Who Ran Away with Your 401K?

Like most people whose quality of life depends upon the fluctuations of an IRA, 401(k), 403(b), or other acronym-soup retirement account, I was born long before such things existed. It's easy to forget, now that more than half of us have been made shareholders, that until well past the middle of the 20th century, most people had nothing to do with the stock market: Wall Street was for the wealthy and the reckless. It was a world most Americans didn't understand and, after 1929, didn't trust. Some lucky people had pensions, but few had the privilege of even thinking about retirement. They were too busy trying to survive the present -- which in my childhood meant the Great Depression and then World War II.

I spent the war years in Washington, DC, where my father had a minor position in the Roosevelt administration. After school, my brother and I spent most of our time running around the streets, trying to get the air-raid wardens to give us a scrap of nylon parachute, or maybe even one of their cast-off World War I helmets, before the blackout drill began. One evening, my mother called us into the dining room and solemnly presented each of us with a $25 war bond. That was my first contact with the world of investment. Compared to a piece of parachute, it was a real downer.

Sixty-five years later it's a downer still, as I contemplate my future at a time of deep recession with no pension and a depleted 401(k). And it occurs to me that the very notion of a comfortable, paid retirement may turn out to have been a temporary phenomenon, with a life span almost precisely the same as my own.

 

The United States instituted military pensions after the Civil War, but German chancellor Otto von Bismarck is generally credited with creating the first national pension system, in the late 1880s, partly to combat the growing appeal of Marxism. Since Bismarck's pensions kicked in at 70, and the average life expectancy in Germany at the time was under 45, it wasn't much of an investment on the part of the state. In fact, until about World War II, a majority of people died before they reached what we now think of as retirement age; those who made it to 65 depended on savings or relatives, or went to the poorhouse.

The truly pivotal moment in the history of paid retirement came in the year before my birth, 1935, which saw the passage of the Social Security Act (again, in part to ward off more radical proposals). This system lifted millions of the elderly out of poverty, though it would never, by itself, provide a comfortable living. That came with the rise of employer-funded pensions, which were fought for by unions in the early part of the century and expanded during World War II, when they became a way to reward workers during government-mandated wage freezes. Suddenly, retirement became a possibility for millions of American workers.

These workers had "defined benefit" plans, which promised a steady monthly payment at retirement. Although a portion of the pension funds might be invested in the stock market, the payout to workers didn't depend on the market's fluctuations.

After the war, my father joined IBM and remained there for about 15 years. I remember that he was constantly in debt from paying our college tuitions and medical bills for his ailing parents. He never talked about it, but every so often, I would see a line of bills from credit companies spread out on the bed. He had a fierce dislike of Wall Street and the banking industry, formed during the Depression and abetted now by his high-interest debts. Although he had a three-hour round-trip commute on the New York Central Railroad every day from our home in a then-unfashionable part of the Hudson Valley, he often remarked how grateful he was that he didn't have to ride the New Haven trains with all the cocktail-wielding brokers. Even if he'd had any money to spare, he wouldn't have invested it on Wall Street. But when he retired, he got his pension, which my mother continued to collect after he died -- not much, but enough to live on in a frugal way.