Why Idealism is Dangerous and Realism is not.

Idealists would destroy a village, to save a village.

One problem with being young, is that you are trained in school with all sorts of poor normative cues.   You are told a history of the United States that is idealized.   Heroic "founding fathers" saved us from British tyranny in the name of "freedom" and we owe them everything!

Of course, the reality is, they owned slaves and were more interested in economic issues.  It is about as exciting as the Star Wars prequels - wars about trade tariffs.  Yawn.

But many youngsters leave school with this idea that freedom is absolute, and that we live in a "free country" and anytime someone tells them "NO" that it is an outrage against the Constitution.

So they sacrifice what great freedoms they do have because nothing is "perfect enough" in their minds.

Let me give you an example using a real-world person.

Robert Kearns claimed he invented the intermittent windshield wiper - and for all we know, he may very well have.   But the Patent world is never as black and white as all that.  When you file for a Patent, your scope of protection may be limited by how you claimed it.  And someone may "design around" your Patent by finding a different way of accomplishing the same thing - the system actually encourages this as it motivates people to invent.

So, he went to Ford Motor Company and said, "I want to sell you windshield wipers" and they said, "Well, we'll pay you a royalty, we already have a factory that makes windshield wipers."

And the amount they offered to pay him was in the millions - back in the 1970's when that was more money than you could reasonably spend in one lifetime.

Now here is where idealism ruins everything.   According to the law, in theory, you can stop others from "making using or selling" your invention, if you want to.   You can just make them stop.

According to the law.

According to the law, drugs are illegal and if you murder someone you go to jail or are executed.

According to reality, I could, without too much difficulty, probably find drugs in our nearby town (which is notorious for them) in under an hour.   And according to reality, 1/3 of all murders go unsolved and unpunished.

There is reality, and then there is idealism.  And idealists - particularly the raging kind - end up in trouble when they refuse to accept reality for what it is, particularly when reality is pretty darn good.

Kearns could have taken the money, and then using this license agreement, leveraged other car makers to get them to pay as well.  He could have ended up with tens of millions of dollars.   As it was, well, legal fees ate up what little he won, and other companies fought him in court - and won.   You have to know when to hold 'em and when to fold 'em, and no Patent is perfect in this world, and it pays to take a lucrative deal rather than risk it all at trial.

Kearns said he was fighting for "the little guy" - but of course "the little guy" never asked him to fight on his behalf.  And sadly, most companies today are gun-shy of solo inventors because of the antics of folks like Kearns - who are unreasonable and unrealisitic.

Yes, in theory, Kearns could have stopped everyone from making intermittent windshield wipers, and then set up a factory, made them himself, and then forced everyone to buy his, if they wanted this feature.   But realistically, running a factory is not a very profitable enterprise, and for someone with no experience running a factory, well, it could have been a disaster.

So why did he do this?  Why do people insist on these weird theoretical outcomes when they could have a lot of dough or some other desirable outcome instead?

Part of it is control.   People want to keep their hand in and control the process.  Part of it is being enamored of the process.  Maybe part of it is ego.  I guess he saw himself as the Steve Jobs of windshield wipers and this Patent would launch his corporation and he would come up with one innovation after another and make Billions.   It really isn't a very realistic view of the world, though.

And you run into this all the time, with people - usually depressed people.  They turn away from the reality of the world as it is - and it is a pretty nice world, too - because it isn't the "perfect world" they envision.   Until everything is just as they think it should be they will pout and protest.

This is, of course, a pretty childish and immature view of the world.   Our world is not perfect.  Human endeavors are prone to failure.  Why do you think we have insurance?  Because we know failure is the norm, not an exception.

A young law student read my Inheritance Scenarios posting and cried, "This is unrealistic!  What these people did was against the law!  This could never happen in real life!"

I don't know what scared me more, a young man with such little exposure to the real world, or a young would-be lawyer amazed that laws get broken.   Hey, if they didn't, what would lawyers do for a living?  Or the Police for that matter?

Reality is messy.  Reality is not optimal.  I always say, human beings operate at a level of efficiency of maybe 1-2% on a good day.  We are not efficient animals.

But the reality we have - here in the United States and much of the Western world - is pretty damn good, if you stop to think about it.

And that is why it irks me when I hear people whine about how "unfair" things are, and how "rotten" life is in the United States.   These folks don't have a computer or a television and see what goes on in other parts of the world?  Or do they just view wars and genocides as some sort of television show - it really isn't real to them?  I dunno.

No, idealistic or ideal outcomes are rarely, if ever, likely to occur.   But more often than not, things do have a way of working out - in a way which isn't so bad, if you are willing to understand the difference between what is achievable versus what is ideal.

Mr. Kearns wanted a "perfect" outcome.  "The law says I can exclude others from making, using, or selling my invention!" and he is right.  The law says a lot of things.   But one thing we learn in law school, is that no case is perfect, and compromise and settlement are often the best solution, as compared to "Heads I win, tails you lose!"

The reality he could have had - over ten million dollars - would have been pretty swell.   And most folks really don't "feel sorry" for someone who leaves that kind of money on the table.

