What Do I Understand Now That I Wish I’d Understood Then?

What do I understand (or at least think I understand) now that I wish I had understood when I had began my journey through adulthood? It’s of no consequence to me, of course: it’s impossible to turn back the clock. But it might be of some help to you, Vera.

In looking back I’m struck by how naïve I was when I came out of high school and, four years later, college. I had little appreciation for what the world was really like. Growing up in a working-class family in homogenous rural south-central Pennsylvania hadn’t exposed me to much. My world was very small.

More than four decades of career experiences in law, business (CEO), government (special agent for DOD and, later, cabinet secretary), and higher ed (college president) changed that. To a degree. There is still much about life I don’t understand or, perhaps more accurately, refuse to accept. I’m still learning and always will be. Nonetheless, life has imparted a few lessons along the way.

Some of the lessons were easy to learn; some were hard. Some were moments of euphoria and left fond memories; some were painful and left scars. Others were learned merely by reading or observing. (It’s always preferable to learn from other people’s wisdom or mistakes.) I decided to compose a list of what I consider to have been some of the most important lessons.

What the list isn’t, however, is a list of rules to live by. I’m not fond of rules and would never suggest life is so easily mastered. Moreover, as I’ve mentioned before, I have absolutely no desire to tell you how to live your life, Vera. Rather, I’m simply sharing some of the things I wish I had better understood when I was young, starting out.

Some of the lessons are practical; some are of the existential variety. The list is neither complete nor final. After all, I’m still learning.

Please don’t infer an order of priority, for none is intended. “You” and “your,” below, refer to me; it is as if life is speaking to me. Occasional personal comments follow parenthetically. Continue reading

Certain Lessons Are Hard to Learn

Today’s Wall Street Journal has a story about retirees of General Electric who have lost a sizable chunk of their retirement savings. Over the past 12 months GE has lost $140 billion in market value. It was a blue chip stock that most people thought was safe. They were wrong.

It’s happened before — major losses incurred by employees and retirees stemming from their decision to hold all or most of their personal savings in their company’s stock. Enron, Valiant, GM, Lehman, and Bear Stearns were mentioned in the WSJ article. But the list is much longer than that.

On the one hand, it’s easy to see how it happens. Confidence in one’s company builds up over a career. Loyalty. You become part of the family. It’s hard to be objective about the risks you’re taking. Why sell the stock that has treated you so well over the years?

On the other hand, there is the matter of history. And history tells us why we should sell. It highlights the risks of concentrated stock portfolios. And the benefits of diversification. Yet history is often ignored.

And so it’s happened again. As a result, some retirees with depleted retirement savings are returning to the workforce. Lives are being turned upside down.

You hate to see it happen. But it’s not that the risks were kept secret. To the contrary, they were in plain sight.

It makes me wonder what risks I might be taking that are in plain sight. What lessons from history am I ignoring?

There’s probably something.

The Boomers’ Last Hurrah

About 10,000 Baby Boomers (those born between 1945 and 1964) retire each and every day in the United States. And now a large number are reaching age 70 each and every day. Our last hurrah is about to unfold.

The aging of my generation will produce a couple of indisputable consequences. First, outside of health care, the massive wave of retirements will depress consumption — that is, spending — in a very significant way, which will limit growth and exert deflationary pressures.

Second, this retirement wave will exacerbate our pension mess by increasing pension and Social Security costs dramatically. This comes against a backdrop of underfunded plans.

Despite what the right-wing propaganda machine persistently spews forth, Social Security is a relatively easy fix. But the state and private pension fix isn’t.

State and corporate pension plans are grossly underfunded. Some have already failed. More failures are to come. In short, some will renege on their obligations and retirees will not be receiving the monthly checks they’re expecting. (The only “bright”spot for the pension plans is that Americans are now dying earlier, thereby reducing the plans’ payouts.)

Saving some of the public systems will require tax increases, which will further suppress consumption.

Third, equity prices and, therefore, investment portfolios, will take a hit. Take General Electric for example. GE’s underfunded pension hole is $31 billion. Yet the market has yet to fully price into the stock this huge deficit.

Many other companies have large unfunded pension commitments. This will not be good for asset values and, by extension, individuals’ and endowments’ portfolios. Less spending. Deflationary pressures.

There are 72 million Boomers in the U.S. My generation had a major impact on our economy and society as we moved through adulthood. Don’t expect the impact to be any less as we move through retirement. It’s just that the impact will be very, very different.