Last week, we examined the Republican and Democratic parties’ platforms regarding Social Security. The Republican position would allow us to invest some of our Social Security savings in the stock market. The Democrats advocate higher taxes on the wealthy to ensure Social Security solvency.
With election season in full swing, the Republican and Democratic parties are running on platforms that explain how they would tackle difficult problems facing the country. I was particularly interested in their stands on Social Security. As the government’s most expensive program, which affects millions of workers and which faces the possible need to reduce payouts after 2037, leaders of the two parties will have to do something eventually.
What they choose to do would affect each of us in different ways, ranging from no change in our circumstances to potentially large adjustments in lifestyle. I consider myself neutral in the political debate, beyond desiring a solution that doesn’t lead to calamity. With that in mind, I present both parties’ stances on Social Security in this article, and also examine some possible approaches that I believe would lead to financial health for retirees in a second article to be released next week.
When it comes to Social Security, here are my general principals: More
Anyone who has taken the time to fill out the input required for more than one retirement calculator will know the output results vary dramatically. Recent studies by financial and academic institutions, in fact, show that the numbers you get could vary by 60 percent or more!
No matter how much careful skepticism you apply, there is no way you can use those calculators to help you reliably plan for retirement. As I wrote in a blog post earlier this year, such calculators fail to account for several factors while determining the “magic number” you seek. In fact, calculators don’t even give you a reliable range of numbers to choose from.
The problem with calculators
Not only do calculators each use different algorithms and assumptions, they also often leave important factors, like taxes or late-in-retirement expenses, out of the equation. Also, if one calculator assumes your return on investment will be 5%, and another predicts 7%, the results will be impossible to compare. More
Planning for old age is good. That is why I like income annuities as part of a retirement plan: because they guarantee income through your entire life, no matter how long you live.
It turns out, though, one reason people don’t buy income annuities is that they don’t like thinking about old age (and especially the end of old age). Several studies that looked into why more people don’t buy these products found that the language to describe income annuities caused potential buyers to close their computers, walk away from their desks, and promise to think about retirement another day.
Emotionally, I get it. I want to live forever, too. But the evidence is overwhelming that I will have to settle for a long and happy life, not an endless one. More
The new financial and political challenge known as “Brexit” is a good reminder that your plan for the late, or second, stage of your retirement should not depend on the stock market.
In the two days following Britain’s vote to exit the European Union, the Dow Jones Average plunged 800 points. The markets have since rebounded, but here’s the question you ought to ask yourself:
Will I feel secure in my retirement if my savings are fully invested in financial products that swing so wildly and unpredictably? More