Email

Here Comes Obamatirement

15 | By Shah Gilani

Our politicians, our legislators, they are always right, and they’re all about our wellbeing, our future. We owe them.

After all, where would we be without our government? Would any of us have succeeded at anything without their helping hand? Where would we be without the handouts they shower us with from the small tax burden they ask of us?

Now, in their infinite wisdom, our leaders are looking out into the future to make sure our retirement prospects are financed and our promises to ourselves are fulfilled.

I’m calling it one small step for Californians, one giant leap for Americans.

I’m talking about California Senate Bill 1234 and what it will do to guarantee (because you know only the government can guarantee anything, and mean it) a securely financed retirement for private sector workers in California (some 6.3 million of them) who presently don’t have a pension plan or retirement fund to fall forward onto.

Oh, this is brilliant. It is a model for the rest of America. Now that we’ve got Obamacare, we’re going to get Obamatirement, too, when the rest of the country sees what California is trying to do.

Let’s take a look…

The bill was concocted by the Assembly Committee on Public Employees, Retirement, and Social Security and approved by a vote of 23-13. It establishes the California Secure Choice Retirement Savings Program “to operate as a state-administered retirement savings plan for private sector workers who do not participate in any other type of employer-sponsored retirement.”

It’s brilliant.

It’s an opt-out program. You’re in until you’re out. And if you’re out, your employer will have to pay a smallish $750 penalty (every year). When you’re in, you’ll have 3% of your income skimmed and sent to some manager of money (they could be a private pig or a public sow), and someone you don’t know will decide who gets to manage your retirement money.

You won’t care what they invest in, or that you might be a better manager of your own future, because the returns will be guaranteed, you know. Yes, an insurance company, that you won’t pick, will guarantee your return will be at least… are you ready for this… equal to the return on the U.S. Treasury 30-year bond. In other words, close to 3% year or more, but not likely to be too much more than the rate of inflation. Whatever, it’s guaranteed, you know.

But what about the insurance company that guarantees your future? Who will guarantee their future? Oh, you worry too much. The government, of course! The chosen insurance companies will all be too big to fail, and if they do, guess who steps in?

You can’t lose on this one.

And who cares that the pay-to-play game will be huge on this scheme? That there will be huge monies to manage for giant fees and some private playas might pony up some fat envelopes of you-know-what to get that business that you won’t have any discretion in meting out?

Or, maybe, if you’re lucky, your money will be directed to the brilliant managers of the California Public Employees’ Retirement System (Calpers), who get your money for the political favors they buy with their fees for managing it.

It’s just so circuitous that you can only call it what it is: a positively crooked feedback loop.

Anyway, they do a good job, those Calpers managers. Why, in the past five years they’ve generated almost 0.57% per year. That’s right – that’s not the same as the 30-year bond, but it’s close to what you get in a savings account or a 30-day CD. Brilliant.

Don’t be so cynical. This is not another tax; this is another pox. A pox on Californians if this Bill passes, and a pox on America if it morphs into Obamatirement.

Of course, I’m kidding. Our pension schemes, the public ones and the private ones, are all doing just fine, thank you.

I’m not worried that private pensions are underfunded by more than $600 billion (according to S&P) or that public pensions are underfunded by between $1 and $4.6 TRILLION dollars, folks.

Why worry? The IRS just ruled, on authority of a Transportation funding bill (Highway Bill S.1813), that the discount rate (the thingy that is used to calculate how well funded pensions are) can be tweaked to help corporations. The long and short of it is, corporation’s contributions to their pension plans in 2013 just went down from $78 billion to $8 billion.

Who says the government can’t make magic?

I wrote about this stuff here before and over at Money Morning, but you might want to re-read it in light of this new wrinkle called Bill 1234.

Not that there’s anything to worry about. Our politicians, our legislators, have our best interests – and their deep pockets – always front and center, unless they’re at the back door.

Let me be serious for a moment.

Want a real retirement? Follow me. There are no guarantees, but at least you will be fully in charge of your own future. You will learn how to make real money and you will get expert guidance from me on what stocks to buy and sell, how to cut your losses, and how to book handsome gains on a diversified rocking portfolio.

If you do want my help, and are thinking about trying out my Capital Wave Forecast service, do it today or tomorrow, because this is the last time you’ll ever be able to get in at this price level. At 5 p.m. Eastern on Friday, the price goes up significantly.

Again, just click here.