They made a movie about him, starring Greg Kinnear, and it was pretty well done.   If you read between the lines, you can see what actually is going on.   All his talk of "fighting for the little guy" really came to nothing.  No "little guy" was saved, and his actions didn't end up creating any case precedent that has been cited or any procedural changes at large corporations - other than to slam the door in the face of small inventors.

In a way, he was like Don Quixote.   Quixote is really misunderstood by most modern readers.  Few have actually read the book (and there are dozens of translations, most of them inaccurate).  To many Americans, Quixote represents the idealistic man, fighting for a cause, even a lost cause, because of his moral values as to what is right and what is wrong.   Cervantes, of course, had different ideas.  He was parodying the romantic chivalrous novels of his era - and the central character Quixote, goes mad after reading so many of such books, and sets out on his futile quest.

And maybe we misread Quixote because there is something in the American spirit - the idea of that something is "right" and other ideas are "wrong" and that there is an idealized justice in the world we should all strive for.   And maybe that is a good thing.

But on a personal level, you can make yourself miserable by tilting at windmills, or by decrying the world as "unfair" - to the detriment of your personal financial health or mental health.

Misdirected Skepticism

Why are so many people today skeptical of science and technology - and our government - but not very skeptical of things that are obvious frauds?

Many people today think the moon landing was faked, that 9/11 was an "inside job" and that "fire can't melt steel!"  They assume - it goes without saying - that the oil companies "suppressed" the technology of the 100 mpg car, and of course they are suppressing the electric car, solar panels, or whatever.

People believe there are aliens in Area 51, that Kennedy was shot by a man behind the "grassy knoll" and so on and so forth.

And of course, they believe anything posted on Facebook.  Any fake news story is forwarded with a dire warning.  Watch out for the Wal-Mart slasher!   

People are skeptical today, all right - skeptical of the truth.   Evolution?   Unproven - and it goes against Biblical verse!   Vaccinations, well, everyone knows they cause Autism, right?

We are a nation of skeptics - about almost anything.

Almost.

But when a credit card offer comes in the mail - offering "bonus rewards miles points!" and saying "Congratulations!  You have been pre-approved!" all that skepticism goes by the wayside.   For some reason, Americans are skeptical of everything except crappy financial deals.

The media tells us to be obsessed about our credit score - and we are, without bothering to ask why.

The shouting guy and the clown suit people tell us to buy and sell stocks, and folks listen to them.   These are same folks who think Social Security is a "scam" and that Obama (or Bush) is going to put us all in "detention camps" and take away our guns.

People believe in Chemtrails and Rent-to-Own furniture.   They believe there is a Clinton Death List and that a payday loan will "tide them over" until next week.

The FM radio "oldies station" blares ads for weight loss products, hormones, and the latest gag, some sort of get-rich-quick scheme to sell an online payment system.   Hey, you should be able to make a lot of money at that - after all, only you and a million other listeners know about it, right?

In short, people are insane.  The very things they should be skeptical about they swallow hook, line, and sinker - financial deals which are a direct harm to them.

But far-fetched conspiracy theories - which have no direct impact on their lives - they fervently believe in them!   Things like history, science, technology, our own government - are all presumed to be frauds.  But the nice people at the Credit Card company are giving away free money this week!

What happened to our country that made it go insane?   Was it the Internet?  The recession?   30 years of the media hyping "jobs" and "the economy" as never before?  Some sort of concerted efforts by Russian troll farms to rot our society from within?

Or maybe people have always been this way?  After all, conspiracy theories about "100 mpg carburetors" date back to the 60's and 70's.  This stuff has been around a long time.   I am not sure I know the answer.  Except that if you act rationally in an irrational world you will get ahead.

And maybe part of this is to focus your skepticism on areas of your life that are most directly impacted.   Being skeptical of the government is fine and all, but it isn't going to change the outcome of your life.  Being skeptical of a credit card offer, or some crazy mortgage loan, is probably a better idea - these are things that are going to impact you directly - and immediately.

But a funny thing.  At a party, some blowhard will go on for hours about dark conspiracy theories that the government is up to.   But if I try to discuss how shitty credit card offers are, people roll their eyes.  Why is this?  Well, they really can't do anything about the dark government conspiracies - it is part and parcel of learned helplessness.   But their personal credit card problems - and these sort of folks all have credit card problems - is something that can do something about, but choose not to (because it involves sacrifice and hard work).   Better to shout down these thoughts with more interesting (and unsolvable) conspiracy theories.

Or, maybe, up in the tower of some office building in Manhattan somewhere, an army of powerful psychiatrists and psychologists has already figured this out - and realized that if we can get the populace to believe in these crazy conspiracy theories, that they will swallow, without question, raw financial deals that will leave them bankrupt.

It sounds plausible.   But then again, that would just be another crazy conspiracy theory!

The reality is, it is just human nature.  It is part and parcel of our urge to externalize our problems - to believe that others are behind nefarious plots to rob our bank accounts.  We never want to look internally and see what it is we are doing wrong. 

Our skepticism is misdirected.

The Children of Narcissists Movement

Is blaming all your problems on "Narcissistic" Parents or Family members constructive?  No.

As I have noted again and again, obsessing about your relationship with your parents and your childhood family is a sure way to fritter away your emotional energy in no time.   Yet, it seems to be something hard-wired into your brain, to obsess about your upbringing, I guess.

