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Who Can You Count on For Retirement?

August 17, 2009

Remember the good old days when you worked for one company all your life and were rewarded for your loyalty with a nice pension and health benefits to help sustain you in your later years?  Add Social Security into the mix and it made for a pretty nice retirement.  

Those days are over.  There are a few companies still providing these benefits to employees, but only to the ones who have been grandfathered in.  Most large corporations and pretty much all smaller ones are doing everything they can to shift the burden of retirement to the employee. 

Thanks for Your Hard Work, But..

Photo by: navarzo2

Look at GM for example.  When you are losing approximately $4,100 per vehicle sold it’s no wonder you can’t compete with Toyota or Honda.  A big reason for this was due to high labor costs and large pension obligations.  In the restructuring of GM, one of the major issues they were looking at was the release of those pension obligations so they could reorganize, become lean and try to become a viable car company again.

I know someone personally who worked at a large steel company for 30 years, retired with a nice pension and health benefits only to have the company file for bankruptcy, slash his pension and dump his health insurance several years later.  What a way to say “Thanks for all your years of hard work!”  I’m surprised they didn’t ask for the watch back they gave him on his 30 year anniversary.

I’ll Just Live on Social Security

Photo by: Dumbeast

Social Security was signed into law in August 14, 1935 by President Roosevelt as a response to the Great Depression and a desire to provide “economic security” to a broad number of people.  According to Wikipedia, “In 2004 the U.S. Social Security system paid out almost $500 billion in benefits.   By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid.”

What began as a program to provide help to those underfunded for retirement has turned out to be one of the largest social assistance programs ever created.  The problem lies in the fact that we have fewer people paying into the system than are taking from it thus creating a deficit.  In fact, in early May, the Associated Press reported this about Social Security and Medicare:

The financial health of Social Security and Medicare, the government’s two biggest benefit programs, worsened in the past year because of the severe recession.Trustees of the two programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.

Yikes!  I don’t know about you, but this doesn’t bolster any confidence in the program and certainly makes me think about other ways to fund my retirement. 

Retirement: It’s Up To You!

Photo by: Rocketeer

The bottom line in all of this is the fact that when it comes to your dreams, desires and goals, retirement is up to you.  We obviously cannot rely on others to make our goals happen, we need to step up and start getting our finances in order so that we can fund our own retirement. 

What steps can you take to start getting your retirement and financial house in order?  The best place to start is figuring out how much you need in retirement.  Once you have an idea of what it will take to support yourself, you can work your way backwards to figure out how much you need to be saving. 

To get an idea of how much you can save for retirement you should probably develop a budget  and look for expenses you can cut back on.  Use that “found money” to help save into a retirement account like a Roth IRA

By being frugal, simplifying your lifestyle, saving aggressively and choosing your investments wisely, you can help get on track for your retirement goals so that when Social Security stops sending you checks or your company no longer provides you with a pension you can still manage to get by on your own.  After all, you have to count on yourself to get your retirement funded properly. 

What About You?

Have you had experience with companies forgoing their pension obligations?  Are you confident that Social Security will be a piece of the pie for your retirement?  What steps have you taken to get your retirement funded properly?

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13 Comments leave one →
  1. August 17, 2009 1:51 pm

    I’m sure by the time I retire social security or any other government funding that I have already paid for will be non-existant! I’m maxing out my 401k contributions and will soon open a Roth IRA as well.

    In my opinion, I’d rather plan for my retirement on my own (I know I’m dependable) and if I get government assistance in my older age that will be a nice added bonus. However, if I depend only on the government and they fail me, I’ll end up in a creek without a paddle.

    • August 18, 2009 6:49 am

      I agree, government assistance would be icing on the cake. Plan without it and celebrate if you get it!

  2. Will permalink
    August 17, 2009 4:55 pm

    I’m with Ashley in counting on my own contributions alone.

    I’m less pessimistic about Social Security though. The CBO estimates that the SS fund will last through 2052. Whether the fund depletes in 2037 or 2052, the government will still be able to pay out 75% of benefits after that based on yearly income.

    That gives the government plenty of time to “fix” things, either by reducing benefits to the 75% level earlier, increasing the retirement age, or increasing taxes slightly.

    • August 18, 2009 6:51 am

      Will, I admire your optimism. I hope you are right. I’m afraid “fixing it” will require more than just a slight increase in taxes, but we’ll see.

      • Will permalink
        August 18, 2009 10:09 am

        According to the CBO, SS could be fully funded through 2100 by repealing the Bush tax cuts on those earning $500,000 or more. That seems like a slight increase to me.

        My expectation is that they’ll push back retirement age, so even though I think that I’ll eventually get SS I’m not counting on it since I don’t know when I’ll start getting it.

  3. August 17, 2009 10:10 pm

    I’ve recently had an experience where my company is no longer matching contributions for my 401K which is probably common in today’s economic climate. To your point, you can’t depend on anyone else to fund your retirement for you. Doing our part, includes getting out of debt and managing money wisely to make available the necessary funds for this type of investing.

    • August 17, 2009 10:39 pm

      Unfortunately many companies are forgoing the match on contributions. You are right though, being wise with the money and getting out of debt helps tremendously!

  4. August 18, 2009 12:18 pm

    I think the increased revenue that is being counted on from the repeal of tax cuts the “wealthy” currently have will not amount to much. The wealthy can afford to pay people to figure out how to reduce their tax burden. As a result, the amount of tax that the wealthy pay, will continue to be low, but the productivity of that wealth will be diminished, because they’re spending part of their wealth on figuring out how to reduce their tax obligation.

    It would be much better, and completely fair to eliminate the graduated income tax all together. A flat rate that everyone pays would simplify taxes for everyone.

    As it stands, it takes some really educated people to even begin to understand the tax code, and even those with the best of intentions can find themselves on the wrong side of the IRS.

    Bottom line is that the tax code needs to be scrapped!

  5. August 24, 2009 8:48 pm

    I have never understood why a company should keep paying/prvide benefits to people who no longer work for the company. What they should have done is make regular contributions into a pension scheme held by trustees independent of the company – this gives the workers much greater protection in the event that the company gets into financial difficulties and removes the post employment cost to shareholders and other stakeholders in the company.

    As to government pensions, it has been well known since at least the 1980s that the pay as you go system used in many countries was unsustainable – but very few countries did what was necessary to address the issue (Australia was one which introduced compulsory savings which is already showing good results for the country). Taxing the rich (mostly middle class actually) at higher rates will not be enough to bridge the gap.

    The bottom line: do it yourself or accept the fact that you will spend yoru old age living in comparative poverty.

  6. January 11, 2013 6:47 am

    Today, I went to the beach front with my kids. I found a sea shell and gave it to my
    4 year old daughter and said “You can hear the ocean if you put this to your ear.” She placed the shell
    to her ear and screamed. There was a hermit crab
    inside and it pinched her ear. She never wants to go back!

    LoL I know this is entirely off topic but I had to tell someone!

Trackbacks

  1. One Money Design Weekly Round Up: Blogger Community Addition | One Money Design
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