Are you preparing for your pogo stick retirement?
You have probably heard the frequently used retirement analogy of a three-legged stool. Traditionally, retirement income was from a combination of a pension, social security and personal savings. This provided a stable retirement.
Unfortunately, it seems the axe is sharp and two legs of the stool have been hacked off and sent to the woodshed. As pensions are few and far between and like social security struggle to stay solvent, a pogo stick seems to be a more fitting analogy for retirement today.
A good salesman can sell a vacuum cleaner to an old lady with hardwood floors. That doesn’t make it right, but sometimes it can be hard to see through the charm, especially when it comes to understanding finances today. That’s why I tell people to follow the numbers, not the narrative. Before we bounce to discussing the pogo stick retirement, let’s first put things in perspective of how we got to where we are today. According to usdebtclock.org, the U.S. Federal Tax Revenue (Income) is approximately $3.5 trillion and federal spending is $6.75 trillion. You don’t need to be a Certified Public Accountant or math genius to realize that’s not good. Imagine for a moment if you were to run your household that way. How long could you get away with spending $8,000 per month on a $4,000 per month income? Obviously, not very long.
Why is this important? I’ll save the politics for the politicians, but from a retirement planning point of view, it’s important to realize the traditional means of retirement is in jeopardy. According to the Social Security Administration, in 1940, there were 159 people contributing for each one collecting. In 2013 it is 2.8 people contributing per 1 collecting and is projected to be 2.4 per 1 by 2030.
With Social Security currently operating at a deficit, full benefits can only be supported until 2034 according to the commissioner of Social Security. At that point, the program either needs additional income sources or benefits reduced.
Who knows what congress will do in response to this unavoidable reality. Kick the can down the road? Rob Peter to pay Paul? Stick their head in the sand like an ostrich and just hope it goes away? Truth be told this is not going away, and my question to you, especially for younger readers, is, “On a scale of 1 to 10, how confident are you in the government to provide for your retirement?”
If you didn’t give a resounding 10, then it’s time to make sure you have the best pogo stick money can buy, because you don’t want it breaking a year or two into retirement and leaving you with your thumb out on the side of the road.
If the elephants and donkeys do somehow pull their head out and find a solution rather than a short-term fix, consider it a bonus. But, in the meantime, grab your helmet and knee pads and prepare to bounce down the road to retirement on your own.
Again, there are salesman out there who will sell you a pogo stick with chrome trim and with all the bells and whistles you can afford. But your retirement plan needs to be about functionality and fit your life.