I live here on Retirement Island, and I see people in their 80's still angry about how their Mom or Dad treated them - long after they are dead.   Worse yet, thanks to greater life expectancies, I see people in their 70's who are still struggling to deal with their live parents, when they should be enjoying retirement themselves.

As I have noted before, the best thing you can do is move on, start your own life, your own family, and stop trying to "figure out" your childhood.   It's just a bunch of shit that happened, get over it.

And as for your parents, they are just human beings, who had no idea what they were doing.  Get over it, forgive them for their weaknesses, and move on.  You are not guaranteed or owed a perfect childhood.  No one is.

But there is a group out there who are not only not interested in getting over it, but instead would rather dedicate the rest of their lives to obsessing about their parents and how rotten their parents were to them.  It is a pointless game.

They have a subreddit on Reddit.  They have blog sites like this one.  They have websites, discussion groups, support groups, books you can buy, and so forth.  You can now identify yourself as a victim of narcissistic parents!   You're no longer just some fuck-up, but there is a name and a label for your misfortune.

Might as well sign up for Fibromyalgia Anonymous, and go the whole "victim" route....

They also communicate in a creepy two-letter code in all of their postings.  If you don't know what the code means, you're out of the loop!   

ACoN = Adult Child of Narcissist(s)
DAE = Does/Did Anyone Else
DoNF = Daughter of Narcissistic Father
Edad/Emom = enabler dad/enabler mom
FLEAS (not an actual acronym) - what are FLEAS?
FOC = Family of Choice
FOO = Family of Origin
GC = Golden Child
LC = Low Contact
FM = Flying Monkey
JADE = Justify, Argue, Defend and/or Explain
N or Narc= Narcissist/Narcissistic
NC = No Contact
NMiL = Narcissistic Mother-In-Law
SC = Structured Contact
SG = Scapegoat
SoNM = Son of Narcissistic Mother

This sort of adds to the cache and appeal of these sorts of "insider" groups.   What these folks really need, is passive-aggressive anonymous!  Frankly, these "code words" sound like a lot of Scientology crap.   Bullshit made-up para-psychology for amateur analysts.

What is wrong with this sort of thing?

Well, to begin with, it is amateur diagnosis of mental illness.  And the standards of diagnosis are so vague and generalized that anyone can say that their parents were narcissists.  It is trendy, it is popular, it is topical, it is evil.

In Psychology class, one of the tricks the professor played on us was to have us fill out a "Personality Profile" form, which he said he would review and next week, provide us with a detailed, individualized personality analysis.  The next week, he provided these, in individual envelopes for each person.  Everyone read theirs and nodded their heads.  He really was spot on!

I was the first to say, "Wait a minute, this stuff is so generic that it could apply to anyone!" and sure enough, he had given us all the same analysis.    You can read it here.

And the same is true for how these folks diagnose their parents as "Narcissists".   No matter what whacky things Mom and Dad do, they chalk it up to this generic label of "Narcissism".  And since Moms and Dads (and siblings) do wacky things, you can call them Narcissists!

For example, my late Sister once sent back a Christmas Card with the notation on the envelope that "This home only accepts hand-addressed Christmas Cards!"  Another time, she sent back a Christmas present with a list of what she felt were "appropriate" Christmas gifts.   Does that make her a Narcissist?  Or just an asshole?  Or just a frail human being with a whole host of problems of her own, including an alcoholic husband, delinquent runaway children, and a terminal illness?   I tend to think the latter.

The "Narcissist" label is so generic and so broad that anyone you don't like can be labeled with it.  In a way, it is a coward's way out of life.  The "victim" posits that their "abuser" is a "narcissist" and that's the end of the story.   Flinging the "N-word" (the new one) at people is a passive-aggressive move - foisting one's problems off onto someone else (which ironically, these "children of narcissists" claim their narcissist parents do!).

But Mom and Dad (or brother or sister) being narcissists really isn't their problem.  Their problem is, they are 20, 30, or even 40 years old (or older) and still obsessing about their parents which in a way lets the parents win.   And as you can see from the blogsite linked above, there is a lot of seething anger toward their parents.

What is funny, to me, is how these folks keep inserting themselves into situations involving their parents and then complaining when it all goes horribly wrong.  Some of them even still live with their parents, well into their 30's.  If you read the subReddit, these are mostly postings from people who should be living independent lives, doing their own things.  But instead, they keep going back to the parental teat for another mouthful of sour milk.  Why would anyone in their right mind do this?

Oh, key words:  "right mind" - yup.

I related the story of a friend of mine, who was 35 years old, married, and depressed about Christmas.  I said that many people get depressed this time of year and it was normal.

"But I have to go home to my parent's house for the holidays, and my Mother is so mean to me!" she replied.

"Well, then why don't you and your husband fly down to Aruba and have your own Christmas - little tropical drinks, great vacation sex, and whatnot." I replied.   She acted like I was speaking Esperanto.

But planning your own Christmas holiday when you are in your 30's and married is no big deal.  People do this.  It is normal.  What is abnormal is a 35-year-old to see the center of her life as her childhood and her childhood family.

