HomeArticlesPension Fund Mysticism: Unprincipled Deals and Money on Trees?


Pension Fund Mysticism: Unprincipled Deals and Money on Trees? — 5 Comments

  1. Dear Dr. Anderson,
    We are hosting our Freedom Society meeting in December and would liket to feature you as our speaker via skype. We will have a discussion about your book.

    We are also hosting an on-going discussion list with around 30 people right now and would like to invite you to join our discussion as well.

    What is the best email to send you a note?

    God bless,

    570 842 3300

  2. Gordon, this excellent and truthful criticism of the “wall street system of retirement” should leaves the reader wondering, “what are the alternatives” to a system where the rules are set by the ones profiting from the capital, not the ones making the investments? Pensions were a part the past but are generally unsustainable today for the reasons you mention and are now being replaced by 401 (k)accounts invested in wall street funds. The only other historical system that generates capital accummulation (wealth) is a saving approach based on fixed, guaranteed compound interest growth. This is the “insurance system of retirement.” It is the old method our parents used of mutual whole life insurance. There are many tax advantages to using this insurance as a retirement vehicle, such as IRC 7702 which allows the cash values to grow tax-deferred. There are enormous other benefits such as liquidity, use and control of the funds by the owner, the ability to borrow and repay and use as collateral. (try that with your 401(k)!). This is the self-sufficiency option and the moral option. And why is this option never taught or even understood by 95% of the financial planners in the U.S.?? Could it be that they profit more personally from the fees they earn from the investment system than from the saving system? Get educated then decide!

    • Alan, I understand that Ben Bernanke relies primarily on annuities for his own retirement. That ought to bolster your argument. Annuities rely on (1) some people dying before they outlive the amount they invested, (2) interest on borrowed premiums and (3) insurance company investment in the stock market and other financial instruments. My question is whether current annuities can guarantee the 6 or 8 percent return that previous generations received given the low interest rates and the oversupply of capital in other pension funds. Certainly they are a less volatile method for retirement.

      • Gordon, the myth is that most people did actually receive the 6-8 percent return that financial planners show you in the history charts and future projections. The truth is that most people did not and the average investor certainly does not. Dalbar has been conducting studies since the early 2000’s to determine whether investor’s behavior impacts their investment performance. Indeed it does as you would expect because people are people – not robots. In the 2011 Study they conclude: “The results of the twenty year numbers ending 12/31/10 show a disparity of 5.87 percent. While the S&P 500 gained an average of 9.14% each year, the “Average Equity Mutual Investor” gained only 3.27%”. Again, life happens and people need money for living and for emergencies. The current strategy of investing for retirement in the wall street system is only 30 years old and is does not have a good track record. Here is another quote from Dalbar. “Additionally, now that many people have gone through the “Dot Com” and “Mortgage Crisis” bubbles, people are learning to avoid some of the behaviors that result from the greed and fear we experienced during those periods. In reality though, we see these harmful behaviors more often than not when working with investors.” People seeking for financial independence and greater security in retirement would be better served to understand and follow Einstein’s famous admonition: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” The Wall Street System does not pay compound interest, the Insurance System does.

        Most Whole Life Policies pay a guaranteed fixed interest rate of 4%, plus dividends, AND they include a guaranteed death benefit that is paid tax free to heirs. Annuities are generally used more for distribution of funds in later years rather than for contributions and accumulation.

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