Tag Archives: Social Security

Making my bet…

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I mentioned a few weeks ago that I was considering taking the last of my retirement accounts – a long held Roth IRA – out of the hands of a new advisor and tending to it myself. Well, that transfer was finalized Friday afternoon. Exclusive of whatever a federal pension looks like in 12 or 13 years and discounting almost completely the idea that I’ll ever see a nickel of the cash I’ve poured into the Ponzi scheme that is Social Security, I’m now the chief cook and bottle washer for every last scrap of cash I’m counting on to keep me from living under a bridge and eating cat food in retirement.

I’m mostly feeling good about that decision. I’ll feel even better once I’ve unwound that account and gotten everything into low-fee, index tracking funds that just bump along into the upper right quadrant without needing a whole lot of thought or analysis. It’s not exotic or adventurous, but it’s the kind of thing that was good enough for Jack Bogle when he built Vanguard and for Warren Buffett to recommend for his wife. That should be good enough for me by any measure. 

So yeah, I’m going to go ahead and place a big (for me) bet that the international economic order isn’t going to blow itself apart in the next three decades… or if it does, there will be a 1950s style boom decade while it all gets put back together. Past performance, as they say, is not indicative of future results, but over the long term, I’m comfortable coming down on the side of people always wanting to make money and buy stuff. In fact I believe in free markets and free people so much, I’m staking the last third of my life on it.

Federal entitlements… 

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There’s a lot of tongue wagging about Republican efforts to fold, spindle, or mutilate federal entitlement programs like Social Security and Medicare. From the opposite side of the aisle, Democrats insist that the programs must be preserved in total or even expanded.

Having the conversation doesn’t feel unreasonable. In or around 2035, the Social Security trust fund will be exhausted. That will automatically trigger an estimated 24% reduction in benefits as the system will only be able to pay out as much money as it has coming in. 

If the system is going to be preserved in its current form, the solution is going to have to be some combination of raising the age of eligibility, decreasing benefits, and increasing payroll taxes. Just the hint of an honest discussion on those terms won’t make anyone in Congress the next winner of the most popular person in Washington contest. 

All of this, of course, is based on assuming we should preserve the system as it’s currently put together. I’m not entirely of the opinion that should be our goal. If my records are right (and they are), I’ve paid just north of $110,000 in Social Security payroll tax since I started working. If Uncle Sam were to give me the choice of accepting his pinky promise of some undefined benefit at an undefined time in the future or to cut me a check for that amount today to invest in the manner of my choice, I’d sign a quit claim on all future social security benefits and never look back.

Letting it sit in a low-cost index fund until I turn 65 would give me a far better return than anything the future U.S. Congress will want for me. This alternate future looks even rosier if I were allowed to regularly contribute an amount equal to my current social security taxes into that account. Over a span of 20 years that would end up being real money and more importantly, not in any way reliant on the largess of whatever bunch of crackpots and shysters happens to be running Congress in that distant future.

That won’t be an option, of course. The second President Bush brushed lightly against the idea of privatized accounts way back in 2004 and was roundly shouted down. The U.S. Government simply won’t want to give up direct control of a pot of money as big as Social Security. By the time I’m age eligible – in 2040 if the earliest age to claim isn’t raised – I fully expect Social Security will be yet another one of those government programs I’ve paid for my entire working life from which I won’t be qualified to draw any benefit. 

Seven months…

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About a week ago, I surpassed the point where the total amount I’ve socked away towards my defined contribution retirement plan (think 401k) this year finally outstripped the amount of federal taxes I’ve paid over the same period of time. For seven full months of every year, there’s more deducted towards the maintenance and upkeep of the federal government than there is for my own maintenance and upkeep in old age. By the end of the year, I’ll have stashed away about $600 more in my 401k equivalent than will be deducted in federal income tax.

If you extend this mental exercise to include Social Security and Medicare, the numbers get even more egregious since the reasonable assumption is to expect the big-ticket entitlement programs to either see payouts reduced, be means tested, or go extinct between now and the time I’ll be eligible to tap them as a source of income / benefits. It takes an awfully big leap of faith for someone in my age bracket to think of either Social Security or Medicare as anything other than an additional tax drag for which we’ll never get back out what we put in.

Uncle Sugar knows his flagship entitlement program is running out of cash. Social Security was “saved” in the 80s using a combination of accounting gimmicks and changing the “terms of service.” It’ll have to be “saved” again sometime between now and 2035, when the most recent projections say it will no longer be able to pay out its full promised benefit. Coincidently that’s right about the time I’ll otherwise be eligible to walk out the door after a 33-year career, so I have more than a passing interest in what fuckery our alleged leaders will get up to in order to avoid grabbing the political third rail with both hands.

It seems to me that we have a system intentionally designed to encourage reliance on big government generosity rather than personal responsibility and savings. God knows I’d be in a far better position now if every nickel taxed away under the FICA withholding had been invested conservatively in a broad market index fund rather than converted into a Ponzi-esque promissory note. Encouraging people to invest their own money responsibly, though, doesn’t keep them beholden to Uncle for doling out a meager old age pension. It’s easier to tax their income at the state and federal level, tack on a bunch of various “withholdings,” and make it incredibly challenging to carve out enough income over and above day-to-day bills to generate a credible, independent nest egg. It’s a sure way to guarantee people will scream bloody murder if they’re told their entitlements are in danger.

However it’s “fixed” in the future, I operate from the assumption that none of the changes will be to my benefit no matter how much cash I’ve poured into the machine over my working life. Like most games, this one is rigged in favor of the house and at this point, I just take it as a given that the money taxed away is lost and gone forever. The only advice I’ve found that feels applicable is to shelter what you can, stash as much as you can of what you can’t shelter, and accept that in all likelihood you’re going to need to self-finance your last act. It’s annoying as all hell, but once I accepted it as reality, it got a whole lot easier to plan for that particular future instead of just being pissed off… but rest assured it’s going to chap my ass every single time I see a pay stub and the reminder what’s going where and how deeply the political class have their hands in our collective pocket.