But alas, some folks never break free of their childhood family, and feel an obsessive need to go back to the well time and time again for more abuse.  And these people have a lot of anger as a result of this obsession.  In a way, too, it reminds me of one of the ten irrational ideas:

Irrational Idea #3 is damning. This as the idea that when people act obnoxiously and unfairly, you should blame and damn them, and see them as bad, wicked, or rotten individuals.

Funny, but when I read these "Narcissist Parent" websites, it is all about blaming and damning.   The poster will put up a story about some outrageous thing Narcissistic Mom or Dad  did, and everyone chimes in with the shaming and the damning.  What is the point?  Does this make them all feel better?  That they are somehow "better" than their parents?

If you've read my blog, you know that my parents are anything but perfect.  But I forgave them.  I felt sorry for the sad lives they lead.   Rather than be a perpetual child, however, I moved on with my own life and lived it the way I wanted to, not through the lens of my childhood.   Of course, it is hard to do this - and easy to wallow in self-pity and blame all your "problems" on Mom and Dad.

Now, granted, there are some families out there that are like Tom Selleck's on Blue Bloods.   But they are few and far between.   And while the fantasy of the family together at the table every Sunday is nice, when do the kids get to have their family Sunday Dinner with their own children?   Selleck is hogging the limelight here!  What a Narcissist!  Right?  You see, this "label" can be slapped on anyone - by anyone.  It is meaningless.

And sadly, these sort of television shows do is provide horrible normative cues to people.   Folks watch this stuff and wonder why their family isn't like the Reagans.   Why are they not like Norman Rockwell's family?   Well, Norman Rockwell wasn't all that Norman Rockwell.  He had a lot of tragedy in his life and his wife went insane.   Hardly the subject for one of his Saturday Evening Post covers.

Start your own family - and have fun in life.*   Fun is not obsessing about your parents and what rotten people they are.   If you don't like them, then stop hanging around with them.   If you keep going back to the well of abuse, you have no one to blame but yourself.

But that is an anathema to the "Children of Narcisists" who continue to interact with their "horrible" parents day after day, and then rush home to post the injustice of it all on Reddit or some blogsite.   IS this really constructive?  Do they really want to solve their problems, or just wallow in them, like the friend with the perpetual problem?

Of course, the problem with these Narcissist groups is that if you criticize this sort of thinking, then they just slap the label of "Narcissist" on you.  touche.   It is akin to the Fibromyalgia people.  If you even question the "science" of this nonsense, they call you a "heartless bastard!!!" and threaten to kill you (no, really, they do).  Fun people.

If you feel you were "raised by Narcissists" or that your parents were Narcissists or you are on some Narcissist website, damning everyone else in your life for being imperfect, may I suggest that perhaps the apple didn't fall far from the tree.   Narcissus of Greek mythology, loved to look in the mirror.  And I suggest, if you are throwing out the "Narcissism" word, it is mirroring back to you.

Calling someone a narcissist and blaming them for all your troubles in life is, well, the ultimate act of narcissism!

* * *

*What do I mean by "your own family"?  You and your spouse and your children (if any) is your family.  Not a "Family of Choice" or some other three-letter code that "children of narcissists" use.   When you become an adult, you start your own family.  My parents did.  Their parents did.  Their parents' parents did.   For some reason, our generation - and subsequent generations, cannot let go of their childhood family and view it as their "real family" and any family they form in life as some sort of artificial construct.  That is some pretty sick thinking, my friend!

Why Did We Abandon Defined Benfit Pensions?

Retirement is a relatively new concept - dated to just after World War II.  In the next 20 years, retirement is about to change dramatically.

One thing I have harped on this in blog is the essential need to save.   We live in a 401(k) world now, and the idea of getting a "pension" is now obsolete, except for a few remaining government employees - and even that number is starting to shrink, as more and more governments switch to a 401(k) type plan.

The question remains, why did we switch to this new paradigm?   After all, isn't a guaranteed payment amount - for the rest of your life - far better than trying to save up heroic amounts of cash, which can be lost in a market crash or dissolved over time due to inflation?

And the answer to the second question is, yes, of course a guaranteed pension can be a better deal - provided the people guaranteeing it are solvent.  And that last part there is one of the reasons why we went to the 401(k) and IRA in place of defined benefit pensions.

So, why did we make this switch?  The reasons are numerous:

1.  It was a pyramid or Ponzi scheme to begin with:   Prior to World War II, not a lot of people "retired" or if they did, they did not  retire for long.  Old Gus at the finger-cutting factory would reach age 65, and the President of the company would give him a gold watch, and he would shuffle off to live with his children for a few years, until he kicked the bucket.   Age 65 was about life expectancy, and most companies did not have elaborate pension plans.  As in most third world countries today, having lots of children was your best pension plan.

Back then, we didn't have "retirement communities" in Florida, and the idea that you would sell your home and move away from your family and play golf for a decade or two, was alien.   But with the advent of Social Security and Medicare, along with company pensions, this became a new reality - it was made possible by the money being provided, both by the government and the private sector.

The problem was - and is - that early on, not many people were retired, so there were a few people taking money out, and a lot of people paying money in.   So in the 1950's, 1960's, and 1970's, the system worked pretty well.  Until that is....


