I've devoted the last couple of entries to thoughts about my next big financial goal, still several years down the road: retirement.  This being a blog and not a business plan, I plead guilty to being a bit facile.  But it's a serious issue.

According to the Employee Benefit Research Institute, just 14 percent of workers are very confident that they will have enough money to live comfortably in retirement.  60 percent reported that the total value of their household's savings and investments is less than $25,000.  (This doesn't include the value of their primary residences.  It should go without saying that your house is a shelter, not an investment.)  

In 1991, just 11 percent of workers expected to retire after age 65.  That number is now 37 percent.  However, half of current retirees say that they left the work force unexpectedly due to downsizing or disability.

Magical thinking abounds.  56 percent of workers expect to receive benefits from a defined benefit plan, but only a third actually have such a plan with a current or former employer.  56 percent also report that neither they nor their spouse have tried to calculate how much money they will need to live comfortably in retirement.  

For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?  Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish. (Luke 14:28-30)

And we don't know who to ask for advice.  Who can blame us?  That guy who caused the $2 billion loss at JP Morgan Chase was probably the smartest guy in the room.  There are bunches of books on the market with a wide range of advice - which is right?  There are bunches of websites and magazines, most offering only the most superficial tips (save more) or touting particular stocks, funds, or commodities.  

It all feels an awful lot like gambling.  

Is the 401k a failure?  Well, it's worked for some people, and in fact it's working for the Unindicted Co-Conspirator and me. But there are a lot of people who, through bad decisions or just bad luck, face a bleak future when they become too old to work.  And it really doesn't work very well at all for low-income workers.



That's where Social Security comes in.  Conservative politicians like Rick Perry and George W. Bush have decried it as a fraud, a Ponzi scheme.  Not to put too fine a point on it, they're lying.  

Social Security is an enforced savings program to put an income floor to keep people from destitution.  Your benefit is based on how many years you worked and the average rate of wage growth. Yes, it will run short of funds in a couple decades, but that's easily remedied with a small tax hike and a slow incremental adjustment of the retirement age to reflect current life expectancy.  Most importantly, we need to stop playing with it.  The cynical "payroll tax cut" we've enjoyed for the past couple years is just eating the Social Security seed corn.  It will have to be made up.  

You’d prefer to live in a country where it’s every man for himself and devil take the hindmost? Tough - that’s not America. Social Security isn’t perfect, but it’s the best we’ve got.
 
Boston College has an interesting and informative report about Social Security (and retirement in general) here.

Time Magazine, for what it's worth, has an article about reforming the 401k to include some sort of guaranteed benefit here.

Tomorrow I'm going to take a break from all this handwringing and write about something more fun.  On Friday, I will share the secret of my success.