We were all sold a bill of goods
All the advice that we received on how to plan for our retirement was wrong.
Our parents, school counselors, financial advisers, newspapers, books, and peers all told us to
►Study hard to get a good job. Unfortunately, what we learned at school became obsolete later in the market place and as we got older our income stagnated.
►Get a good job. Often the good jobs weren’t there – especially if we were laid off late in life
►Work hard, be loyal, and you will get ahead. Unfortunately the company merged and you were let go.
►Save your money in the bank. Alas the fees were high and inflation ate away your savings and the interest rates were too low.
►Participate in the company pension plan. Sadly in many cases the company went bust due to globalization and / or it borrowed the pension funds and never paid it back. Many companies just canceled the pensions altogether. Too many of us just lost our pension when we changed jobs because we were not fully invested.
►Invest in a 401(k) investment program. In most cases, the last stock market crash destroyed up to 50% of our 401(k) value and high fees took the rest. So that didn’t work out well either.
►Depend on Social Security. The rules have been changed and benefits have been cut. Social Security payments were never that great to begin with.
►Invest in a good house. But the neighborhood has changed and the housing crash also wiped out a great deal of our equity.
►Stay out of debt. Although inflation came down the interest rates on credit cards stayed high.
Almost all of us thought that we would be “entitled” to retire after all these years of hard work?
But the truth is
No one is “entitled” to retirement.
In fact in many countries there is no such thing as retirement. Seniors continue to work forever and most have to be supported by their children (which is also often the law).
The government in many countries offers little or no help with retirement.
But in the United States it was supposed to be different.
Social Security Act of 1935
In the USA the concept of a government “retirement” program was started during the Great Depression in 1935 when the Social Security Act was passed.
The real purpose of the Social Security Act was not to provide a pension to retirees as most of us think but to push older people out of the workforce in order to make room for younger workers and cure the high unemployment problem.
And it did just that!
The original idea was that workers would be taxed in a forced savings program. Then the money would be invested like insurance companies do in “safe” government bonds. It was thought that the investment gains would be enough to pay us our pensions when we retired. It didn’t work out that way.
Moreover, very few people lived more than 2 or 3 years beyond retirement age in those days so the anticipated payout would not be that much. Or so the government thought.
But it did not work out that way. The Social Security system is actually going broke.
Where did all the Social Security money go?
For years Social Security taxed younger workers and used that money to pay older retirees. There never were enough gains on investments to pay retirees so the money had to be taken from those working.
There used to be 10 workers paying Social Security taxes for every retiree. Now there are only 2 workers paying taxes for each retiree. Our generation had fewer children than our parents. As a result there is a shortage of younger workers that can be taxed to pay the growing number of retirees.
There are now more retirees than the program ever envisioned due to better health and longevity*. So we are collecting Social Security for a longer period of time.
To make matters worse, the federal government started “borrowing” the Social Security funds to use for other purposes instead of raising taxes.
They have left Social Security with a big fat I.O.U.
So to avoid a crisis Congress has had to raise the retirement age, reduce the benefits, and change the rules to order to pay less money to retirees.
In other words, retirees have been left holding the bag for governmental irresponsibility.
Many of us are living way beyond retirement age.
And in addition to all that Social Security is also paying money to people who are not strictly retirees – such as spouses (widows / widowers), children of disabled retirees and the disabled. In order to pay them Congress decided to take the money from Social Security rather than raise taxes elsewhere.
In addition Social Security payments are not keeping up with inflation.
Most individuals with high incomes have also avoided paying a lot of Social Security taxes and yet they are still eligible to collect benefits.
* Over 57 million people receive Social Security benefits each month. That is one out of every six people in the United States. In other words, in one household out of every four someone is receiving Social Security benefits.