2.  Most Pensions were underfunded:   Since these were future obligations, most companies paid only the minimum amount necessary into the pension plans needed to fund them.  Even at these rates, the amount of money set aside grew rapidly and companies became takeover targets often because of all this excess cash laying around.   Unions (such as the Teamsters) wanted to get their paws on the company pension plan, to use the money to fund Las Vegas, and perhaps for some money-laundering.

It was just too temping, all that money around.   In the 1970's, after the first energy crises, companies had to cut back on spending - and pension plans were the first things to be cut.  Companies like General Motors lost more and more market share and shed employees as a result.   But the number of retirees continued to grow and grow and grow.   As the company was in financial difficulty, they paid as little into the pension plan as possible.  It took another 30 years, but eventually something had to give - GM went bankrupt.

Underfunding of pensions is still a problem today, with many State and local governments failing to set aside a proper amount for pension plans - sometimes even after being ordered to do so by the courts.   But if the choice is to shut down Police and Fire protection or underfund the pension plan, you can guess what every Mayor will do.

It is a way of kicking the can down the road - eventually, though, some poor sap has to deal with the problem later on.


3. Vesting:  For the working Joe on the assembly line, a pension could be a good thing.  And companies valued them as they promoted worker loyalty.  You weren't going to quit a company if you were going to get a pension.

On the other hand, for Engineers and others, pensions were just cruelty.  Most companies had a "five year" vesting rule in their pensions - you had to work at a company for five years to collect even a minimum amount upon retirement.   As Engineers are often hired or fired depending on what projects a company is working on, and many Engineers would work a few years here and there during their career.  (GE was famous for this, hiring Engineers in anticipation of getting a government contract, and then letting them go if the contract wasn't awarded).

As a result, a lot of people never got pensions, even if they worked for a company that provided pensions, because of vesting.   And yes, it was a popular sport back in the day, to fire someone just a few days shy of their vesting in their pension.


4. Pensions are not as secure as you might think:  When companies go bankrupt, the pension often goes bankrupt as well.   And there were sneaky ways that some folks would raid a company and take all the money out, often by underfunding the pension or even trying to steal from the pension plan.  Mitt Romney was quite fond of this, and that is how he "created jobs" at Bain Capital - but crushing companies, tossing retirees out on the street, and foisting off pension liabilities onto the US Government.

Yes, long ago, the Government stepped in to protect pension plans.  If the plan is insured, the Pension Benefit Guarantee Corporation, a quasi-government entity will step in and take the tattered assets of the plan, and use that (and the premiums it receives from insuring members) and pay out at least a portion of the amounts due to pensioners (capped at $54,000 a year as of 2011).

If you don't get a huge pension, you may be covered.  For others, such as airline pilots, who often granted pay concessions in return for generous pension plans, you may feel a little cheated when your $100,000 a year retirement plan turns into a $50,000 one.

Bear in mind the PBGC insures only private-sector plans, not government plans.   While the idea of a Federal Pension defaulting seems remote, some States, Counties, Cities, and Towns have been known to default on pension liabilities.  For example, one small town in Alabama stopped paying pension payments entirely.   Detroit, in contrast, appears to be keeping its promises to pensioners.

California, some say, is headed toward a pension crises, but like a slow-moving freight train, no one seems to think it is imminent enough to do anything about it.

5.  People are living longer:  One of the problems that has exasperated all of the above is that in post-war America, people are living longer.   Average life expectancy is now around 78 and keeps going up every year.  And more troubling, if you reach retirement age of 65, the odds are very strong you will live to at least 85 if not 90.

Average life expectancy can be a deceiving number, as it includes all those infant deaths, kids killed in motorcycle accidents, and middle-aged men who keel over of a heart attack - before ever collecting on a pension.

If you live long enough to collect one, these days, you can expect to collect for 20 years or more.

As a result, the retirement age is going up - and keeps going up.  "Full" benefits for Social Security are now at age 67, not 65, and I suspect the "early" collection age will go up over time.

While many people say they will "work until they are 70" they often do so at a second career as their first employer is quite likely to lay them off at age 55.  And often this second career pays far less than the first one.  If you have a defined benefit pension, however, the idea of working until you are 70 is something only workaholics have to embrace.

So, for all of these reasons, we switched to this new 401(k) and IRA system.   People like to say our government is poorly run and that Congress doesn't know what it is doing.   And likely that is because they listen to the news and hear about all the political grandstanding and meaningless measures that are passed to garner votes for "the folks back home".

But in 1974, Congress created the PBGC and in 1978, they created the 401(k) and IRA programs.  They were looking ahead - quite far ahead.  The idea was, to allow people to self-fund their retirements, using tax-deferred money.   At first, I think this was viewed as a way for people who did not have pensions to save for retirement.  I am not sure whether the drafters of these laws envisioned that Defined-Benefit Pension Plans would evaporate over time.

But that is exactly what happened.   Many companies - and even the Federal Government - realized that Defined Benefit Pensions were impossible to fund properly and were a nightmare waiting to happen.   So one by one, companies switched to 401(k) type plans, at first for salary employees, and eventually, when the unions collapsed, for hourly employees.

1978 was the year I graduated from High school.  The year I entered the workforce, so to speak.  Today, I am 55.  In 10 years, I will reach "retirement age" along with the rest of the "401(k) generation".   Some are already retired and living off the proceeds of their 401(k) and/or IRA.   We are starting to see how this grand experiment in retirement living is playing out.

