The Silent Retirement Crisis

The following is an excerpt from The Silent Retirement Crisis: How You Can Build a Sustainable Retirement in a Potentially Broken System, by Cindy Couyoumjian with R.F. Georgy, available on October 31, 2023 from Greenleaf Book Group.

INTRODUCTION

In my first book, Redefining Financial Literacy, I brought attention to important repercussions of the lack of basic financial knowledge in this country. The consequences are not simply that Americans are not saving enough, which is serious in and of itself, but also that they are making poor investment decisions and living with massive inequality, a broken retirement system, and a capitalist system that favors wealthy elites. Here are some quick facts about the lack of financial literacy and the impact it has on our lives:

• Americans rank 14th in the world in financial literacy.
• Basic financial skills are generally not taught in classrooms in the United States.
• 56 percent of Americans can’t cover a $1,000 emergency expense with savings.
• The wealthiest 10 percent of Americans own 89 percent of all U.S. stocks.
• According to the U.S. Census, the average annual income for Americans 65 and older is $38,515, or $3,209 a month.

The causes of our poor financial literacy are twofold. First — and most obvious — is the fact that most schools in America don’t teach basic finance. Second — and this is not well known — is that the financial industry has a vested interest in keeping Americans in a state of perpetual financial ignorance. Think about your middle or high school education. Do you recall having a course on basic finance? Did you even have a single finance lesson, say, in a math or an economics class? Don’t feel bad if the answer is no. You are not alone. I myself don’t recall being exposed to any financial concepts in high school.

As one financial writer notes, “For many people, there are no lesson plans and no standard for minimum financial literacy. They [students] are just sent out to a world overflowing with opportunities to get into debt. At best, their financial sensibilities may come from lessons passed down from family members (sometimes the hard way), anecdotes from friends, and the occasional Google search.” In other words, the one subject matter that will shape and define the rest of your life is omitted from school curriculums.

As of 2021, only 21 states required some personal finance education, but that requirement does not mean that high schools must offer a standalone course. A single lesson about basic finance in other courses satisfies the requirement. The one bright spot, and this is something I’ve been pushing for, is that “25 states in the U.S. have introduced legislation that would add personal finance education in their high school curriculum.” Although this is encouraging news, one must still ask why state legislatures allowed generations of high school students to graduate without basic financial knowledge.

It’s important here to distinguish between microeconomic and macroeconomic topics. Microeconomics “is the study of decisions made by people and businesses regarding the allocation of resources, and prices at which they trade goods and services, [while] macroeconomics analyzes entire industries and economies, rather than individuals or specific companies.” That means microeconomics deals with everything from your personal finances to the law of supply and demand. Macroeconomics, on the other hand, includes a country’s gross national product or GDP, the “total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.” Most elementary or high schools never touch on any of these critical concepts.

One proposal, which I support, suggests that financial literacy be taught at every grade. For K–8, basic micro concepts such as saving money, budgeting, investing, interest rates, and so on should be reinforced across the curriculum. High school students, in contrast, deserve a stand-alone course that will introduce them to both micro and macro concepts, such as the history of the stock market, the S&P 500, the Dow Jones Industrial Average, bonds, diversification, alternative investments, return on investment, 401(k) plans, Social Security, credit card debt, simple versus compound interest, credit scores, international trade, inflation, fiscal and monetary policies, the role of the Federal Reserve, recessions and depressions, and business cycles, as well as a broad overview of capitalism.

One state does offer an innovative financial literacy program that should serve as a model for the rest of the nation. In 2016 South Carolina introduced the Future Scholar Financial Literacy Program, which has been offering financial literacy education to more than 43,000 elementary students at no cost to the schools or taxpayers.The success of this program is evidenced by the fact that students increased their financial knowledge of critical life skills such as responsible money choices, credit and debt, and budgeting by 42 percent. This program utilizes its own brain trust by tapping master teachers to offer professional development workshops to educators in their districts or at state educators’ conferences. These master teachers assist other teachers in integrating real life financial concepts across the curriculum.

To illustrate the importance of basic financial knowledge, below is a quiz administered by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation: Try answering these five questions yourself to see how well you perform.

1. Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have?

A. More than $100

B. Exactly $100

C. Less than $100

D. Don’t know

2. Imagine the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same, or less than today?

A. More

B. Same

C. Less

D. Don’t know

3. If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?

A. Rise

B. Fall

C. Stay the same

D. No relationship

E. Don’t know

4. A 15-year mortgage requires higher monthly payments than a 30-year mortgage, but the total interest over the life of the loan will be less.

A. True

B. False

C. Don’t know

5. Buying a single company’s stock usually provides a safer return than a stock mutual fund.

A. True

B. False

Answer Key: 1. A 2. C. 3. B. 4. A. 5. B

On the most recent test administered by FINRA, only 34 percent of those who took the quiz got all five questions correct. Did you do as well as you hoped?

