The Future of Retirement

The retirement system in the U.S. is broken. This weekend I was reading my copy of Business Week, when I came across an ad on the back cover of the magazine. The full page ad by Allstate was so well-written and to the point that I decided to do an entire post about it. Here are some quotes from the ad and my take on them:

"1. Examine Social Security - Americans will not be able to rely solely on Social Security for a comfortable retirement. In the future, it's projected to cover an increasingly small percentage of the average retirement. There's debate as to whether it should be repaired or replaced. But What's clear is we need to reform Social Security now."

I could not agree more. Where is Congress? Why are we paying those guys to spend all that time in Washington if they cannot be bothered to fix a system that is obviously broken and that many Americans will have to rely upon in their old age? There are about 20 presidential candidates running around the country, both Democrats and Republicans. How many times have you heard them talk about plans for fixing Social Security? Far fewer times than you heard them talk about gay marriage, that's for sure. Why is it that we cannot make our politicians focus on what's important to the vast majority of their constituents?

Here is a sobering statistic. Take a look at the following quote from Wikipedia:

"According to most projections, the Social Security trust fund will begin drawing on its Treasury Notes toward the end of the next decade (around 2018 or 2019), at which time the repayment of these notes will have to be financed from the general fund. At some time thereafter, variously estimated as 2041 (by the Social Security Administration[30]) or 2052 (by the Congressional Budget Office[31]), the Social Security Trust Fund will have exhausted the claim on general revenues that had been built up during the years of surplus. At that point, current Social Security tax receipts would be sufficient to fund 74 or 78% of the promised benefits, according to the two respective projections."

If this information is true, politicians are choosing to ignore this problem knowing that the bad stuff will happen long after most of them leave office. Rule number one of politics: let the next guy deal with the bad stuff.

More from the ad:

"2. Boost Retirement Plan Enrollment. Companies should continue looking for ways to encourage employee participation in 401(k) plans. One proven way to increase retirement savings is through company matches. Another is automatic enrollment - employees are signed up for savings plans when they join the company, unless they specifically opt out."

I completely agree. Especially since Social Security is in such a sorry state, 401(k)'s are extremely important to the financial well-being of Americans. For once, Congress did the right thing in encouraging companies to automatically enroll employees into 401(k) plans, as part of the Pension Protection Act of 2006.

My company is about to move to automatic enrollment, and it is my hope that this encourages the 20% or so of employees who are not yet enrolled, to do so.

Finally, the last quote from the ad:

"3. Increase Personal Savings. Ultimately, everyone is responsible for their own retirement. It's why we support laws that reward people for saving. Tax-advantaged savings vehicles like annuities and IRAs are two examples of products that can help allay Baby Boomers' biggest fear: living to see the well run dry. When planning for retirement, it's time to realize that no one is going to take care of us unless we start taking care of ourselves."

Once again, spot on. Personally, when making our financial plans for retirement I am assuming that the only resources we will have are the ones we save ourselves. We are not counting on a dime from social security, not a nickel from any inheritances, and we are certainly not taking into account any manna from heaven. It's all about our personal savings. That may be too conservative, but my philosophy is that it is better to have too much money saved up than too little. After all, you can always take an extra trip to the South Pacific if you have too much money, but if you have too little you may be planning on dinner for two at Chez Dumpster.

While we should fight to make sure that Congress addresses the Social Security situation, and push companies to become more generous and more diligent in their 401(k) offerings, the ultimate responsibility for your retirement rests with one and only person: you.

So there you go. I never thought I would write a favorable article about a financial ad, but I guess there is a first time for everything.

By the way, to read about how I think the retirement situation can be at least partially fixed, check out this post.