And it is going to get ugly, and fast.   Why?  While the 401(k)/IRA plans solved many of the problems of the Defined Benefit Pensions (underfunding, vesting, etc.) they bring on a whole host of problems of their own:

1.  The plan is voluntary:   People have to have the willpower to save, and a lot of people chose cable TV, a latte espresso, and a new snowmobile over saving for their retirement.   Average savings in most IRA or 401(k) plans is a paltry amount - hardly enough to live on for a few years at most.

Young people think they need the money "now" and can save for retirement "later".  But due to the nature of compound interest, trying to play "catch-up" is a very expensive proposition.   A dollar put away at age 20 is worth two at age 30, three at age 40, and four at age 50 - or even far more.

And of course, some chose never to save.   Mark had to pitch his company's 401(k) plan to his employees back in the 1990s, and it matched dollar for dollar every dollar an employee contributed.   Most chose not to sign up.  The reason given was that they "needed" every dollar to live on, even as they bought new cars or put bling rims on their old ones.   Of course, they will need money to live on when they retire, but they just chose not to think about that.  People are irrational.

 

2.  People make poor choices: Others chose to save, but did stupid things with their investments.  They put it all into high-risk stocks and then lost it all.  They put it all in low-paying government bonds, and then got frustrated when it didn't increase in value magically overnight.

Others borrowed against their plans to pay off debts.   During the recession, many folks decided to tap into their IRA or 401(k) to make mortgage payments on their upside-down house - taking away the only asset they had that was protected in bankruptcy.  Not only that, they ended up paying more taxes on their money, due to the 10% penalties for early withdrawal.  Even today, these folks are hanging on in upside-down mini-mansions, and when the 401(k) money runs out, they will be evicted and have no retirement savings whatsoever.  A rational thing would have been to keep the 401(k) and ditch the house.  People are irrational.

3. You can outlive your money:   Even if you save what you think is "enough" money, you can outlive it by either spending it too quickly or just living too damn long.   On the other hand, you save a boatload of money for retirement, die early, and then ungrateful heirs get a windfall.   Not a very efficient use of money, is it?

4. Stock market crashes or inflation can wipe you out:  As noted above, even if you save up a million bucks (which is enough for a $50,000 a year income for 30 years) you may end up wiped out if we have hyperinflation or the market crashes (and you are in high-risk investments, which would be foolish.) 

5.  It forces us to be investors:  Joe Lunchbucket has no idea how stocks, bonds, or mutual funds work.   But thanks the 401(k) plan, he now has to educate himself on these concepts and be an investor in the marketplace, whether he likes it or not.   Again, people may make poor choices.  But it also puts an awful lot of money into mutual funds and investment houses, and this provides opportunities for investment bankers and investment advisers to do a little hanky-panky with other people's money - and all of it is perfectly legal.

Your local "investment adviser" who is "such a nice man" advises you to put all your money into his funds, and he takes a 5% load off the top.  And unless you ask him point blank about this and use the right "Secret Words" he won't tell you what you are paying in fees.   It is like guessing Rumplestiltskin's name.   And I have had this happen to me before, too, and I thought I was a pretty astute guy.  I can only imagine how Grandma is doing.   Have you noticed that "investment adviser" shops are popping up like daisies after a summer rain?   There is one next to each "Curves" it seems.   It is a highly profitable business to be in.

So, the IRA/401(k) concept is flawed as well.  Some are calling for fixes, such as making participation in the plan the default option when you are hired (with an employee having to opt-out if they don't want to participate).  Other suggest making some kind of minimum participation mandatory.

Others, such as the GOP, want to take Social Security and privatize it so even more money is thrown into the stock market - like chumming for sharks.    The problem with this concept is the same problem we are having with the IRA/401(k) plans - people will make bad choices, investment adviser will rip them off, and so on.

Only this time, they can't say, "Well, at least I have Social Security to fall back on!"

So what is the answer?

Well, you can argue about the unfairness of it all and blame Wall Street or the "Fat Cats" or the Democrats or the Unions or the Republicans, or whatnot.   That won't accomplish much except make you feel better, momentarily.

Or, you can deal with the new reality we live in, and realize that it is deadly serious - as life often is.   This isn't fun-and-games, this is your life and your future we are talking about.

The good news is, that even putting aside a few dollars a day, over a working life, can result in huge amounts of money socked away in savings, by the time you retire.   But this does require you to sock away the money, even if it just $5 a day.

And that, in short is how I started this blog.   Like most Americans, I was mired in debt, and thought of my financial life in terms of debt.   I was fortunate that I had saved early in my IRA and 401(k) plans and made some money in Real Estate.  I was lucky or smart or both.  Smart to save money and make money.  Lucky to see that I was driving off a cliff with debt and spending and taking action to correct course before it was too late.

But others - well, I know people my age who are taking out new mortgages to pay off credit card debt.  Folks who tell me they will "work until they are 70" because they have nothing saved.   People in their 50's telling me "I'm thinking I should start saving for retirement one of these days!"

