Gary Might Make You Feel Bad About Retirement
By Gary Silverman, CFP®
Retirement in the United States, from a financial standpoint, is full of pitfalls. Some of the other countries in the world have a mixture of different programs, but most have nothing at all. Over the next few weeks, I will discuss some of the ways we prepare for retirement here and identify their pros and cons. (Spoiler: I’m either a realist or really negative, depending on where you stand.) I’ll then propose a system that no one would like, but that might work-- if it had a snowball’s chance in hell of coming about. It should be fun.
That there are problems with the retirement plans of many Americans is not breaking news. That said, the number of people confident in their ability to retire is not dismal; we are a rather optimistic people who have a great confidence in our abilities. But when you consider that most think they will die long before the averages say, and that many think a certain sized pot of money will last longer than it actually can (unless they get lucky), I wonder about the logic of that confidence and optimism.
There are currently three main pillars to our retirement savings. First: employer contributed plans, and the generous grandparent of this, the pension. Other than staying employed, there are no requirements to “save” this way, it’s hard to mess it up (since you, the employee, have no control), and it’s “guaranteed” (notice the “air quotes”).
Although you may be thinking about the 401(k) or 403(b) plans as employer contributed, I place this more in my second area: personal savings. For those plans, all or most of the real saving is done by you. In addition to your at-work plan, personal savings includes your IRAs and any other way you put aside assets for retirement. The overreaching goal here is finding the money to save, actually saving it, investing it wisely, and not spending it prior to retirement.
Then there is Social Security. Yes, it’s pretty much a pension plan, and yes, it is funded in part by both you and your employer (only you if you are self-employed), but you don’t really have a choice. You can’t mess up the investments, and it won’t run out until you die. Lots of benefits—little control.
Of course, we’ll have to cover our expenses with this money. This can be done well… or horribly. Two of the biggest drains, especially later in life, are healthcare and long-term care. While both political parties say they will give us better-than-world-class coverage for low, affordable rates, I’ve not seen this be even close to universal for our population. As for long-term care, no one has figured out a good way to cover the masses.
So, stay tuned as I dig into each of these areas more over the coming weeks and give my commentary, outlook, and recommendations for each. And you can decide if my system could ever work in the real world.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.