The other reason why we have financial insecurity is that the financial industry has a vested interest in keeping us in a perpetual state of ignorance. A recent report from the Consumer Financial Protection Bureau (CFPB) found that “for every dollar spent on financial education by financial institutions, more than $10 went to financial marketing.” In other words, the financial services industry spends approximately $17 billion annually marketing consumer financial products and services, while spending only $160 million on financial education, which represents less than 1 percent of how much is spent on education.

What exactly does financial literacy mean? A typical definition includes “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” We need to broaden that understanding, however, to include the hidden forces that potentially have a direct or indirect impact on your hard-earned money. For true financial literacy, we need a big-picture view of how the financial world works.

Throughout this book you will become familiar with how historical, political, economic, psychological, and even ideological forces intersect to impact how stocks perform, why the Federal Reserve kept interest rates artificially low until recently, the effects of globalization, and your retirement outlook, among other things.

You will also become aware of hidden actors and the various risks they pose to you and your financial future. Explaining these hidden forces and actors can also help us understand why capitalism is broken, why the retirement system is broken, and why the American Dream may be out of reach for most Americans.

OUR BROKEN CAPITALIST SYSTEM

Just as there are various political systems such as democracies, dictatorships, religiously inspired systems (theocracies such as Iran), and totalitarian regimes, there are also various economic systems. These systems include capitalism, communism, and socialism. History has shown us that capitalism, while imperfect and broken at the moment, is far better than socialism. Capitalism is an economic system “in which private individuals or businesses, rather than the government, own and control the factors of production — entrepreneurship, capital goods, natural resources, and labor. Capitalism’s success is dependent on a free-market economy, driven by supply and demand.” Capitalist systems also encourage and reward ingenuity and innovation. With socialism, in contrast, the government owns or controls much of a nation’s resources. The government also determines all aspects of production. Socialism also prevents innovation because “it is thought to take away the incentive to innovate.”

Despite its advantages, 50 years ago capitalism gradually started becoming toxic because of an obsession with profits over ethics. As Kurt Andersen put it in his powerful and compelling book Evil Geniuses, capitalism became “unbalanced, unhinged, [and] decadent.” The architects of this mutated form of capitalism constructed an economic system that was driven by unbounded greed and extreme selfishness. These architects — politicians, economists, and legal scholars — “envisioned a new American trajectory, then popularized and arranged it with remarkable success.” This was made clear in an influential article written by Milton Friedman in 1970 in which the Nobel prize–winning economist attacked the idea that businesses have any ethical or social responsibility to society. He concluded that the responsibility of business is to maximize profits “so long as it stays within the rules of the game.” Since 1970, the rules of the game have been changed to accommodate businesses, and large corporations have been able to maximize profits without regard to social responsibility.

Legal scholars such as Robert Bork, and a Supreme Court justice, Lewis Powell, created a legal structure to encourage businesses to pursue maximum profits at any cost. Their philosophy, known as neoliberalism, “is a political and economic policy model that emphasizes the value of free market capitalism while seeking to transfer control of economic factors from the government to the private sector.” Neoliberalism favors free markets, less government intervention, deregulation, globalization, free trade, privatization, and artificially low interest rates set by the Federal Reserve. But it has allowed greed and corruption to get out of hand.

At the heart of neoliberal ideology is the idea that competition is what defines human relations, driving innovation and creating jobs and wealth but also producing winners and losers, giving rise to inequality over time. The problem with neoliberalism is that extreme competition is driven by extreme selfishness, creating a “me-first” attitude that is responsible for many of our social ills.

I’m not suggesting that neoliberalism alone is the cause of all our social ills. However, when you factor in other hidden forces, you begin to understand how much our world has changed over the past half century. In fact, the greatest force that has enabled neoliberalism to take off is the digital revolution. We are today living in an age of instant information and immediate entertainment. Social media platforms such as Instagram and TikTok are reducing us to narcissists who pose for selfies at every opportunity. Moreover, we live in a disposable society. When something is broken or obsolete, we have become accustomed to throwing it away and buying something new. Finally, we are living in a hyper–consumer economy that values the artificial over the substantive. Facebook, for example, changed its name to Meta to emphasize that in the future our interactions will take place in a virtual space.

This convergence of digital technology with neoliberal ideology has created a world of selfishness, alienation, isolation, drug abuse, toxic relationships, and other cultural ailments. Even the competition touted by neoliberalism has been eroded as more mega corporations dominate our economic landscape. On July 24, 2022, President Biden met with the White House Competition Council. Here is what he had to say: “What we’ve seen over the last few decades is less competition and more concentration that literally holds the economy back. And in too many industries, a handful of giant companies dominate — dominate the entire market.”

To give you an appreciation of just how powerful these corporations have become, let’s compare some of these giant tech companies to the GDP of other countries. Apple, as of 2021, had a market capitalization of $2.1 trillion. (Market capitalization “refers to the total market value of a company’s outstanding shares of stocks.”) That is greater than 96 percent of the GDP of all countries in the world. Microsoft, Amazon, and Facebook monopolize the global economy in a similar way.

