bUt ThAt's PeOpLeS ReTiReMeNT!

When financial markets falter, government intervention is often sought to protect retirement savings, a theme frequently echoed in political discourse. This is because the retirement of millions of people is directly linked to the performance of financial assets. Since 2000, the number of individuals contributing to investment-based retirement accounts has more than doubled, while defined benefit schemes have halved. In America alone, nearly $50 trillion is held in retirement accounts, with most of it tied to financial market performance, a value comparable to the entire residential real estate market. Voters are highly protective of these savings, desiring security for their post-career lives. However, this self-interest has created perverse incentives within the financial industry. Hopeful retirees have become the ultimate "bag holders" when things go wrong. Assets that are starting to fail, such as private credit, private equity, BDCs, mortgage-backed securities, or residential REITs, are often offloaded into this practically unlimited pool of retirement cash. This acts as an escape mechanism to bail out struggling sectors, under the assumption that the government will intervene if these retirement funds face significant losses. This creates a paradoxical situation where retirement savings must be protected at all costs, yet simultaneously take on morally hazardous amounts of risk. It is challenging to critique the current retirement savings system without appearing to criticize the act of saving for retirement itself. As individuals, saving and investing excess money for financial objectives, especially a comfortable retirement, is a sensible and advisable practice. Utilizing tax-advantaged or employer-supported accounts like 401ks or IRAs is also beneficial. However, engaging in sensible individual actions within a flawed system does not make the system itself sensible. Over the past four decades, retirement saving in America has undergone significant changes. Historically, retirement was based on social security, company pensions, and personal savings. The first two were considered very secure, with employers legally obligated to support pensions and Social Security having proven resilient. Today, this is largely no longer the case. In 1980, about 60% of private sector workers with a retirement plan had a defined benefit pension; now, fewer than 15% do, mostly senior employees or government workers who were grandfathered in. These have largely been replaced by the 401k, a tax-advantaged investment account offered through employment. Employees contribute a portion of their paycheck pre-tax, sometimes with an employer contribution, and the funds are invested in mutual funds until retirement. Similar accounts exist for non-profit, educational, state, local, and federal government workers (403b, 457b, Thrift Savings Plan, respectively). For those without employer-sponsored plans, the IRA serves a similar function without the employer attachment. These are all "defined contribution" plans: they define what you put in, but not what you get out. The outcome depends on market performance. This differs significantly from the old defined benefit pension, where employers were legally bound to pay a fixed amount regardless of market fluctuations. This shift from employer obligation to individual investment risk was not accidental. The 401k originated as a tax break for high-ranking corporate executives in the 1978 tax code but was repurposed in the early 1980s as a mass-market retirement product. It was cheaper for companies, shifted investment risk to workers, and was marketed as "empowerment." By the end of 2025, American retirement accounts held $49.1 trillion. This massive pool of money, with its specific financial characteristics, has become a tax-advantaged, complacent "bag holder," potentially making retirement more difficult for average people for four main reasons. The first problem is that retirement accounts have become ideal "bag holders." They are a well-behaved capital pool because 401ks and IRAs have early withdrawal penalties, meaning most people don't touch them until their late 50s. This provides fund managers with a long investment horizon and predictable liquidity needs, ideal for illiquid assets like commercial real estate, private businesses, and private loans. These funds are enormous, allowing access to deals inaccessible to individual investors. Fund managers are compensated for steady returns within narrow risk bands, and most account holders are unaware of their investments, fees, or risks. This combination creates a captive, enormous, patient, oblivious, and politically untouchable customer base. This makes complex and illiquid products desirable, as they justify intermediate fund managers' existence and mask day-to-day price shocks. Examples include mortgage-backed securities before 2008 and, more recently, private credit and BDCs marketed to target-date funds. A recent executive order seeks to make private equity and crypto directly accessible to 401k plans, providing an exit for the trillion-dollar private credit industry. This system works because those holding the money can invoke "people's retirement" when things go wrong. The second problem is that retirement savings in these advantaged accounts are overwhelmingly held by wealthy households. Federal Reserve data shows the top 10% of American households hold the vast majority of retirement account balances, with the top 1% holding more than the entire bottom half combined. The bottom half, on average, has almost nothing in dedicated retirement accounts. Therefore, when politicians claim to defend "people's retirement," they are largely defending the portfolios of those who are already financially secure. While this distribution is slightly more equitable than direct stock ownership, it doesn't bridge the wealth gap but rather widens it, as the same wealthy households hold the majority of both retirement and directly held assets. The third problem is that these tax-advantaged accounts omit significant government revenue. According to the Joint Committee on Taxation, retirement account tax breaks will cost the federal government $383 billion in fiscal year 2025. This "emitted revenue" is not a direct budget line item but represents a substantial loss. To put it in perspective, this amount exceeds federal spending on SNAP, unemployment insurance, child nutrition, and federal family support programs combined, with enough left over for NASA. It could also fund a $7,000 annual check for every American over 67, significantly topping up Social Security regardless of their 401k contributions. While the argument is that these tax breaks encourage saving and reduce future government support, the benefit is not evenly spread. The tax break scales with contributions, which scales with income, meaning the majority of the $383 billion flows to those who would be financially comfortable in retirement regardless. This subsidy, often presented as protecting the working class, is effectively a transfer to those who can already afford to invest. The fourth problem, which ties the system together, is that account users are not truly allowed to take the risks they are supposedly rewarded for. Whenever a financial sector heavily invested in by retirement funds becomes unstable, the government intervenes through bailouts, emergency liquidity, regulatory forbearance, or asset purchases by the Fed. Taxpayer resources are deployed to prevent failure, under the guise of protecting "people's retirement." This includes cutting red tape, weakening worker and consumer protections, and lax antitrust enforcement, all justified by the argument that regulation might hurt stock prices and 401k returns. This has been an effective lobbying tool, leading to record corporate profits, stagnating wages, unaffordable housing, and exploding healthcare costs, with regulatory efforts consistently blocked by the "people's retirement" argument. For most Americans, stronger protections and an affordable housing market would be more valuable than marginal gains in retirement accounts they hold little in. America is not the worst offender. Australia's mandatory superannuation scheme, where a percentage of every worker's paycheck goes into a private investment account, has resulted in the highest per capita retirement savings globally. However, this enormous pool of private capital is treated by the Australian government as a general-purpose piggy bank. A significant portion of these funds (27 cents of every dollar) is directed into the country's banking sector, heavily focused on residential real estate mortgages, or directly into single-family homes. This contributes to Australia's notoriously unaffordable housing market. This system has also become an emergency fund, allowing young Australians to access retirement savings for house deposits, withdrawals during COVID as pseudo-stimulus, and recently, to help finance expanded military spending. The good news for America is that 401k balances are not yet directly funding defense procurement, but they are still used to bail out private equity. The obvious solutions are to stop allowing the riskiest products into tax-advantaged accounts, means-test tax breaks to prevent them from being handouts to the already wealthy, and to stop accepting "people's retirement" as an automatic veto on policies that would force Wall Street to behave or companies to face consequences. While it is often assumed that such issues arise from a broken system of individuals pursuing self-interest rather than a grand conspiracy, historical evidence suggests that the idea of convincing people they are "investors" rather than workers or consumers, thereby aligning their interests with business, was a deliberate strategy outlined in a document over 50 years ago, which has profoundly reshaped the modern corporate landscape.