The Sinister Cycle Of Your 401k

“I really hate Trump as a person,” says this guy I work with. He’s older, middle management, and planning to retire in 2-3 years. Let’s call him Steve. “But I support him because he has done wonders for my 401k.”

Chances are you’ve had this exact discussion many times over the past three years. Maybe you even feel that way yourself, which, current market crisis notwithstanding, is entirely understandable. Even the most ardent Trump-haters cannot deny the effect that ol’ Donnie has had on the stock market, and thus reflected in our booming 401k accounts.

Have you ever thought about why you need a 401k? The obvious answer is that you want to retire one day. Work sucks. Work really sucks. Even the most fulfilling careers wear you down after twenty or thirty years, and usually in far less time than that. The saying goes that “You work until you die,” but most of us can probably agree that we’d like a small buffer in between those two points.

But retirement isn’t the why I’m looking for here. Why do I need a 401k, specifically? Why can I not just stuff money under my mattress every two weeks for the next thirty years? Why does my only realistic hope for a comfortable retirement require me to engage in the equities market and generate consistent returns over the course of my lifetime?

Short answer: because I’m not paid enough, at least relative to the cost of living in the United States. Having a life – an actual life – is incredibly expensive. Starting a family is expensive. Buying a home is expensive. Travel is expensive. Cars, computers, nice appliances are expensive. Education is expensive. Healthcare is really expensive. And so on.

Even if you are making good money (like my buddy Steve in middle management), these costs are massive over the course of a lifetime – and most people are not making middle management money at a large bank. In fact, the cost of living is so high that it effectively rules out stuffing money under the mattress as a retirement strategy, since the amount of cash you would need to stash in order to keep up with a 401k would require massive sacrifices in other aspects of your life.

And as previously noted, most people are not making six figures. Most people are living paycheck to paycheck, with some small amount being funneled into a 401k or similar product. Even at my bank job, you hear about people who don’t take advantage of the decent employee plan because they literally cannot afford for their paychecks to get any smaller. Meanwhile, our CEO is making more than $20 million a year in compensation, but I’ll get to that later.

For now, the key message here is that we are stuck funding retirement accounts because we would never be able to save up enough cash otherwise. Not when wages are stagnant, and certainly not when compared to the astronomical costs of living.

Some people might argue that the privileged life I just described – comfortably starting a family, traveling, owning a home and nice things – is not necessary. Some people still cling to the archaic notion that there is some intrinsic value in living a simple life of scrounging for money and back-breaking labor. But last I checked, the point of modern civilization is to simplify the human experience; to make our lives easier, safer, and more enjoyable. At this point in our timeline, people should be rapidly getting better off, not worse.

So, you need a 401k. You have to invest for retirement, otherwise you will literally be forced to work until you die, like one of those poor elderly people employed at Wal-Mart (a company that loves to brag about hiring old people, as if this is a good thing).

You need a 401k, which is not inherently evil. Investing in your retirement is obviously not a bad thing. The problem is when engaging in the markets is the only realistic way for most people to think about retirement. What other options are there, really? Stockpile LEGO bricks and sell them on eBay? Good luck with that.

This is where the true fuckery begins. Retirement is our ultimate goal, and the 401k is our only chance ever achieving it. That means that for millions of regular Americans, our financial interests are now aligned with that of huge corporations and the ultra-rich. Both you and Jeff Bezos have a vested interest in Amazon’s stock price increasing. The difference is that your financial exposure to Amazon is some fractional amount in a fund that will maybe generate tens of thousands of dollars over the course of your lifetime, while Jeff Bezos controls a majority of the shares and can make billions of dollars in a day.

The idea that you and me should share a common financial interest with someone like Bezos is absurd. Same goes for the aforementioned CEO of my company, whose wealth increases exponentially whenever our share price jumps. These people are not on our level – not even close. It is virtually impossible to fathom the kind of wealth that pools at the top (and which defies gravity by staying there). Suffice to say, both Bezos and my CEO could stuff money under the mattress if they wanted to, but let’s be honest – financial concerns like saving for retirement are a joke for the gilded class. Much like we cannot fathom their wealth, they cannot fathom our lack thereof.

