very worst kind. And so they either take control of their 401(k) and lose it, or they put it in the hands of professional managers who, surprisingly, charge fees for making the investment decisions required to grow the account. The winner in this shell game is the financial services industry. Before pensions were stolen by corporate America, the average American worker had nothing at all to do with stocks or investing. In 1952, a paltry 4.2% of all Americans owned common stock. Since the 1978 passage of the 401(k) amendment to the Revenue Act, that number hovers around 60%.

But don’t think that anyone except the richest are making money off of it. The people profiting from workers’ forced participation in the stock market are those in the financial services industry. Once a tiny club of specialized firms devoted to the needs of the richest and the whitest, the financial services industry now has a major stake in the $7.2 trillion invested in 401(k) accounts. The number is far greater when IRAs and private retirement savings are taken into account, and it sucks money not simply from the upper middle class but from anyone who has so much as a buck in an IRA or a 401(k). Although it’s hard to get an exact number, the financial planning industry in the U.S. is currently worth about $60 billion. That’s how much money people make off of advising you what to do with the money that corporate America has stolen from you. Of course if their advice is bad, oh well, and of course losses are not insured, and of course they’ve been such a total failure that the retirement gap now exceeds $7 trillion. To paraphrase Sam Rayburn, “A trillion here, a trillion there, and pretty soon you’re talking real money.”

If you’re one of those people who thinks it doesn’t matter because you’ve saved enough and invested enough and have a high likelihood of covering all your expenses through death, it doesn’t matter. At every step in the death process you will be paying into the financial services industry as they manage your money and help it grow. It’s win-win, except when it’s win-lose. The “win” is always in their column.

After making sure that post-retirement you will either still be working or funding the financial services industry, capitalism has one last surprise in store for you. It’s called healthcare, but what it really should be called is health theft. The theft comes in two forms, and in this post I’ll talk mainly about the financial theft. In short, capitalism ensures illness and immobility for virtually everyone. With 73.6% of the population qualifying as overweight or obese, a condition caused by capitalism, most people enter retirement in horrible shape, even the ones who think they are “doing great for their age.” I’ll talk about this in more detail later, but for now, all that matters is that you enter retirement fat, sedentary, and largely immobile, because that’s the condition that will radically accelerate your expenses on drugs, doctors, treatments, procedures, and surgeries.

Those health costs devour the average retiree in two ways. First, they actually cost money above and beyond any health coverage you may have. But what’s worse, they make you fear even worse health and its attendant costs, thereby frightening people from engaging in the hard and difficult work required to meaningfully change their bad habits. The sicker you get, the more fearful you become of sickness. This spiral of bad behavior and bad health results in greater and greater amounts of your retirement being siphoned off into the healthcare industry.

By the time you’re 65, the average American spends $11,500 in healthcare, almost triple what was spent in their 20’s and 30’s. My annual healthcare costs are insurance in the amount of $7,200/year. Since 2015 I’ve used it maybe three or four times and never for anything remotely major. I’m an outlier. Since 1991 the number of elderly Americans who’ve filed for bankruptcy due to medical costs has increased over 200%. Within that same period, among all bankruptcy filers, the number of elderly Americans filing bankruptcy increased more than 500%. Retirement is working great, it seems, for everyone except the retirees. And medical costs are only going to get worse because providers have no limits on fees and charges and because retirees are fatter, more sedentary, and more immobile every single year.

No matter how good your insurance, you can’t buy health and mobility, and a lifetime of work while saving for retirement ensures that by the time you punch out you will be in terrible physical shape. And just because you can ride your bike fifty or a hundred miles doesn’t mean you’re in good shape.

The best measure of your condition? Your medicine cabinet and the number of times per year you consult with a doctor or research a medical issue on the Internet. Most people by age 50 have so many drugs in their bathroom that they can’t even remember them all.

I remember staying at a guy’s house a couple of years ago and opening his medicine cabinet looking for some toothpaste. I was blown away, a supposedly healthy cyclist who appears quite fit had more drugs than I could ever have imagined. And he’s a best case compared to his obese and sedentary age cohort. By age 65 he will need twice or triple the space for his meds.

Why does it matter? Because when retirement is spent medicating yourself and flitting from doc to doc, you haven’t really retired. What you’ve done is place yourself on the financial and emotional treadmill of bad health.

In the end you have either returned to work, fallen into the maw of exploitation by the financial services industry, become a consumer of the bad health industry, or some combination of all three. Is this what the end stage of life was supposed to look like? Unlikely. You probably thought it was going to be this:

This is certainly the image that the retirement industry sells 24/7. But what about the vast number of people who represent that $7.1 trillion shortfall we mentioned earlier? There will be more people in retirement on the street than on the beach, as this unposed photo suggests:

In essence, the retirement scam only works when you begin thinking far more about the future than about the present. Delayed gratification has its uses but marketing should not be one of them. Since we’re bound by the present it makes far more sense to live there and make decisions that will improve today, and by improve I don’t mean buy more stuff. A long succession of fulfilled and contented days results in a better life than one filled with dreadful work and self-denial in the hope that at age 65 the yoke will somehow be cast off and freedom will ensue.

The happy life you hope to live at the end of the rope must be practiced today.

And every day.

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