Entrust Your Retirement to ……Yourself!

Dick-Baynton-Print-MugIf we are responsible for our own subsistence, doesn’t that imply that the obligation continues throughout our working years and retirement?

No government agency or company can make good on retirement plans that depend on a ponzi scheme like Social Security. Under present laws and rules, SS funding serving 46.6 million citizens will be reduced starting in about 20 years, the 10.9 million SS disability checks are estimated to come to a halt in about 2016 and the Medicare healthcare program for the elderly is projected to default on their obligations in the next dozen years or so.

Government officials, unable to deal with economic, demographic and political shifts in our culture, are bereft of any solutions.

Low interest rates sponsored by the government since 2008 to encourage commercial activity have negatively affected the low interest rates on investments. This has caused retirement funds comprised of worker and employer contributions to shrink.

When many of these investments were initiated, many actuaries planned the rate of return at 7%. Because rates fell during the recession, most funds were yielding as little as 2% to 5%. Some funds were losing money.

Here is the kind of difference such investments make: $100,000 invested at 7% becomes $201,000 after 10 years; the same $100,000 invested at 4% for 10 years results in a total pot of about $149,000. This is a lost opportunity of $51,000 or shrinkage of about 25% of the retirement fund investment.

Politicians have made promises at all levels (city, county, state, national) that they simply could not keep. When the pension payments came due, the retired government officials were basking in beach chairs absorbing the sun and the benefits they allocated for themselves. Various municipalities like Detroit and Stockton have been forced into bankruptcy due to unfunded pension liabilities and corporate and union plans have fared no better.

Chicago’s long-time Mayor Daley gamed the system to receive a $183,000 annual retirement benefit. In Minnesota, state legislators add per diem expenses to increase retirement benefits by 25% and a long-serving Texas state representative making $7,200 annually as a part-time legislator is guaranteed an annual pension of $125,000.

The principal difference between private and public retirement funds is that shortages in public pensions are loaded onto the backs of taxpayers to fix poor judgments and bad decisions. Private pensions become the responsibility of shareholders. (The Employee Retirement Income Security Act (ERISA) of 1974 has established The Pension Benefit Guaranty Corporation (PBGC) to cover pension funds compromised by failed corporations.)

As further evidence of the fragility of pension funds, Ford is shoring up its fund by $5 billion, the Virginia Retirement Fund was fully funded in 2001 but is now $24 billion in the hole, AT&T has just supplemented its plan with a $9.5 billion contribution, the California Teachers Fund is short $65 billion, and government workers in California will have higher retirement ages and smaller pensions starting January 2014. One of the critical components of the GM bankruptcy was entitlements that were unfunded

In addition to healthcare insurance, there are two critical needs for retirement; a spending budget and a matching income summary. We must develop a budget featuring how much we will spend and how much we will receive from all sources such as Social Security, 401(k) or other retirement plans, part or full time work, and income from investments in securities and/or real estate.

In a study by the Conference Board, 62% of US workers between the ages of 45 and 60 now plan to postpone retirement. Just two years ago, 42% of workers planned to extend their working years.

In order to sustain equitable economic growth in the private sector and to retain a tax base that encourages investment and jobs in an environment that inspires self-determination, each of us must take charge of funding for our own retirement.

– Dick Baynton

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