Sunday, April 19, 2009

The impossible dream...

For the last few years, I have been comparing my financial situation to my father's at my age, and it is now clear my end game is not going to resemble his: quitting at 58, moving to Florida, wearing lots of double-knit pants.  In fact, I am beginning to suspect the popular "retirement" model was an anomaly created by a unique set of circumstances that could prove to be a cultural "one-off".

There are several reasons for this. Primarily the initiation of the social programs like Social Security and especially Medicare were enormous windfalls for generations before me, since their contribution was small relative to their payout.  Remember it is a transfer-type system.

The costs of these payments have grown beyond forecasts as the system is tested by folks living longer and skyrocketing medical expenses. It is now clear that sometime in the foreseeable future, those generous benefits will have to be modified.

But it is not just government action that promoted the idea we would all have comfortable, independent end-lives in a warm climate with ample resources.  It was also the complete faith in the idea of pensions per se, and that they were bullet-proof.
Liberals are very good at pointing out why you are not very good at saving for your future:  you are not an actuarial universe.  If you make the mistake, as my mother did, of retiring into the teeth of a financial crisis, you will find your life savings sadly depleted.  Also, since you probably have some skill other than being a professional financial planner, you may make stupid decisions, and/or get bullyragged into one by a dishonest broker.

Liberals tend to prefer "your company" to "you", but many recognize that companies are also problematic, because if something goes wrong with the pension fund, employees can be left with . . . well, if not "nothing", certainly "a lot less than they expected".  Sound financial planning dictates that your retirement and your paycheck should not both be dependent on a single company--which is why everyone tells you not to put your 401 (k) into your company's stock. 

That's why we need the government to save for us!  Conservatives have this taped:  the government is
also terrible at saving.

There is no entity that is capable of ensuring that everyone can consume a serene twenty or thirty years of leisure at the end of their lives.  And we may be making people worse off by pretending that there is.    Perhaps instead of looking for a magic system, we could seek a more flexible and ad-hoc approach--abolishing state pensions, say, and rolling them into a more generous disability benefit.

That's not politically possible, of course.  What is politically possible is grinding along this path until the problem becomes too big to fix.  [More]

We too easily forget the idea of "retirement" is a relatively new social construct. Until very recently people worked until they basically couldn't, even if that work was in the household.  Without government paid care, oldsters relied on family when health failed.

In fact, the basic pension plan for most was children.  Obviously, that scheme had practical risks, not the least of which was having children who survived to adulthood and cared for you.

Then we got the idea of financial security to make this end time a much-anticipated reward. But as Megan points out, we now are starting to rethink whether the time frame we are considering makes such a plan reasonably certain.  We have discovered too many sure things clearly aren't, such as asset values or employer guarantees.

Much to the horror of young persons, I suspect more boomers will revert back to at least some dependence on children in their later lives.  And maybe, just maybe, this can turn out to be a good thing.

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