The 3-legged retirement stool lost a leg…or two
In just a generation, retirement planning has changed. Workers of days past planned on three sources of retirement income: the government, their employer, and personal savings. Today, those three sources are: personal savings, personal savings, and personal savings. Daunting, to say the least. And scary. Last I saw, Americans face a $6.6 trillion shortfall in retirement savings (source for this and other scary facts, see http://www.retirement-usa.org/facts?gclid=CMvijqPjsqQCFR9ciAodIw6Cyw).
Finding the right retirement income sources
What about the government? Will Social Security income go away? Hard to say. Social Security income is a huge political football that no one wants to drop or be accused of ending. As workers (a large electorate), we pay into the system and would like to see money out of the system. Yet, the Social Security statement itself discloses that it predicts to pay on 78% of benefits in 2037 (http://www.ssa.gov/mystatement/currentstatement.pdf). Even my clients in their late 50s don’t think they’ll get a dime of Social Security. Here’s my take: If it’s there, I want my clients to get their share and have that share be taxed as little as possible. That takes some planning now.
What about employers? Will employer pensions ever come back into vogue? Unlikely. They’re expensive and complicated to manage. Employers faced with rising costs (medical insurance being high on that list) are looking to give retirement income benefits as cheaply as possible. In years past that has meant the 401k, which for most highly compensated employees and business owners is inadequate. The 401k was never intended to be the sole retirement benefit. It was designed to supplement the pension offered. Even if my clients fund a 401k, we have to find alternate investment vehicles.
What about personal savings? No one feels they’re saving enough. That might be true. Only to make it worse, no one feels like they made any money with their investments in the last 10 years. There are many solutions here besides winning the lottery (and, by the way, if this is your solution, remember that you have to play to win – it’s always about the follow-through). One of the tricks, I believe, is to find retirement income sources that provide tax-free income. No, not the Roth IRA which most Bay Area families don’t quality to fund, and even if they did, they’d only be able to put away $5K. Business owners (especially of C corporations), in particular, have potentially one of the best strategies to make this happen. The other trick is to find non-stock market related investments.
The government might create a universal retirement funding plan. You might win the lottery. Or, you might just explore some of your personal savings options.