A man with a wooden leg worked with my dad at the post office. I could even hear his leg creak as he limped along. Remember, this was long before I needed a hearing aid. When I asked if he'd lost his leg in the war, my dad said "no." It was a hunting accident. Then he launched into a lecture on gun safety. "He assumed the gun was not loaded, and now he is crippled for life."
The old joke, "When you 'assume,' you make an ass out of you and me," just isn't funny anymore. It wasn't funny for Dad's coworker, and it's not funny for folks whose assumptions cripple their wallets.
"Wasn't FDR great? And Social Security took the fear out of old age. … That's all wonderful. But there is a limited amount of free stuff… At the time most Americans didn't even live to age 65. Now on average, it's 78. The math no longer works."
David Walker, former US Comptroller General, had a similar take:
"Many people have seen the national debt clock, which now is about $17 trillion. But if you point out our total liabilities and unfunded promises for Medicare, Social Security, and a range of other things, it is actually over $70 trillion now, and growing by about six million a minute. Right now, 95 percent of people who voluntarily sign up for Medicare's optional programs receive a 75 percent subsidy irrespective of their income and wealth. That is imprudent; it is unaffordable; it's unsustainable.
"And… Congress and the president … haven't dealt with the real problem: social insurance programs; runaway healthcare costs; and an outdated and inadequate tax system. And until you deal with those three issues, you don't solve the problem.
"You have to make tough choices with regard to social insurance programs, healthcare promises and costs … and comprehensive tax reform that will generate more revenues. It is inevitable. We have to do it. The question is: will we do it prudently and preemptively, or will we do it in a dramatic and draconian fashion as some European countries have because they didn't act before they had to?"
But we didn't bring these experts together to dwell on the problem. We wanted practical, viable solutions. On that note, here's more from David:
"You need a plan. You need a budget. You need performance metrics. We have been in business since 1789 as a republic, and we still do not have those three basic things. No plan, no budget, no performance metrics. No wonder we have a problem …
"Individuals, they also need a plan, they need a budget, and they need performance metrics. And the difference between those who have those three things and how they are going to be—now and in the future—is going to be significantly better than the people who don't have those three things."
No Mighty Mouse to Save the Day
How many politicians have promised to balance the budget and fix Social Security? Assuming any candidate or political party is going to behave differently is insane. I'm not blowing smoke, folks. Expecting a different result from the same behavior really is insane. Just think back to any politician who came on the scene like Mighty Mouse and ended up more like Fidel or Hugo.
At the end of the day, most of us will be successful in spite of the government, not because of anything it has done or will do.
Jeff White, president and CEO of American Financial Group, was also on our panel. Back in May, Jeff walked our readers through creating the sort of financial plan David was talking about. While our government fiddles to the tune of $6 million a minute, the mean age of baby boomers is 59 and counting. We have to act now.
I am damn worried. Many of us built a plan, saved, and lived within our means, only to be crippled by the most dangerous assumption of all—that our magic retirement number was correct in the first place.
Take a look at Jeff's article on "Bob and Betty Jones." Bob and Betty, both 50 years old, think they need $866,000—their magic number—to retire. Once they hit their goal, they plan to live comfortably on income from their portfolio, pension money, and Social Security. However, assuming that Social Security will exist in the same form it does today is foolhardy. As John Stossel and David Walker warned us, those promises are mathematically impossible to keep.
More Broken Promises
A pilot friend of mine worked with a respectable financial planner to map out his retirement. Then his airline went bankrupt, and his pension dropped by $88,000… per year. So much for his magic number!
What about retirees in Central Falls, Rhode Island? The town went bankrupt and cut pensions by up to 55%. And don't even get me started on the mess in Detroit—more magic numbers that were nothing more than that: "magic."
Up until the 1980s, Social Security income was not taxable. When the law changed, I'm sure it threw a lot of diligent planners off track. Who knows what's next?
Prepare for the Worst, Hope for the Best
Assuming our retirement income—whether it's from Social Security, a private pension, or healthy income on one's portfolio—will be there when we retire… and last for the duration, is just as foolhardy as assuming a gun is not loaded.
However, there are a few safe assumptions: things are likely to change; benefits will be cut; and taxes will go up. So what should Bob and Betty do? They should run their retirement projections a second time, assuming Social Security won't be there at all. Many folks in their 30s, 40s, and 50s are already doing just that; government benefits are considered icing on the cake.
While those who are already retired may not lose their Social Security benefits completely, we all know what politicians mean by "fixing" Social Security—reducing benefits. Saving more now will help soften the blow if this happens. I have never heard a person complain about saving too much money. Instead, they sleep comfortably knowing they have enough.
These are just a few of the ways in which government tinkering has hurt the retirement plans of millions of baby boomers. If you haven't had a chance to see our web event America's Broken Promise: Strategies for a Retirement Worth Living, I suggest you do so right away. Our expert panel speaks to the problems mentioned above as well as a myriad of other subjects relevant to everyone—not just retirees. And they don't only discuss the problems—they identify concrete solutions.
This is the one event you must see to ensure you retire on your own terms. Use this link to find out more and watch right now.
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