Are Governments planning to take over your retirement nest egg?

The governments response to the current credit crisis and the affect on retirement funds may be to throwing the baby out with the bath water. Retirement nest eggs have lost a lot of money during this market turmoil. Governments are now very concerned.

Argentina is about the take over $30Bn in private retirement funds. In the US the Democrats may be considering doing the same. It’s early days and we don’t have all the facts yet but….

For years wealth managers, sanctioned by government have been stealing retirement money through high fees and hidden charges using “buy and hold” strategies.

Rather than think through the problems and keep what is good, governments are now saying the whole “experiment” into self funded retirement pensions has been a failure.

To my mind the failure has been in allowing these wealth managers to set up an investment system for their convenience that says you need to “buy and hold” for the long term and then take high fees for managing your nest egg.

What that means is you give them your money to hold for the long term. Once they have it they then buy and sell stocks like crazy bidding up the price as more and more money is given to them. Each time they trade they charge you a fee and if they make a profit they have a complex thing called a “unit price” which seems to take about three days to work out. They then give you this unit price as your paper profit.

The governments have failed dismally to reform and regulate the wealth managers.

Now the stock market has crashed some governments are saying the whole retirement pension experiment is a failure and they need to protect your nest egg from further harm.

What has failed is the “buy and hold” strategy. The strategy was based on what is called a “highly normative world” as Scott Burns put in in a previous post. It did not take into account a once in a hundred years financial collapse as Greenspan stated before congress. Naleb calls it a “black swan” – the unpredictable event.

Wealth Mangers really believed that the market would always go up and every 5-7 years if there was a market downturn, it would recover your money. They sold  you and the government on this too.

They didn’t understand it is not the fact that the market drops that is the issue. It is by how far it drops that is the problem. Right now the market is down 35-40% and many Baby Boomer nest eggs will not recover from their losses unless the markets come back very quickly or they go back to work for the next few years to replenish it.

The other important factor is there is no rule that says the market will always come back in 5-7 years. If we are in a long-term bear market it might take 10 or more years to come back. Baby Boomers cannot wait that long.

What really hurts is you can do everything right according to wealth management best practice. You can contribute each month to your retirement account for 40 years using their “buy and hold” philosophy. Governments encouraged you through tax advantage accounts to do this. Then just as you are about to retire the market can crash taking 50% of your retirement nest egg with it.

The wealth managers response is, “Don’t panic, just stick to the plan and in 5-7 years you will get your money back”. Unfortunately this time it may not happen, so governments are losing confidence in self-funded retirement plans and getting scared about the massive problem of Baby Boomers all needing government pensions.

What I find really irritating is that financial commentators are now saying self-funded retirees failed to understand how to invest their retirement funds and should not be trusted with them. They are calling for governments to take over the retirement funds.

What the hell were you paying those high fees for? When did you ever feel you had control of your retirement nest egg? Your money was paid to some wealth manager somewhere who all but guaranteed to manage it for you and implied you should not concern yourself with it until retirement.

I sell, install and support computer networks. I make sure my client’s system and data are protected by using firewalls, anti virus, anti spam, tape backups, battery backup systems, redundant hardware and remote monitoring. I even tell them off if they miss inserting a tape for a nightly backup. It’s that important.

Wealth Managers should have been doing similar things with your money. They should have helped you to reduce your exposure to equities as soon as they saw the subprime debacle. They had access to their own research departments, brokers and financial experts who should have been working to protect you. They did not do their job.

As you approached retirement they should have been helping you put some of your money into low risk term deposits or bonds to develop income ladders that roll-over that money in higher interest accounts so you can live off that money and risk other money in the markets for the longer term.

Annuities might have been a help to some Baby Boomers and these should have been put in place too if required.

They should have been chasing you to contribute more to your retirement fund if they believed you needed to save more.

It was their duty to protect you and to advise you. That was what they were paid high fees and commissions for and they failed.

Now the financial commentators are blaming you for not understanding investing. These are the same guys who kept pushing the “buy and hold” strategy and said you are investing for the long term and not to worry. They now say you were too dumb to be trusted with your own retirement investments. Government should take your money and look after it, because you can’t.

It is conveniently forgotten that most wealth managers made it so hard for you to find out what was happening to your retirement nest egg you gave up, didn’t try, or trusted their marketing hype not to worry. Governments failed to make wealth management transparent, accountable and and easy for you to get involved in.

That does not absolve you of your responsibility to take control of your nest egg. Regardless it was your responsibility to either understand what was happening to your nest egg or find someone who did and who would help you manage it properly.

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