And that is going to be the interesting thing to watch - how this all pans out for our generation.   Our parent's generation lived large in retirement communities in Florida, playing golf every day and never worrying about where the next pension check would come from.  

Some of our generation will do well, having saved for retirement - but will have a much different outlook about money and spending.   When we look at a purchase, it won't be in terms of "how much per month?" but rather overall cost.   And I suspect that $250,000 motorhomes won't be in the picture for most of us, as they were in the past for Defined Benefit Pension types.

But still others - the ones with little or nothing saved, may end up as the new impoverished elderly - trying to scrape by on Social Security alone.  And I have seen that happen and it ain't pretty, I can tell you.

Like I said, it is a grand experiment, and peoples lives are in the balance as to the outcome.

UPDATE: 

A reader writes:

Rob,

To your point about the 401k being the new standard. And to think I joined the Guard as a hedge against 401k's.

http://www.military.com/daily-news/2015/04/22/house-gop-backs-401k-like-military-retirement-plan-more-pay-bah.html?ESRC=dod.nl

I suspect in 10-20 years, defined benefit pensions will be no more.   State government unions have kept them going for a long time, but States are facing budget shortfalls as a result.   Something has to give...

Brass Balls (Listent to Your Inner Coward)

Where does one get the balls to do things like start their own business or invest in Real Estate?  Beats me!   When you've got nothing to lose, it is a lot easier.

Today, a reader writes, asking how I was able to start my own law practice only two years out of law school.   Wasn't I nervous about failing?  Wasn't I taking a big risk?

Well, yes and no.   In reality, what seemed like "ballsy moves" in my life were real no-brainers.  They were opportunities that even at their worst, would result in no negative impact to my life.

Let me explain.

When I started in the Patent Business, it was a Wild West Show.  The Federal Circuit had been formed in 1982 or therabouts, and the Polaroid v. Kodak case was one of their early decisions.  In case you missed it, Polaroid sued Kodak for infringing its instant camera Patents.  A Kodak VP had written, in red ink, across a memo from their legal department, "screw the Patents!" and Kodak made their own instant camera (now a collector's item!).

And in the pre-Federal Circuit days, that was a pretty good strategy.  Patents were pretty worthless until about 1982 and before Polaroid v. Kodak.   But when that decision came down, not only did Kodak have to pay damages to Polaroid, they had to shut down their factory, cease making the products, and recall all products in the distribution chain.  The damages were enormous.   And people woke up and realized that Patents were now a "thing."

Of course, 20 years later, both Polaroid and Kodak are bankrupt or nearly bankrupt or are post-bankrupt (who cares, really?) and these once-great companies have been supplanted by a new technology, the digital camera.   But I digress.

In the late 1980's, everyone wanted a Patent, and the number of Patent Attorneys was small.  I was in the right place at the right time.   A friend of my parents, a Patent Attorney, said, "Bobby, you gotta get in on this Patent game, it is a license to print money!"  And back then, we charged $20,000 or more for a Patent Application.

Today, my clients have a "cap" of $8,000 per case.   Same clients, too.

I worked for a big firm and I enjoyed the work.  I got a chance to work on some litigation, wrote a number of Patents, prosecuted hundreds more - all before I graduated from Law School.   So I had the Experience.

But I realized that litigation was not for me.  And I realized that writing and prosecuting applications was more my thing.  And I also realized that for every dollar I billed, I was getting 33 cents, if that.  Moreover, that wasn't going to change.   Law firms are a pyramid scheme, and only a few of the young associates will claw their way to the top of the pile.  Most will leave, over time (as Engineers leave tech companies) and no one, of course, likes to talk about that.

No, instead, young associates believe in the "story arc" of life - that they will bill their hours, suck up to the boss, and then make senior associate, junior partner, senior partner, and then named head of the firm, over time.

Nice theory, but in practice, it is impossible for everyone to do this.  At most firms, only a handful float to the top of the cesspool.  And I realized early on that while the partners liked my high billing and quality work, they were not going to let me be part of their little club, now or ever.  And I saw, firsthand, what happens to senior associates who don't make partner.  Good friends of mine, pushing 40, with a photocopy box of desk mementos, doing the walk of shame to the elevator, while everyone else looks away.   It is like when they take one of the horses off to the knackers.  All the other horses say, "Well, that will never happen to me!" - but of course, it will.

I left that firm to work at another - a place where I thought I could write and prosecute cases and over time do well.   The partners of that firm hired "outside consultants" to advise them on how to run the firm, as they had lost their way.  The outside consultants suggested that they tell us Associates that none of us would ever make partner but instead the best we could hope for was some sort of "non-equity Partner" track, equivalent to a senior associate.   It was probably a dumb move - everyone updated their resume that afternoon.   Within a year or so, the firm was no more.   I left long before that, of course.

I had a chance to leave the firm and start out on my own.   And I had a client who indicated obliquely that if I left the firm, I probably would get some work from them.  They liked my work, they didn't like my firm's billing practices.  And without the huge big firm overhead, I could charge a lot less and make a lot more.

So I became "of counsel" to a small firm in town that had extra office space to rent out.  I paid a lot for that office space, but of course, it included a phone line, a photocopier, and a receptionist.  And I did pretty well.

