Tuesday, April 25, 2006

Control your own retirement

I think one of the most important things I teach my Economics students is the power of controlling their own retirement future. With the current state of Social Security, and the number of businesses dumping pension packages, I think that it is vital that students understand than the money they start saving now will help them live a better future. We discuss stocks, bonds, mutual funds, various annuities, and I give them the tools to do their own research. I discourage brokers and "advisors" because they are all in it to make a buck. Plus, you can manage your own trades and investments on simple online brokers like Scotttrade or Sharebuilder.

Now comes an article in the Los Angeles Times about teachers getting hosed by the NEA regarding retirement programs (such as the much touted 403B's) that are supposed to help with retirement security, but in actuality are overhyped investment promotions. Apparently, the NEA and certain investment outfits are in cahoots to guide teachers towards programs that brokers profit from, whether from high fees or long term/low yield results. I have two thoughts on this.

First, I am hardly surprised that the NEA is partnered with corporate interests. I'm constantly irritated that I am required to funnel money to these corrupt assholes to further their political agenda, but I'm not surprised. The NEA is basically a political action committee that tries to parlay the whole "good natured, socially accepted teacher vibe", while at the same time taxing the members with no visible government results (pay? benefits? social attitude?).

As a result, hundreds of insurers, mutual fund companies and financial planners compete for teachers' money, touting a bewildering array of products. A union endorsement confers a huge advantage, allowing a provider to stand out from the crowd. Unions do more than simply give companies their blessing. Some help market and sell endorsed products. They tout investment firms on their websites and provide direct links to sites where teachers can sign up to buy annuities. Endorsed providers also enjoy special access to schools and teacher conferences where they can pitch their products. Teachers generally are not aware that unions are paid for their endorsements, directly or indirectly. Such deals usually are not mentioned on union websites or in brochures describing the favored investments.

These are not the actions of a well run union, these are the actions of a corporate structure. The union should be pushing education programs for all its members, with different a multi-tiered focus on where on the retirement scale a teacher is current at. Younger teachers can be taught that taking a risk is good at this age (not a 3% fixed annuity), while older teachers are taught that less risk and more security is a wiser move. Instead, the system is playing politics. Recently the California State Teacher's Retirement System (CALSTRS), the nation's second largest pension fund, decided to sell stock in any company that has connections to the Sudanese government, due to the recent issues in Darfur. Sounds very nice doesn't it? Except that it may not the be most financially sound decision for the members that happen to put money into CALSTRS. I think that what is going on in Darfur is awful, but I don't want my retirement to get worse because a lucrative Chinese petroleum company happens to do business with the Sudanese government. If this was a real issue, CALSTRS would pull all stocks from any company that does business with China as well, one of the world's largest abusers of human rights. I want my retirement in companies that are going to secure my future. Hey Mr. CALSTRS fund manager, I want my money in Halliburton and in any Venezuelan oil company that you can find. Chavez is going to end up kicking out the American companies eventually, the teachers might as well profit!

My second opinion has to due with the basic financial ignorance of the American citizen. If teachers, who are supposed to be educated professionals, are being lured into these grossly misstated investment opportunities, think about the average citizen who could be told that he must figure out his/her own financial security. We are talking about people that can't balance a check book, much less research a good mutual fund or take a few hours a week to check their stock portfolio. Total privatization of retirement is not the answer, but neither is letting the problem fester. Hey NCLB and CASHEE, how about less focus on the Pythagorean theorem and more time on secure the future of students.

Thanks to Right on the Left Coast (fav blogger, and loves Pythagoras) and the Education Intelligence Agency for heads up on the article.
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