Why It's More Important Than Ever to Create Your Own Retirement Solution

May.15.11 | About: Guggenheim Enhanced (GSY)

Ezra Klein had a post titled Eight Facts and Three Thoughts About Social Security. One of the thoughts was particularly interesting for several reasons:

Most opinion elites — Simpson being one good example, and the U.S. Senate being another — show a very strong preference for working as long as possible. Most Americans show a very strong preference for retiring as early as possible. Elites who enjoy their jobs need to be very careful about generalizing their experience to people who don’t enjoy their jobs. More bluntly: Raising the retirement age is the worst of all possible options for reforming Social Security. It’s not only regressive, but it also falls most heavily on those with the worst jobs. Means-testing would be much better.

The notion of so called "opinion elites" preferring to work longer while most Americans want to retire as early as they can rings true intuitively even if not easily quantified. But it is in this part of Klein's comment where a lot of progress can be made, maybe the most progress. Blending a couple of his facts together (read the post for more detail): Social Security replaces 40% of pre-retirement income, without Social Security 45% of seniors would be below the poverty line; even with it there are still 10% of seniors below the poverty line.

Klein makes mention of something we all know, that 401K balances and the like are disastrously low versus where they should be to give most people a shot at supplementing retirement income. A $60,000 balance upon retiring either becomes an emergency fund or a year or two of expenses, not a 30 year source of income.

Klein thinks raising the retirement age is the worst thing that can be done as noted above and maybe he is correct, but the totality of the situation with regard to Social Security/Medicare does, IMO, mean that something somewhere will have to give. Maybe more than one something will have to give. He seems to favor means testing and paying more than on the first $106,000 of income. My idea, that I have mentioned before, is no cap on qualified contributions with the trade-offs being a phase-out of the benefit and continuing to pay the current $17,000 in.

The social solution requires that more of the population will have to make the effort to create their own solution for post retirement income. This line of discussion has the potential to be insensitive so apologies for that. I realize not everyone has the self-awareness, inclination or opportunity to ponder and then implement their own solution. You, reading a stock market blog, are more likely to have the self-awareness, inclination and opportunity to ponder and implement a solution than most of the population. Another related point is that you are also more likely to be a person of influence in your various social dynamics on financial matters and thus in a position to create more awareness of these points than would otherwise exist--sort of helping to promote financial literacy.

For as much as I write about this, I obviously find this to be both intellectually interesting and also very important for many people. In the context of talking about working after "retirement" the objections usually focus on not wanting to stand all day in some sort of retail store which is understandable. We all have things that we would never want to do. But if that is true then it makes the argument for figuring out what you want to do, then figuring out how to make that happen and do so with enough time so that if your first attempt does not work out you can recalibrate and try again or move onto something else.

The existence of the internet removes one barrier that has come up before, that being health. Clearly not all of us will be fit enough to fight a wildfire at age 76 like my neighbor with the backhoe (he worked on the fireline for the last big fire we had in 2007) and even if someone does not get around at 65 like they did when they were 35 they can harness their brain and the unlimited possibilities of the internet to figure something out.

This line of thinking is something that I think is very positive which contrasts with what appears to be going on with savings rates, entitlement programs, pension underfunding and whatever else you want to include in the conversation. Savings rates are in our control (or they should be) but the other two are not. One of my hot buttons is having my financial fate dictated by other people. This is unacceptable to me so I am motivated to do all I can to avoid that, which includes more than one source of income and doing work that I hope I can do until I'm 100. (I guess Klein would call me an opinion elite?)

A reorientation wherein I advocate that people create their own solution is not new on this site and while not everyone can do this, there are folks who can and hopefully will.