Thursday, April 10, 2014

What's your retirement plan?

After a long hectic day of fighting crime while maintaining my secret identity as a mild mannered accounting IT analyst I was minding my own business when out of the blue the batcave emergency phone rang. As most people don't have that number and those that do know not to bother me during the time when the phone rang, against my usual instincts I decided to answer it. It was indeed an emergency. An older maternal relative, one of my few remaining ones, needed help. She had been hesitant to call as on both sides of my family I have over the years quite deliberately cultivated a reputation as someone who can be a little cold when it comes to money. I'll help if I must but there's a 100% chance I'm going to want to know how you got yourself in a spot where you need my help, if I can ever expect this money back, and what is your plan so that I don't have to give/loan you my money again. I like my money more than I like my little cousins, nieces and nephews. And I love them very much indeed. Ok, that's hyperbole. But not by all that much. I'm not going to put all my relative's business in the street as that would be wrong and is not really the point of this post anyway. I did decide to assist her and have no expectation of seeing that money again. I decided to help because she is a) far past retirement age, b) is a woman, and c) had no one else but my brother and I to turn to. Younger and especially male relatives probably would have not gotten assistance. That may be "sexist" or "ageist" but it is what it is. Enough said on that.

What inspired me to write this post was that in helping my relative and finding out some of her story I was inspired to take a honest look at my own wealth (or relative lack thereof) and future retirement plans. I'm doing much better than I was five years ago but am definitely not where I'd thought I be twenty years ago. Like the saying goes, life is what happens while you're making other plans.

Traditionally your retirement package was supposed to be akin to a three legged stool. You were supposed to be able to rely on a) Social Security b) company pension and c) personal savings and investments. To stretch the analogy somewhat that stool could be covered in the security blanket of a paid off house, affordable health care insurance for seniors and maybe an annuity or two. So during your golden years, you should ideally be able to enjoy a lifestyle close to if not better than what you had when you were scuffling and struggling in your youthful days. Things didn't work out that way for my relative. Things probably won't work out that way for a lot of people if the data means anything. There are a lot of reasons that saving is not as "easy" as it would have been for the generations that preceded mine. The two biggest reasons in my opinion are a stagnant real income and acceptance of easy credit to buy almost everything. Real income is stagnant because of globalization, destruction of unions, automation and importation of cheap labor at both the high end and low end of the job market. There are fixes to this of course but they are outside of what I want to write about today. In order to deal with that loss of income people have adapted to using credit cards for everything and worse, carrying balances. When you do this not only do you buy stuff you probably wouldn't buy if you had to pay for it with cash, but you also waste your money on penalties, fees and interest charges. 
Roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings, according to a survey released by Monday.
Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.
Last week, online lender CashNetUSA said 22% of the 1,000 people it recently surveyed had less than $100 in savings to cover an emergency, while 46% had less than $800. After paying debts and taking care of housing, car and child care-related expenses, the respondents said there just isn't enough money left over for saving more.
Fewer companies provide pensions these days, having largely replaced them with 401K plans. The issue with 401K's is that not only are many people really not all that savvy investors but more importantly the risk and liability of market swings have been switched from companies to employees. Risk is fine and perhaps even a requirement when you're young. But when I retire I would prefer the certainty of knowing I will have a yearly pension payment of $XX,000 until I die rather than be exposed to market risk. Unsurprisingly the big shots at companies, the CEO's and other company officers tend to still have pensions and quite lucrative separation agreements.

We've discussed Social Security before. Although AFAIK the program is still actuarially sound for at least the next few decades, it likely will need some adjustments. It will continue to be attacked both by conservatives who never liked it in the first place and strangely enough liberals or "centrists" looking to make grand bargains. Do I think the program will pay out the same benefits when I get to the front of the line as it does currently? I've never been a lucky man so I would tend to doubt it. We shall see. I just went over to the SSA website to calculate my expected retirement benefit. It was nice, but was hardly enough to keep me even close to my current standard of living.
Finally there is personal savings. Compared to the other two legs of retirement this is the easiest for the individual to control. You get to make decisions on how you spend your money. You also get to make decisions on what career you pursue and/or what second job or other business opportunity you perform. And if you're young, as I no longer am, you have years and years and years to work and transform that income into wealth. Sadly many people ignore personal savings and spend money as if they're millionaires. They carry balances on credit cards. They buy things that they've lost interest in a year later. By the time they reach the point where retirement is no longer a theoretical concern they find that years of living paycheck to paycheck have taken their toll. So my relative's emergency just reminded me that I must do a better job of saving the money I earn at my corporate job, continue to earn and build a financial life outside of my twice a month paycheck, and look for ways to cut unnecessary spending. I don't think two or three decades down the line there will be any cavalry riding over the hill to save me from financial mistakes or unforeseen setbacks. That's a sobering feeling but also strangely enough an exhilarating one. I have to make the moves now to guarantee that I don't wind up broke and homeless. It's all on me.


Are you content with your level of wealth/savings?

Do you think you are or will be ready for retirement?

If you were flat on your back financially do you have people who would help?

Do you often help relatives out financially?

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