I’m pretty confident I’ll be able to provide for myself in retirement. I’m frugal, self sufficient, and personally responsible. Additionally, a decent income certainly doesn’t detract from my ability to accumulate financial wealth.
Although I believe the government has its place in our lives, I’ve never seen it as my provider. Not only is government woefully incompetent and wasteful at times, but it’s also bought and paid for by folks with way more money than I’ll ever have.
I often engage in frequent, heated discussions about everything from health care reform to Social Security with Sally Socialist, a close friend of mine. In summary, she believes the American people were taken for a long, rough ride by Wall Street.
According to Sally, 30 years from now, we’re going to look up and realize that the best thing corporations could’ve done for the American worker was continue to fund pension plans. The defined contribution plan, i.e., 401(k), is a joke. Gen X’ers, Gen Y’ers, you’ve been duped!
Sally tells me we won’t be able to care for ourselves because not only will we have no pension, but Social Security will have dried up. (Last I heard, Social Security is set to run out of money by 2037.) Stock market returns won’t be enough to sustain us in our old age.
Well, I don’t believe Sally. The stock market goes up. The stock market goes down. That’s the way it works. Just because it hasn’t done well for the last ten years doesn’t mean it’s in a permanent state of stagnation.
Buuuuuut, I can’t help but wonder whether Sally’s arguments are valid. Anything is possible, right? What if it is impractical to invest enough money over your working life to replace your income in retirement?
First, I don’t think Social Security is going anywhere. Members of congress don’t have the collective cojones to make any significant cuts to that program.
- Do I think we should increase the full retirement age above 67?
- Should we remove the cap on wages that are subject to Social Security taxes?
- Should there be means testing?
- Should benefits be cut?
- Should all who are able contribute to a personal retirement account?
Wanna know what I say to those questions? Yes, yes, yes, yes, yes. I don’t think Social Security should be eliminated, but I also don’t think government should shoulder the responsibility as sole funder of your retirement for a quarter of your life. That’s where 401(k)s, IRAs, paid for primary residences, full and part-time jobs come in. Can your kids pitch in to help with your living expenses? Social Security should be S.U.P.P.L.E.M.E.N.T.A.L.
Sally calls me a conservative. I can see how someone would think that. I tell ya. You ask the Heritage Foundation for one free pocket constitution, and you somehow end up on Sean Hannity’s mailing list. Ick!
Neither Sally or I know what will be 30 or 40 years from now, but we both plan. My retirement plan consists primarily of investing in stocks and bonds while maintaining a debt free life. Sally’s plan is a bit different, but worth noting.
As I indicated earlier, Sally hates Wall Street and loves pensions. Unfortunately, she doesn’t have a pension. Since she doesn’t trust the financial markets, she doesn’t invest in them. Part of Sally’s retirement plan consists of continuing to live in her 4-bedroom house while renting the basement as a one-bedroom apartment. Renting 3 bedrooms in the main house would allow Sally to have the entire mortgage and all utilities covered by her tenants. She’d even have money left over to use at her discretion.
Of course I still think I’m right. However, I don’t think Sally is wrong. Even though Sally and I don’t always see eye to eye, I fully support her on this one. If Sally doesn’t accept conventional retirement wisdom, then she shouldn’t base her investment decisions on it.
What do you think? How are you preparing for your retirement?