Azimuth check…

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Tomorrow I’m going to a class titled something like “Mid-Career Retirement Planning Seminar.” Aside from the less than creative naming, it took a while for what that really means to sink in to my thick skull. This coming January, I’ll have ten years on the job. Admittedly, that’s on the low side of the “mid-career” range, but it still doesn’t quite seem possible that I’ve been hanging out with Uncle Sam long enough for a decade to slip past more or less unnoticed. Apparently I have. As a reward, Uncle wants me to find out what it’s going to take to retire to something other than an old age of dining on cat food and choosing between paying my electric bill and buying my medication.

I’ve got my own theory on how to do that, of course, and a guy who makes good money to give me advice and keep an eye on my retirement nest egg, but I’m an open minded kind of guy (stop snickering). I’m open to hearing whatever brilliant ideas this bunch of contractors came up with. I’m going to give them the benefit of the doubt until someone mentions Social Security being the “third leg of the retirement stool”, or working past 70 to offset potential market losses and as a hedge against accidentally living long enough to hit the century mark. Since I’m under no delusion of Social Security being anything more than a happy memory by 2040 and the prospect of dropping dead at my desk isn’t particularly appealing, I think I’ll plan for the more traditional route.

Either way, tomorrow could be anything from passingly informative to mildly amusing. That’s mostly going to depend on the performance of whoever is giving the pitch. In any case, I’ll keep my snark at the ready in case it’s needed on short notice.

Planning for the end…

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I’ve been thinking alot about retirement this weekend. Not the actual act of filing my paperwork and getting my gold watch, but of all the preparation and planning that needs to go into making that moment happen. It’s the big picture questions that have been bothering me lately and that’s probably the internet’s fault for running adds screaming “will you have enough money to retire” on three sites I visited yesterday. I’m not a financial genius by any stretch of the imagination and I’m not even all that good at the day-to-day stuff. I’m not going to sell the truck for a bag full of magic beans or anything, but checking out my Target cart on any given visit will show there tends to be more wants than needs loaded in it.

I’m throwing a respectable percentage of my pre-tax salary into the Thrift Savings Plan, the government’s version of a 401(k) and have an IRA that isn’t as well funded as it probably should be. I’ve got the real estate portion of an investment strategy covered (even if the part of it that’s in Memphis will never be more than a tax deduction). Gold and precious metals were out of sight before I ever thought about stashing any money there. Still, I feel reasonably good about my allocations… but that doesn’t overcome the voice in the back of my head that keeps whispering “you should be doing more.”

The element that’s still working in my favor is the sorcerer’s elixer of investing: time. I’ll be 33 this summer. Under the current rules, it will be another 29 years until I can retire “early” and collect social security at age 62. If I wait for full retirement, now set at age 67, it’s another 34 years. Of course as social security implodes in the next two decades, I don’t have much expectation of those milestone ages meaning much. Even if the system is “saved,” I expect the age to collect will be much higher. Under any set of rules, it’s safe to assume that I’ll be working for at least as many years into the future as I’ve been alive and probably more. Assuming an uninterrupted federal career, I’ll meet my age and years of service requirement at age 57 in 2035. That’s a full five years before the current Social Security early option and 10 years before full retirement under the system. I don’t necessarily “have to” walk away at that point, but by that far off moment in 2035, I’d like to be well enough financed to do it if I wanted to. I’m pretty sure that is the working definition of having “F%#& you” money.

I suppose the good news is that I’ve got the better part of 30 years to throw money at this particular problem. The bad news is that it looks like baring a PowerBall win, I’ve got almost 30 years of bitching and complaining still ahead of me.

26 Years, 10 Months, 23 Days…

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On weekend mornings, the background noise in my houses is most often the FoxNews business report. One of their major talking points for the weekend just passed was the impending collapse of Social Security and what it would take to put that program on a solid fiduciary footing. If my calculations are correct, I can retire from government service in 26 years, 10 months, and 23 days. With that kind of time horizon, I don’t know why anyone in my age bracket would even contemplate Social Security in their calculations on what they need to do in order to retire comfortably. Without a massive infusion of cash from a tax increase, a dramatic reduction in benefits, and an increase in the age when the “pay out” begins, the program is, for all practical purposes, a dead man walking.

Even if some semblance of the program is salvaged, those of us in our 20s and 30s can count on receiving only a return of pennies on every dollar we “contribute” to the plan. Since it’s a government program, we don’t have the choice to “opt out” and invest that portion of our retirement into a sector that actually provides a positive return on investment. Effectively, every dollar our generation is forced to contribute to Social Security is a dollar that is lost to us and is nothing more than a tax by another name.

I was asked not long ago what I would do to fix the system… I don’t want to fix it. I want to tear the mother down. Sixty years ago, Social Security was a stop-gap measure that has been elevated to the lofty status of an entitlement. I don’t want to fix it. I want the government to allow me to be accountable for my own retirement planning and stay out of my way. I don’t want to fix it. I want Americans to start taking responsibility for what happens to them.

I don’t know how or when exactly we became a country of whiners, of men and women too infirm of mind to make our own decisions, of people terrified of the successes and failures that come with making your own decisions and being held accountable for them. If you are in the dawn of your career, it is your responsibility to make yourself smart on your options. Contribute to 401k, Roth, or other investment vehicles until it hurts. If you don’t make any provisions for how you plan to live out (and pay for) your golden years, don’t come bitching to me when you’re eating cat food and living under a bridge. I’ll be too busy playing golf to give a shit.