I had a small mortgage payment, no car payments, and no cable bills to pay.   Mark's salary was enough for us to live on, if necessary, and I had a little money in the bank.   And if it all went horribly wrong, I could always go back to work for some other law firm, as they were hiring like mad back then.   Worst case scenario?  I could go back to the Patent Office and work there - get paid well, four weeks of vacation, and a cushy retirement.  That was the worst-case scenario.

So the "risks" were really minimal - in that market.

Today, the legal market is different.  Some folks hang out their shingle right out of law school.  I talked with a young couple recently about this, and I recently went to a law conference about the same topic.   Many young lawyers are hanging out their shingle right out of law school, simply because they have no choice in that others are not hiring young attorneys with no experience.  Others simply don't want to work the 60-80 hours a week in some litigation "Sweatshop" but instead want a different lifestyle.

Either way, there is more risk today, but then again, for some, there is no other choice.  So hanging out your shingle doesn't seem so risky when the "worst case scenario" is unemployment and you are already there.

After a year on my "own" (still "of counsel" to the small firm) an opportunity came up to buy an office building in Old Town, Alexandria.  The Real Estate bubble of 1989 (the one that "never happened" according to some readers!) had burst, and by 1995 there were still bargains on the market.   The office building had been recently remodeled, but the owner had died, and his business partner wanted to unload it.  We bought it with a "nothing down" deal, with the business partner taking back a second mortgage as a down payment.

Again, it was a "nothing to lose" deal and the "worst case scenario" was that I would default on the loan and the bank would take it back.   But that didn't look likely, as the monthly carrying cost of the building was far less than I was paying in "rent" to the firm I was "of counsel" of.

Along the way, we made a lot of mistakes.  I learned a lot about running a Patent practice - and how not to run one.  Overall, though, we did OK.   Eventually, I decided to stick to a solo practice, writing and prosecuting cases.  And by the year 2000, working from home didn't have the stigma it did back then, so I moved my office home and rented out the office building for a net monthly profit.

And we bought more Real Estate along the way.  Again, it was a "no brainer" - we were buying properties for below market value and with a positive cash flow.   And we didn't over-extend ourselves either.  We could have bought much more, but were glad we didn't.   The "worst case scenario" for our purchase was that we might be forced to sell them for more than we paid for them.

Others were not so lucky - well, not unlucky, just not very smart.   Friends of mine, seeing me make money, decided that buying any piece of Real Estate at any price and not even bothering to rent it out would make them "rich".   Not surprisingly, they went bankrupt - twice.

And a lot of America did the same thing.   Again, I learned from what was going on around me.  When I saw that friend of mine press the "down" button on the elevator at the big firm, with his cardboard box of family photos, I knew that could happen to me and likely would if I stayed there.

Similarly, when I saw my friends doing really dumb things with real estate investing, I realized that the inmates had taken over the asylum and it was time to get out.

Brass balls?  Hardly.   Selling while the selling was good was a sound move, and the people who told me I was a "fool" for selling out, well, I personally thought they were fools - with all their happy talk about how the market "would always go up!" and how "you'd better buy now or be priced out of the market forever!!"

So that's it, I guess.  No real heroism, no bravery, no brass balls.  In fact, in reality, I am an utter coward, a point that was driven home to me about 15 years ago when we tried to drive a motorhome through Mexico, and were kidnapped by the Police.  But that's another story.

I wasn't brave when I hung out my own shingle, as I had a pretty good indication I would have a steady income - I had a client.   And the "worst case scenario" was that I would end up working as a drudge for someone else's law firm or back as an Examiner the Patent Office.

Similarly, when I invested in Real Estate, the "worst case scenario" was that I would break even.  No heroism there.  And my cowardice saved me, as it force me to sell it all before the market crash of 2009.

Maybe there is a pattern there.  When you talk to veterans, even those decorated for bravery in combat, and you say, "Gee, you are brave!  You are a hero!" they inevitably reply, "No, not really, I just did what anyone would do in that situation."   Few of us are Sargent Slaughter, leading a raid into Nazi machine gun nests, with guns blazing from each arm, and pulling the pins of hand grenades with our teeth.  That is the stuff of fiction - of movies.   In fact, in real life, that sort of "brave" guy gets gunned down.

The survivors are the ones that thought it though and acted strategically.  They took risks, yes, but not foolhardy ones like charging a machine gun nest.   Suicide charges?   That's what brought down the Japanese Army.

So to me, real bravery isn't starting your own practice or investing in Real Estate, but the poor slob who works at a law firm, day in, day out, for 20-30 years, hoping for a promotion, hoping to make some money, but never quite getting to where he wants to be - or having a chance to enjoy life.   It is the bravery of facing a firing squad, five days a week, for 30 years.

Of course, it is a lot easier at age 35 to say, "Well, what's the worse case scenario?  Starting over?"   At age 55, I can tell you, I don't have the balls to try that.   No, my inner coward says, "take even fewer risks, today!"

Because I am looking at another 10 years before I collect Social Security and the name of the game now is "don't rock the boat."   Buying another investment property scares me to death. And investing more than a few thousand dollars in any one thing seems to me to be putting all my eggs in one basket.

So, if you want to do ballsy things, do then when you are still relatively young.  Because as you get older and older, the inner coward kicks in, big time.