Evaporating Pensions and Retirements

Posted 14 Jan 2009

The foundation for this article was laid in Foundations of Crisis.  As discussed the demographics are rapidly changing as populations are aging.  The renewal of society is slowing as birth rates decline below the replacement rate.  Government interference in the economy and the abandonment of sound money, using gold and silver as currency in ordinary daily transactions, has wrought a terrible effect upon the family.


The idea and concept of 'retirement' and a 'pension' is a relatively new idea and a barbarous relic of the Industrial Age.  Elaborate and vexatious public programs, like the massive Ponzi scam of Social Security, allow individuals to free ride off other's children.  

The economic causes of retaining the cost of child rearing while redistributing the benefits throughout society has the effect of decreasing the economic incentive of bearing and raising children.

Therefore, it is no surprise that those countries with the most elaborate pension programs like Western Europe and the United States have the lowest birth rates.  Unfortunately, as Tammy Erickson of Harvard has observed, "In industrial and professional service economies, kids' roles change.

Net-net, in these economies, kids cost money. They are liabilities. ... Children have moved on the balance sheet of life."

This society-wide misallocation of capital will have profound consequences.  Bloomberg reported that 'State governments from Rhode Island to California have run up estimated pension-fund losses of $865.1 billion ... Assets for 109 state funds declined 37 percent to $1.46 trillion over the 14 months ended Dec. 16'.  The Pension Tsunami is racing towards the shore.


The only real advice I have for those who think they are getting close to retirement is to 'get out of the way' of the oncoming 'wave that eats people' and climb to higher ground.  You have worked for decades and now all that 'stored value' is evaporating.  

The deflationary credit contraction, or Kondratieff Winter, is only going to intensify.  Seek the safest and most liquid assets.  Reduce to the largest extent possible layers of risk and institutions between you and your purchasing power.  The first hardest thing to do is make money.  The second hardest thing to do is keep it.

But what type of advice is there for the 45 and under crowd?  It is generally better to learn from another's experience than one's own.  Watching the retirement and pensions of millions evaporate may be a catalyst for reflection.

Do you really want to spend decades of your life holed away in a cubicle doing things you may not want to do with people you may not like at times you may not want to do them?  Remember that project last year you worked on over the weekends?  What has happened to your 401(k) or IRA?  Are you going to keep working on projects over the weekend, having the fruits of you labor stolen by inflation or taxation to fund someone else's retirement, while the sun is shining outside or the snow is on the mountain until you are too old to surf and ski?

[caption id="" align="alignright" width="384" caption="Cows in their cubicles"]Cows in their cubicles[/caption]

Social Security and Medicare taxes are about 15% evenly paid by the individual and employer.  In other words, if you work full-time or about 2,000 hours per year then Social Security tax amounts to about two months.  That is two months you could spend scuba diving in Australia, parasailing in the Caribbean, wandering around Europe, etc.  

That is only Social Security tax and I will not delve into federal, state and local income tax, property tax, registration tax etc.  Distilled, you are livestock and these are human livestock management practices to produce milk and meat for the owners.

 Your productive capacity for two months a year is harvested to pay for another's retirement and you will never see a penny.  The total tax burden is even worse and when all is accounted it is probably closer to 99% of your productive capacity.


What is to be done?  If you must live in a livestock pen at least decide on three things as soon as possible, (1) the rules of the game, (2) the stakes, (3) and the quitting time.  Eventually you can choose to strike.

 In case you have not noticed Atlas is shrugging.  How?  Well, there are plenty of helpful resources like The 4-Hour Workweek (Mindmap document) by Timothy Ferriss, the basic CashFlow Quadrant by Robert Kiyosaki, etc.

Striking is actually easier than ever before.  There are millions of methods so I will mention only a few principles.  First, eliminate all possible debt.  Second, reduce expenses as much as possible.  Part of striking is not feeding the consumption economy.  Third, have a significant cash reserve so you are liquid for at least a year without working.  

Fourth, follow Warren Buffett's example and legally 'play the tax system like a fiddle'.  This will allow you to swim with the current instead of against the current. Fifth, develop multiple streams of income and cash-flow.  For example, HTE trades for about FRN$9 per share, yields about FRN$0.21 per month and put options can be purchased to preserve capital investment.

Educate yourself on how tax law works with carrying on a trade or business as this will allow you to deduct ordinary and necessary business expenses such as a 'ghost address,' cell phone, internet, travel, business cards, etc.  Then establish residence in a low-tax jurisdiction such as Florida, Nevada or a foreign country ($87,600 foreign earned income exclusion) which has no income tax.  Have a 'ghost address' in another low-tax jurisdiction like Oregon which has no sales tax.  This will help in becoming 'location independent'.


What type of lifestyle do you really want?  The freedom to do what you want, when you want and with whom you want?  With a low expense habit $5,000-10,000/month can get difficult to spend on a consistent basis.  In the history of the world and because of the Internet being location independent has never been easier.  Once location independence is achieved you can begin.

For example, you can take a mini-retirement.  Charter a plane to fly over the Andes.  Enjoy a gourmet steak dinner in Buenos Aires for about FRN$8.  That is about 40 shares of HTE requiring a capital investment of FRN$345 to generate enough income for a steak dinner every month.

 Eliminating rent is getting easier with tools like CouchSurfing.  As always your imagination is your limit.  If you conceive and believe it then you can achieve it.


The pension problems are huge and doomed to failure.  You can either deal with reality or reality will deal with you.  You can either swim with or against the current.  It is not so important what you do but that you do what you want, when you want to and with whom you choose.  

Sometimes it is easy to make money and other times it is difficult.  The next four years do not look like a favorable time to build a business or generate large amounts of wealth.  Instead, go on strike and enjoy life.  After all, if you pile up enough tomorrows for some distant 'retirement' or 'pension' then you may sadly and regrettably find you have collected a lot of empty yesterdays in your evaporated 401(k) or IRA because you will have been harvested.