A headline in the Wall Street Journal this week read: "401(k)s Are Minting Millionaires." The article explained that rising stock market prices over the past three years have created hundreds and thousands of "moderate millionaires." Money manager Fidelity, for example, reported that 654,000 of their 401k clients had balances over 1 Million. Benefits manager Alright reported that 3.2% of more than three million accounts tracked had balances over 1 Million. T. Rowe Price reported that the number of retirement accounts over 1 Million had doubled from 2022 to 2023. Finally, investment giant Vanguard reported that of the millions of plans it administers, a record 88% were invested in the stock market.
A table in the article indicated that even the staid Dow Jones Industrial Average (DJIA) had grown over 40% in the past three years. It is not hard to imagine that the number of plans with balances in the 500,000 to 1,000,000 range have grown accordingly, and that these younger people will also be millionaires by the time they retire.
In an encyclical letter written shortly after he became Pope. the late Pope
Francis bemoaned income inequality and 'trickle down economic theories," but still said:
“It is not the task of the Pope to offer a detailed and complete analysis of contemporary reality, but I do exhort all the communities to an “ever watchful scrutiny of the signs of the times.”
As an ordinary Catholic I would like to offer an anecdotal and incomplete analysis of the signs of the times based on my own lifetime experience.
I have to confess that I am a Capitalist. I even remember the year I became a Capitalist. In 1965 I was hired, right out of graduate school, as an Instructor to teach History at Sacred Heart University, a small, recently opened institution of higher learning in Fairfield, Connecticut.
Sacred Heart could hardly be called a university in those days. It was a small liberal arts college with the distinction of being the only Catholic college in the country staffed and run entirely by laymen and women. When I arrived the school was only in its third year of existence and the faculty was still in the process of formation.
Anyway, a few weeks after classes started the Business Manager of the school approached me to ask if I wanted to sign up for the fledgling school’s retirement plan. He explained that if I agreed to allocate a small percentage of my pay toward retirement, the university would match my contribution.
My starting salary back in 1965 was about $6000 and I had a wife and one small child. Retirement was the last thing on my mind. Nevertheless, it seemed like a good deal especially since the university would match it. If I reduced my pay by 6% or $30 per month, the university would add that much to my account. Because it was a pre-tax contribution, the reduction in take home pay would only be about $25 per month.
After I agreed to sign up, the Business Manager told me that I would have a choice of where my small contributions would be invested. Sacred Heart University had joined with the great majority of colleges and universities in the country to utilize the services of the Teachers’ Retirement and Annuity Association (TIAA) to administer and manage its retirement plan. The university would deduct the contribution and send it along with their matching contribution to TIAA where it would be invested as I chose.
At that time, there were only two investment choices. The first was a fixed or guaranteed account like a bank account. The principal in the account was guaranteed by the insurance company and it would earn a fixed rate of interest. The second option was a variable account where my contributions would be invested in a diversified portfolio of common stock. In this account, there were no guarantees. The principal value would fluctuate according to the vagaries of the stock market, and there could be no predicting what the actual rate of return would be.
Like the majority of teachers I elected to split my retirement equally between the fixed and variable account. I was not a student of finance or the stock market, and just decided to do what most others seemed to be doing. I had no idea that in electing to put half in the variable account that I was becoming a Capitalist.
The variable account was a relatively new creation. It was a mutual fund but since it was run by an insurance company, it was called a variable annuity. After years of lobbying TIAA had finally convinced the Government to allow insurance companies to get into the booming mutual fund business. TIAA’s variable annuity fund was called the College Retirement Equity Fund (CREF), and it would in time become one of the largest pools of investment dollars in the world.
When my little contribution went into CREF each month, I became a part, although very small, owner of practically every major company in the USA. Whatever their political feelings or philosophy, thousands and thousands of other college teachers throughout the country were also becoming Capitalists. We all were becoming owners of a slice of the American pie. Moreover, the government agreed not to tax our contributions or their earnings until we retired.
Over the ensuing years the features of this type of retirement plan would be extended to a larger and larger segment of American workers. Self-employed individuals were allowed to use so-called Keogh plans. Corporations were allowed to set up tax favored 401k plans for their employees. Finally, the creation of IRAs enabled practically every American to have a stake in the American economy.
It’s true that few of us will have the income or assets of Rock stars like Taylor Swift, TV personalities like Oprah, or athletes like LeBron James. But more than anywhere else in the world, we do have the opportunity to acquire and keep property. We can even buy and sell shares in the companies we work for.
Trickle down economics may be an odious theory but I don’t call what has gone on in America in the past sixty years trickle down economics. It is something else and whatever you call it, it has worked to raise the standard of living in this country to the highest that has ever been seen in the world. Other countries have an emigration problem. Only we seem to have an immigration problem.
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Note: After seven years I left Sacred Heart University in 1972 at the age of 33. At the time, my retirement balance was about $10,000, but the only way I could get my hands on the money was to take a lifetime monthly income. Fifty three years later I am still receiving checks. The annual payout from the fixed account is about $500, and the payout from the variable account is now over $2000.
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