Shah

15 Responses to Here Comes Obamatirement

  1. H. Craig Bradley says:

    AMERICA’S CALIFORNICATION

    Well, as the late President Ronald Reagan once said: ” here we go again”. California lags most states economically and pretty much has been behind the pack since the recession of 1991. However, California, as you say, leads national political trends, at least for now. California is, after all, the fount of liberal ideology (“theology”).

    The Sacramento Mandarins are always cooking something up and sometimes, “cooking the books”, as well. Politics is the art of the possible, and as the pols seen things, everything is possible.
    So, its possible as America’s debt situation continues to grow, so will the problems associated with it- like making interest payments. Oh, I forgot, California only pays the debts it feels like. Remember all the IOU’s that were issued in lieu of tax rebates? I do. Nobody would accept state script for deposit. Worthless. Yet California just peddled billions of dollars in their annual bridge funding ( general obligation bonds due in Nov. 2012 @ .4% Tax Free!). Yep, there are lots of suckers born in California, and elsewhere too.

    The scary part is what the future holds when the interest payments become untenable for the State of California and the Federal Government. Private pension confiscation ( IRA’s, Keogh Plans, and 401 (K) Retirement Accounts. They may not take the money and stay ( you run) but the investments might be dictated. For example, the U.S. Treasury will help you by requiring you to invest a percentage of your IRA in 30 Year Treasuries. Alternatively, you could be given extra Social Security (“credits”) in exchange for your existing pension assets. What a deal, as in Raw Deal or maybe “Same Old Deal”

  2. eric taylor says:

    Governor Brownocare is being implemented in California? If they
    move away from, pay as you go, I’am all for a supplemental
    investment plan! I would love to hear the former Governor’s
    opinion on this package, as I feel he has been a bit under rated
    by Governor Brown! Good luck California???

  3. Rob from WA says:

    I don’t understand how people can honestly tell themselves and argue publically that the path we’re currently heading down as a nation is the correct path. It’s like everyone has their blinders on and refuses to look at all the historical (and current) examples of exactly what happens when you make the socialist choices we’re making. Granted, I believe politicians are forcing a number of these bad choices on us against our will, for example, Obamacare… I refuse to believe the majority of the country wants and/or needs it, but nonetheless it’s being shoved down our throats. I’ve never met anyone in my life that has been refused medical treatment because they couldn’t afford it. I myself received very cheap medical care a few years after college because I couldn’t get a job and didn’t have the means to provide payment for the care I needed when I was seriously ill with the swine flu. I’m tired of hearing the Democrats preach about the poor and how they’re mistreated and forgotten about! I’ve never seen anywhere else in the world where the poor are treated and cared for as they are in the US; where they are handed free money, food, clothing, healthcare, housing, transportation, education, etc., etc., etc.; where they’re actually “rewarded” with more and more handouts for having more and more children while unable to provide for them. Where people can illegally immigrate to our country and be paid and rewarded for doing so with free handouts, free education, and on, and on, and on. And if that’s not bad enough, when I was in college there were groups of liberals that would actually teach students exactly how to apply for unemployment during the school year, how to apply for food stamps and assistance (free cash); basically creating monsters that are completely okay with accepting handouts rather than going out and getting part time jobs to support themselves while in school, as if they were entitled to the handouts (mind you, most of these idiots had never paid taxes at this point and if they had they got it all back and often times more on their tax returns). This mentality is a sickness that is plaguing our country and if it is not stopped it will bring our country to its knees. It doesn’t take a rocket scientist to be able to examine past examples of socialism (and current examples) to get a feel for how terribly unsuccessful they have been throughout history. Why would we want to implement proven failures as policy for our future?

    The Roman Empire (including the eastern empire) lasted over 2,000 years and it collapsed from within from the result of selfish political decisions and the spread of socialist ideology throughout the people. The US has been around for less than 240 years (significantly less than the Romans) and we’re already at the breaking point the Roman’s faced after centuries and centuries of long and successful governance. If we fail to make the right choices RIGHT NOW, I don’t see how we’ll make it to see our 300th birthday. It’s very sad, this is the GREATEST country in the world because it is the land of opportunity, where anyone with a great idea can work hard, and have the possibility to become a huge success (i.e., Bill Gates, Ralph Lauren, Frederick Douglass, Paul Allen, Steve Jobs, Sam Walton, Thomas Edison, Ross Perot, John Rockefeller, Harry Reid (who should be ashamed of himself for his role in the current situation), and the list goes on and on). But if we are going to publicize these successful men/woman as evil villains for creating their own success and living the “American Dream” then we are doomed. How can we villainies them to the poor and at the same time provide free handouts to the poor with their tax dollars? Oh wait, I forgot… those free handouts are from Obama, not the successful men and woman in this country. He personally writes a check each month from his own checking account to provide for all the less fortunate people in this country. What a joke! Everything is upside down and backwards in this country and I pray we get it figured out soon.

