Money Management and the Economy

Friday, October 1, 2010

Social Security and Retirement

The current media narrative is that "social security" is not reliable. It has gotten to the point that this urban myth has become an accepted part of unrelated discussions of retirement. Here is one on article on retirement planning that is an example. This repeated media driven mantra has lead many young people to adopt the attitude that, as one told me 15 years ago, "I don't expect to get any social security."

But in fact that is wrong. Even once the social security trust fund is gone in 30 years, continued revenue is expected to cover at least 75% of the projected benefits. And even that is based on projections that assume US workers wages will continue to represent a declining proportion of any increases in productivity. And reducing benefits to 75% of those promised is only one of many options, if in fact social security taxes don't cover all the promised benefits.

The reality is that for many people Social Security is the ONLY reliable leg of the stool. Personal savings are subject to the vagaries of investment decisions and the market. Most people do not have a pension and many don't even get any employer contributions to a 401k.

The real threat to social security benefits is political. There is a determined effort to gut social security and the people who oppose it have been very successful in portraying the system as insolvent.

The problem is not that social security is insolvent or ever going to be. Its that the money borrowed from the social security trust fund will have to be paid back, probably from income taxes or borrowing elsewhere. Just as surpluses have been used to reduce income taxes and the deficit over the past decade

The income tax is one of the few taxes that takes a bigger bite out of the wealthy than it does the middle class. And the wealthy are also the least dependent on Social Security for financial security in their retirement. Most of the nation's decision makers, opinion makers in the mainstream media and economists belong to the class of people that has more to lose from paying back the loans from social security than they have to gain from a secure retirement fund.

So, there is a lot of political pressure to avoid having to repay the loans from the Social Security Trust Fund. For the last 25 years, wage earners have been paying higher taxes on their income than necessary to support the benefits paid to current recipients. The reason for those extra payments was to cover the retirement needs of the baby boomer demographic bubble. In essence, we have been paying both retired workers benefits and fronting some of the cost of our own.

Most of this article above addresses that same audience. For many people their first career was about making money, making money and making money. "Fulfillment" was not part of the formula because, with their talents and training, they didn't have the option of a job that was both fulfilling and provided a living. They got their fulfillment from things they did that did not require an economic payback.

For those folks, a majority of Americans I think, retirement has always been about ending un-fulfilling work and having more time for the fulfilling parts of their life. And that really is about having enough money so that earning income is no longer the deciding factor in how time is spent.

Making a location decision based on finances is exactly the kind of "money oriented" decision that the article decried earlier in the article. Rather than moving to save money, the question should by where do you want to live and how will you have enough money to do that. That may mean moving to a warmer climate and adopting a new set of friends and activities. But, just as likely, it means staying in your current community with established friendships and/or close to family.

The suggestion of moving somewhere for tax advantages is plainly silly. Even on a list of financial considerations, taxes ought to be close to the last item. On a list of what will provide a fulfilling retirement, it doesn't merit more than an asterisk.

The author is right in philosophy. Money is just a tool, not the focus, for having a rich life. But having said that, his specific suggestions head off in the opposite direction. If you want a fulfilling retirement, live a fulfilling life. Then make your retirement more of the same.

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