Politics compounds this fuckery. Think about the sort of policies or government actions that increase share prices: corporate welfare, bailouts, deregulation of the environment or financial protections, high-risk behavior, offshoring, costly overseas wars, tax cuts, allowing corporations to continuously buyback their own stock, etc. Basically all of the shit that the government spends our tax dollars on. Meanwhile, they tell us there isn’t enough money to pay for healthcare, education, or housing, which are all huge factors in the aforementioned massive costs of living. Not to mention that stagnant wages are one of the largest drivers of the growth in corporate profits over the past thirty years.

Are you starting to see where I’m taking this?

These shitty policies overwhelmingly benefit the corporations and the ultra-rich people who control them – but thanks to our hopes of retirement being so heavily dependent on the market, many regular people are effectively forced (read: tricked) into supporting them too. Someone making $10 or $15 an hour balking at the idea of increasing taxes on the rich is insane – and yet it happens all of the time because we have been programmed to fret about the “economy” if we want to retire and not worry about money anymore.

And so a twisted feedback loop exists. You want to retire and you need a 401k to do so. You need a 401k because you aren’t paid enough and the cost of living is too high to save enough money on your own. You aren’t paid enough and the cost of living is too high because of bad policies that overwhelmingly benefit corporations and the ultra-rich, instead of regular Americans. These shitty policies persist because you voted for the politicians that keep enforcing them. You voted for those politicians because those policies boost share prices, which help your meager 401k grow. You have a 401k because you want to retire and need one to do so…

Therein lies the trap. I do not necessarily believe the system was designed this way, but it follows a logical evolutionary path and is now actively being exploited by both the GOP and members of the Corporate Wing of the Democratic Party. These are the same forces that come together to quash any attempt at breaking the so-called “status-quo” of corporate hegemony and the wealth imbalance enjoyed by the 1%. They are the people arguing that you should vote for Trump because he will boost your 401k, or telling you that Medicare for All is too expensive because it will hurt the economy by cutting into corporate profits. The ones that paradoxically claim increasing the minimum wage will result in people having less money, despite empirical evidence to the contrary.

So, what is the solution? Tackling low wages is the first step. Growth in real wages has stagnated since the 1970’s, while productivity, inflation, and the cost of living has skyrocketed. The only exception for stagnant wages is the growth in executive pay, which has surged to absurd amounts: 940% since 1978, compared to just 12% for regular people. The average CEO now makes roughly 270 times the salary of their average employee, a dramatic increase from the 20-1 ratio that existed in the late fifties.

In a world where our wages had kept pace with everything, we would be far less dependent on generating market-based returns in order to retire, thus helping to divorce voters from the ludicrous belief that whatever is best for the “market” is also best for them. That is not to say that everyone would suddenly stop voting Republican or whatever – people vote over a range of issues – but it would undoubtedly help to check the overwhelming power and wealth disparity of our current economic system. It would also make all our lives a lot better general – again, the goal of modern civilization.

Instead, we currently live under a miserable set of economic circumstances where we are forced to begrudgingly go along with yet another wave of expensive corporate bailouts – financed by our tax dollars – all because our 401k accounts will drop even lower if those firms are allowed to collapse. In exchange for our compliance, some of us will receive of paltry $1200 – also financed by our tax dollars – which is supposed to tide people over – many of whom were already struggling before the Covid-induced crash – while multiple corporations receive billions in cash on top of the tax cuts and corporate welfare they were already on, all for the express purpose of maintaining share price.

The architects of this bailout, including Trump, will most likely all be re-elected in November. People will complain, grumble about inequality and the cost of healthcare, about low wages and their tax dollars being wasted. It won’t matter.

After all, you want to retire someday, don’t you?