    The next “right” or “entitlement” will be free retirement accounts for the poor and lazy, paid for by the blood, sweet, and tears of the hard working people in this country. Come on, retirement is a right, isn’t it? LOL, I guess the argument could be made that they’ve been “retired” since day one… living off handouts. Maybe Obama could put that in his campaign… it’d probably buy him a few more votes.

  4. Peter harvie says:

    Australia has had a similar scheme to what you have described running for about 20 years, (give or take a few years) and it works quite well, except successive governments are always playing with the rules – fortunately not retrospectively.

    We presently have 9% paid in from our salary by the employer per year and that is going to rise to 12% over the next few years. The aim is to significantly reduce the unfunded liability of government paid pensions to all Australians through them having money put aside all of their working lives.

    There are detractors here about the scheme, but it now has accumulated $A1.4 trillion in retirement funds. There has been a huge business built up as you identified of Superannuation fund managers who want to make sure they get their cut before the recipient.

    However, once you have about $150-200K of assets it becomes cost effective from a management fees perspective for many Australians start their own DIY funds and take that money away from the industry fund managers and manage their own outcome. Many Australians do this to the chagrin of the money changers.

    You might find it interesting that of all the money in the scheme, 31.4% of money is now held in DIY super funds, officially called self-managed super funds (SMSFs) in Australia, exceeds the super money invested via retail funds (26.6%, $372.1 billion), industry funds (19%, $266.1 billion), public sector funds (15.9%, $222.2 billion) and corporate super funds (4.0%, $55.8 billion) according to figures released by APRA in August 2012, and representing fund assets as at 30 June 2012. APRA stands for the Australian Prudential Regulation Authority, the prudential regulator of all super funds, with the exception of DIY super funds (SMSFs), which are regulated by the Australian Tax Office.

    The Superannuation scheme in Australia is basically a very tax effective environment for your retirement funds where the tax on gains and any money salary sacrificed into it is less than if your money was in a non-Superannuation fund asset. You can invest in nearly anything you want, but there are strict rules around related party assets and they audit all funds extremely closely to ensure compliance of numerous SMSF rules.

    You can also salary sacrifice up to $A25K per annum (includes the 9% however) and there are very harsh penalties if you oversubscribe. You can also contribute up to $A450K every 3 years of after-tax dollars additional to the $A25K per year.

    Nothing is perfect, but it seems to work here and will eventually reduce the unfunded liabilities that America suffers from as we still do here in Australia, but to a reducing degree due to this scheme.

  5. Sheila Dickson says:

    I do not understand why additional retirement plans need to
    be created by government. The present plan of Social Security
    has been very successful in preventing extreme poverty of the
    elderly, and disabled. This plan was created in the forties and
    because of change in longevity of citizens, reduction in population
    growth there is a need to modify and update Social Security. It
    should not be eliminated.
    If one needs additional venues to save and invest the IRAs
    are the available vehicles. Again the rules of investment came
    be modified by increasing the amount one can invest before
    taxation of income. Using these investments opportunities one
    can be directly involved in choosing their own investments.

  6. Walter Dean says:

    Did no one in America read The Fountainhead! Or any of Ayn Rand’s Reality fiction. It is happening now and few seem to care!

  7. Jeff says:

    Shah,

    How about telling the story about how those private and public pension plans came to be underfunded? I’ve looked for a nice cogent discussion and can’t seem to find any. It may be that the discussion is complicated, but I think it’s less so and one of people borrowing fund monies for today’s use.

  8. RGRundeRGRound says:

    YAAAAAYYY!!!
    LET’S GET GRAY DAVIS OUT OF RETIREMENT TO RUN THE DAMNED THING!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    (Remember how well he did buying power company options with Cali. Tax Monies?)
    LOST A BILLION DOLLARS

Leave a Reply

Your email address will not be published. Required fields are marked *