Fortune Magazine sees the elephant in the room...if Congress mandates a (pension plan) premium hike, as it probably will, then more companies will just dump their plans on the PBGC, redoubling the need for more funds, leading to more premium hikes, and so on. If you can see any way taxpayers will not get billed for a giant bailout, please e-mail Congress immediately.
And then there's the greatest pension crisis of all: Social Security. We've stayed in denial thanks to the so-called trust fund, that magical place where the plan's annual surpluses are sent to be invested until we need them. But since those surpluses must by law be invested in government bonds, they have simply been handed over to the U.S. Treasury and spent by Congress.
The trust fund is in fact meaningless, a bit of marketing hooey cooked up in the '30s. When Social Security's annual surpluses end in just six or seven years, the battle over whose ox to gore in order to cover the plan's obligations will be truly epic.
The hard reality is that for decades we haven't told ourselves the truth about pensions. Now, as the first baby-boomers turn 60, we must finally confront reality -- and absolutely no one will like it.
Six or seven years, if the dollar lasts that long. That's when the budget deficit (which was
announced to be $400 billion next year rather than $341 billion) takes off in earnest, because right now workers are paying more in social Security than the gov't pays out. Government then spends the money, leaving a note in a filing cabinet (called in FDR-speak, a "trust fund") to tell how much they spent while masking the real deficit by that amount. Once the tipover point occurs, Congress will not only have no SocSec surplus to hide the real budget deficit, but they'll have to start paying it back. It can't be done, especialy not in an environment where the gov't is spending hundreds of billions on overseas wars, hurricane cleanups, and every problem that Bush can manage to throw dollars at.
The dollars aren't there and must be printed.
So what to do? I hear it all the time, "OK smart guy, if you're right and the dollar's dead, what are we to do about it?"
The first thing to do is to realize that the government is not going to save you or most likely anyone else. The coming economic catastrophe is completely the fault of the government acting in the way that the majority of your neighbors wants them to and your neighbors will want more of the same as it gets worse. The solution is not political: your future is your responsibility.
The second thing to realize is that pension promises can't be kept. Not by the government, not by companies. The existence of a baby boom generation followed by falling birth rates sealed the fate of these ponzi plans that assumed an ever-larger group of workers to pay the way of retirees. Unless you are retired now, you'll probably not live out a long life on a pension.
The third thing to realize is that when the dollar collapses due to the printing of trillions of them, debts will be wiped out. Good deal, right? You'll be able to pay off your house with worthless money. But how much does the bank owe you? If you have saved any money or invested your 401(k) in bonds, say goodbye. Our economy runs on debt and our dollars represent debt. Wipe out debt and you destroy commerce. Destroy commerce and your employer no longer needs you.
The fourth thing to realize is that prices, especially of imports, are going to rise far, far faster than incomes. The lying CPI, which does not even measure real inflation anyway, is already higher than the average wage increase. As the dollar dies, the American dream and standard of living dies with it.
The last and most important thing to realize is that sheep get sheared. Always. Most people are going to suffer horribly, so you must do things they are not doing. It's time to leave the flock.
Once you realize those five things, really come to accept them, what to do becomes a lot simpler:
Get out of debt. Sure, all debts will be paid off in worthless dollars in the long run, but in the meantime you'll be paying a boatload of interest at quickly-rising rates that could be much better spent. Not everyone can do it completely (and our economy, built as it is, would collapse if they tried) but you can do it at least a little. The more the better.
Put something aside now, but not in long-term dollars. There are a million "investments" that one can use for retirement and the one thing that they all have in common is that they have value independent of the dollar. Gold, silver, copper, collector's items like rare coins and stamps, small commercial real estate (small enough that you don't have to go in hoc to buy...yes, it can be found, but not in big cities) farmland, currencies of stable resource-exporting or fiscally-responsible countries (Switzerland, Canada, Australia), guns and ammo, food. The point is to buy and save things that will retain value and to purchase what you'll have to purchase tomorrow anyway at inflated prices. We're not going into the dark ages, but through a dark time. There is a world of difference. You can't prepare for the end of the world, so other than prayer, don't bother with that.
Shoot financial albatrosses. If anything is costing you money and you're not getting any benefit from it, get rid of it. Re-prioritizing your finances can free up dollars today that can be much better used. Get used to living with fewer baubles, especially if they are imported. Grow some food. Dig a well.
If you have a 401(k) make sure it's not in long-term bonds. Bond prices are nearly as high as they'll ever get, so not only are you accepting low rates over long years, you'll probably get a huge capital loss once rates start to rise in earnest. If you have no choice but to hold debt, hold it in as short a maturity as you can...90 days t-bills and commercial paper pay almost the same as the 10-year bond anyway, and will benefit from rising rates. Long-term debt will suffer from it.
Stocks are fine, so long as they are the right stocks. The Dow has returned nothing for 5 years, the NASDAQ has delivered a bloodbath to buy-and-holders. I expect that will continue. But solid, profitable, debt-free companies are always worth owning at the right price and those companies in the resource sector (especially oil, gas, and gold) own resources that are going to fly in value. If you can get individual stocks in your 401(k) try to get coal miners, oil producers, and gold mines. If you only have a few pennies to spare, open an account at Ameritrade Izone ($5 a trade) and start buying small producers, spreading your few dollars among as many profitable companies as you can afford. Make your own mutual fund for safety, because it's a dangerous world and it's going to get worse.
Start a second job, don't "get" one. Not everyone can start and run a successful company, but everyone can find a successful hobby and everyone can make a little money at it, even if it's refurbishing bicycles or selling baby clothes on Ebay. Having a little income outside your current employer will allow you a measure of financial freedom and allow you to build assets and expertise. Learn a trade; your job is not guaranteed, but your skills are.
Finally, decide where you want to live in hard times and move there or have a plan to get there. No one can "bug-out" of society completely, but I personally would not want to live in NYC when blackouts occur nor in SanFran when real estate prices are halved. Everything reverts to the mean eventually, and those paying for houses on interest-only and ARM mortgages are going to have their heads handed to them. Angry, hungry people make bad neighbors.
Since the government severed the final dollar/gold link in 1971, the dollar has been on a crash course. Deficits, budgets, pensions, debt, A credit bubble, a stock bubble, a real estate bubble, even peak oil are coming together to create what some have called the Perfect Financial Storm. Doing what were doing is guaranteed to bring misery, yet the vast majority will continue to do it and rely on Uncle Sam to pick up the pieces.
There's and old ditty about "all the king's horses and all the kings men" trying just that. Far better to make your personal retirement humpty-dumpty out of something other than eggshells.