How Retirement Became So Risky

The retirement tightrope

Risk management is regarded as an essential element of modern investment management.  But few people recognize that retirement—the period when a person stops working and begins to decumulate their assets–has now become the riskiest stage of a person’s entire financial life.  Worse, most retirees are grossly unprepared to shoulder this burden, and most do not even know the risks involved.

But it wasn’t always this way.

The evolution of retirement policy in the United States reflects a critical combination of attitudes towards workers by their employers.  By examining these changing relationships over time, we can see how business has changed from considering its own workers essential partners to the current attitude where workers are regarded more as disposable, temporary assets.

Preparing for the new retirement
Preparing for the new retirement

Of course, these attitudes cannot be clearly articulated, but they are evident during recessions and through the evolution from pension plans to 401(k)s, accompanied by threats to privatize Social Security, reduce health care costs, and failures to promote wage increases.

Retirees also face other formidable problems:

  • Managing portfolios over decades in a low-return, volatile market environment;
  • Republican policies specifically intended to prevent financial reform and reduce pension benefits;
  • Trying to answer the unanswerable question of whether they have enough assets to last them through a longer lifespan than any other American generation.

In short, retirees today are being asked to manage scenarios which professionals have never consistently done successfully.  And they are being asked to do it over longer periods of time without adequate resources.

The latest example is a rider introduced on to the pending federal budget extension bill that would cut pension benefits for up to 10 million participants in union-sponsored multi-employer pension plans.  The rider would allow underfunded multi-employer pension plans to significantly cut benefits to retirees under age 75.  The cover story of this rider, introduced by Rep. John Kline (R-Minn.), is that it would prevent these union plans from running out of money.

The problem is that any time a pension plan (single corporate or multi-employer) is underfunded, it is well-known to all and has decades to develop a recovery plan. The most glaring and discriminatory element of Kline’s Republican-approved bill is that it only applies to union plans, not underfunded corporate ones. According to the Minneapolis Star Tribune, there are 10 million participants in multi-employer plans and about 1.5 million of them currently receive payments from underfunded plans.

While Kline’s proposal this may seem an isolated event, and one which could be stripped from the omnibus budget bill in its final form, it’s shocking that this discriminatory proposal would ever see the light of day. It is also a predictor of what Republicans will introduce in the years ahead when they assume majority control of Congress and the bad news that it means for all Americans planning for retirement.

In short, retiring in America has become even more dangerous and no amount of savings and portfolio design can assure long-term financial security when some ideologically-driven elected officials are determined to destabilize the traditional concept of retirement in America.

The problem is that it does not have to be this way.  And retirement was not viewed this way when corporate America was first emerging as a global financial powerhouse.

Retiring With More Security

One of the main reasons for retirees facing increased risk is due to the decline in people being covered by corporate pension plans.  The nation’s first pension plan was sponsored by the Presbyterian Church in 1717 when it established the Fund for Pious Uses for retired ministers.  In 1875, the American Express Company began the nation’s first corporate plan.  This was followed by pensions offered by the dominant corporations of the era, Baltimore and Ohio Railroad in 1884, and by the Pennsylvania Railroad in 1900 for all employees who reached age 70.

While corporate paternalism played a part, offering pension plans was also good business due to a combination of favorable tax benefits and funding options.  From the 1920s to the 1970s, politically moderate executives at some corporations, such as GE, Met Life, and Standard Oil of New Jersey, promoted pensions as a way to improve labor-management relations and attract better-qualified workers.  John D. Rockefeller also favored the expansion of corporate-sponsored pension plans as a means of preventing the expansion of unions, as cited in the book, How 401(k) Fees Destroy Wealth and How Investors Can Protect Themselves.

In this corporate environment, professionally-managed pension plans, combined with personal savings, and Social Security (post-1935) were the elements of the “three-legged stool” Franklin D. Roosevelt and other New Dealers referred to when they described retirement security in the United States.

“In short, retirees today are being asked to manage scenarios which professionals have never consistently done successfully.  And they are being asked to do it over longer periods of time without adequate resources.”

Flash forward to the popularity of 401(k) s in the 1980s and we can see a definite change in the prospects for retirement security.  Busier, less sophisticated individuals now have the responsibility to select and manage various asset class exposures over a 30-year time period in order to provide the optimum portfolio returns in a volatile market environment.  This is all being done in a global economy which changes every trading day and one increasingly dominated by professional traders managing multi-billion portfolios.

On the institutional side, risk is now a stand-alone discipline and a critical element in every major corporation.  Global risk management (GRM) has its origins in Modern Portfolio Theory, which formalized elements of portfolio diversification, asset allocation, market risk and portfolio risk.  GRM also incorporates option risk management via valuations.  This assigns a numeric risk to almost every possible choice a corporation can make in every aspect of its operations.  Risk management is most sophisticated in the investment industry, which now regularly uses tools, such as value at risk to examine credit and market risks.  Once the risk is quantified, professionals can employee a number of hedging alternatives.

Of course, none of this is readily available to individual investors who don’t have the tools or ability to hedge their 401(k) s during recessions or market declines.  This means average investors have only a few choices when it comes to risk management:  They can accept it, manage it, or transfer it. Too often, it means taking the risk and eating the financial losses both in their portfolios and in their other large asset, their homes.

My bet is that most choose to accept the risks mainly because they never see it coming. And this is exactly why retirees who have stopped working and are living off of a fixed accumulation of liquid portfolio assets are now facing more financial risk than at any other time in their lives.

The problem is that any safeguards which existed before and were about to be erected to limit the trading excesses of the world’s largest banks are being eliminated.  Cititbank’s lobbyists who write the rider to today’s budget bill now have taxpayers insuring the trading mistakes of the nation’s largest banks. As House Democrats said, this made it possible for the world’s largest banks to privatize their trading gains, while letting taxpayers pay for their losses.  Heads I win, tails you lose.  Once again, like the 2008 Wall Street bailout, this was the perfect crime.

And for America’s current and future retirees, the worst is yet to come.


Chuck Epstein is the publisher-editor of the site,, and has written by-lined articles for over 50 publications, and the book, “How 401(k) Fees Destroy Wealth and How Investors Can Protect Themselves.”  He can be reached at  

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Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site,, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).


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