I noted above that neoliberalism contributed to a me-first attitude that has led to greed and corruption. Remember the 1987 film Wall Street? The main character, played by Michael Douglas (in an Academy Award–winning performance), summarized the neoliberal philosophy in a famous quote:

The point is, ladies and gentleman, that greed — for lack of a better word — is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind.

But greed, of course, did not turn out to be good, particularly for society. The thirst for profit over everything else has led to a series of market bubbles and crashes. From the dot-com bubble of 2002 and the 2008 global financial meltdown to the Federal Stimulus of the pandemic and artificially low interest rates, greed has had dire consequences on our financial lives.

Of course, even after accounting for the effect of greed on the world economy, some of the forces that affect our financial futures are impossible to predict. This was the case with the rise of COVID-19. The breathtaking speed with which this virus moved across the world proved devastating to the stock market. On March 12, 2020, “after President Trump banned most air travel between the United States and continental Europe, and after economies around the world started shutting down, the carnage in the stock market was even worse than Monday [March 9, 2020]. The S&P dropped 10 percent, leaving it 27 percent below its peak a few weeks earlier.” By March 19, 2020, the Dow Jones Industrial Average opened down 700 points. It plummeted 30 percent in a month, which was the steepest drop in history, even worse than the Great Depression. After massive market swings like that, coupled with uncertainty and higher volatility, it’s not surprising that investors facing retirement have a fear of running out of money.

The American Dream, a uniquely American ideal, “is the belief that anyone, regardless of where they were born or which class they were born into, can attain their own version of success in a society in which upward mobility is possible for everyone.” There are those who believe the American Dream is dead, that it is too difficult to get ahead when the system is rigged against them.

I’m not one of them. I don’t think the American Dream is dead, but it is certainly becoming more distant for many of us. Most Americans face structural obstacles to make a decent wage or to save for retirement. Homeownership today is increasingly out of reach; a combination of low inventory, high prices, and, now, rising mortgage rates are making it nearly impossible for young people to purchase a home. Home sales prices alone have increased by almost 30 percent since December 2019. According to the Association of Realtors, a typical home now costs $80,000 more than before the COVID-19 pandemic. To make matters worse, wages, although on the rise, are not keeping up with inflation. In fact, according to the Bureau of Labor Statistics, real average hourly earnings “decreased 0.7 percent, seasonally adjusted, from March 2022 to December 2023.”

This brings me back to my basic point and the reason for this book: Our retirement system is broken. Retirement may be the most important component of the American Dream, and our retirement system has traditionally rested on three pillars — Social Security, pensions, and you, the individual. Two of these pillars — Social Security and pensions — may not be available to you going forward. That leaves you to fulfill your retirement dream. To prepare for retirement, you need to become financially literate, smarter, and aware of the hidden forces and risks that can potentially derail your plans. You need to be able to navigate a complex economic and financial landscape in order to secure a comfortable retirement.

I wrote this book to shine a light on the silent retirement crisis in America. Part I peels away the layers of hidden forces and the impact they have on your money. Part I also explores the political, economic, ideological, and other risks that can increase the uncertainty you will face as you get closer to retirement.

In Part II, I will explain why the traditional investment portfolio — 60 percent in stocks and 40 percent in bonds — is outdated in today’s complex investment landscape. Clearly, to protect yourself against the hidden forces that conspire to derail your retirement plans, you need a new way of investing. The burden is on you to realize your retirement dreams, so you need to plan and prepare. To help you do that I will introduce you to alternative investment strategies, including my innovative REALM investment strategy.

The fact that we have an avalanche of information available at our fingertips does not mean we suddenly become expert investors, however. You do not have to shoulder the burden of planning for retirement alone. In fact, I recommend that you consult a financial expert to help you navigate the often complex and seemingly impenetrable financial landscape.

In Part III, I will introduce you to potentially powerful retirement solutions that include understanding Social Security, Medicare, long-term care, tax planning, insurance planning, estate planning, 401(k)s, IRAs versus Roth IRAs, and required minimum distributions (RMDs). Part III will also help you understand portfolio recovery — the process of reviewing or assessing the elements of the entire portfolio of securities or products — which is important to help you stay on track for a sustainable retirement.

The fact that our retirement system is broken does not mean you should give up hope. This book will not only help you understand how we got into this mess, but also increase your financial literacy so that you grasp the hidden forces and risks that continue to shape your economic landscape. From a macro perspective, our broken capitalist system needs to be addressed with the immediacy and sense of urgency it deserves. In many ways, we are living through a second Gilded Age that glitters with digital technology while economic inequality persists. There are, of course, solutions to the big-picture problem, including the need to limit corporate monopolies in order to generate greater competition. However, the focus of this book is how average Americans can plan and prepare for their retirement future.