Observation #2:
With Government Plans, Something for Everyone = Not Enough for Anyone
According to the Social Security Administration, the average monthly Social Security benefit received by workers was about $1,230 in 2012, or $14,760 a year. For fully vested workers who retired at age 66 in 2012, their starting benefit was $2,513/mo. ($30,156/yr.) Critics of Social Security will point out that many workers would have received a better benefit from their Social Security taxes had they been invested in the stock market. This may be true, but the purpose of Social Security has been to provide a benefit to all Americans without compelling them to make investment decisions or take undue risks.
Even though Social Security is a program for all working Americans, people with higher incomes receive a lower percentage of benefits in proportion to the taxes they pay. Let’s compare annual Social Security retirement income to lifetime payroll taxes for 23-year-olds who work until age 67 and receive full benefits. A low-wage earner (with a $15,000 annual income) would receive an annual Social Security benefit of $10,128. This means the worker will “recover” his Social Security taxes in about 8½ years. In contrast, an individual with an annual income of $110,000 would receive $31,260/yr. but not recover his Social Security taxes for 20 years.
In either case, a $10,000-a-year retirement income doesn’t go very far, even for someone with a low earnings history. And a $30,000 annual retirement income probably isn’t going to be enough for someone who has earned over $100,000/yr. for 40-plus years. The reality: While Social Security provides 90 percent of retirement benefits for 36 percent of people over 65, almost no one is living large because of it.
Observation #3:
Achieving Personal Prosperity Requires Additional Resources and Thoughtful Planning
One of the desired outcomes of government financial programs is compelling citizens toward better outcomes by eliminating the decision-making process. Instead of encouraging saving, Social Security simply assesses a tax, eliminating the need for the employee to decide how much to save, and where.
But the “mandatory” saving of Social Security is not enough. If someone desires a comfortable retirement, they are going to have to save additional amounts on their own, make thoughtful investment decisions and constantly monitor the progress of their plans. Bottom line: There isn’t a government program that delivers set-it-and-forget-it financial security.
Applying these insights
In reviewing Social Security’s history, it’s easy to make some parallels to today’s personal financial issues that involve government. More than likely, national health care costs will be higher than projected. More than likely, most people will not get all the health care benefits they want or need. More than likely, the solution will be setting aside additional dollars (perhaps in Health Savings Accounts) to procure the additional health care they want—there will not be a government fix for these challenges. Likewise, taxes will probably overrun their projections and the anticipated benefits (lower national debt, more money for social programs, infrastructure etc.) will come in below expectations.
These less-than-optimum outcomes bother some people—“I have to save more because Social Security is so messed up? That stinks!” or “I don’t understand why national health care doesn’t work like it was supposed to.” But it is what it is. Policy ideals and economic realities rarely mesh.
The only approach that works:
Make your own plan, and find a way to fund it.
It is true that the policy decisions of our legislators can have a big impact on individual financial well-being. Engaging in the political process may influence some of those decisions to your advantage (that’s why companies and trade associations hire lobbyists). But the most practical response to changes that may be coming is to set aside the politics and focus on developing personal strategies to succeed, regardless of how the vote turns out.
Elozor Preil is Managing Director at Wealth Advisory Group and Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). He can be reached at [email protected] See www.wagroupllc.com/epreil for full disclosures and disclaimers. Guardian, its subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.
By Elozor M. Preil
