The three-legged stool

[fffred]

No question here, just a comment to the winds.

All my life (I am 67 and retired last year) I'd heard how Social Security was intended as "one leg of a three-legged stool". The other two legs being an employer's pension and the retiree's personal savings. The plan sounded good to me.

Certainly there have been changes in the economy and employment over the past many years. People no longer spend 45 years with one employer anymore (as if AT&T is even around anymore in its original incarnation, etc), so their pensions are so affected. And now most employers no longer even provide defined benefit pensions, instead putting some of the onus on the employee with the 401K and similar plans. The durability of Social Security itself is even in question to some extent. And people don't seem to save as much as they could or should; perhaps this was never the case?

But I still go back to the paradigm of three-legged stool. 

Over the past year or so I have seen and read numerous headlines and articles in news sources on the internet (relatively mainstream news sources) wherein people (older, mature people, before and into retirement) seem to think that Social Security is to be their only income. As though no thought is given to pensions or other employee benefits. And no thought to personal savings. I wonder "what's up with that? what about the lil' three-legged stool?"

I suppose that much of this "news" is simply noise, articles written and published as click-bait so that someone will click on the headline and then the publisher gets a bit of advertising cash.

Gosh, guess I will have to remember this the next time I see such an article. Still makes me "mad" though.

[StevenD434029]

Somedays  I wonder how stable the social security leg will be in my three legged stool. 

I'll have three streams.  A pension having worked in higher education, A 403(b) and Roth IRA money stream, and then comes Social Security....what I believe will be the  weakest of the three.  I'm 57 now, soon to be 58.  For those who are collecting social security, what do ya'll wish you knew then what you know now about recieving your social security benefit?  Did you start claiming early at 62?  Are you getting hit with 50% tax on your benefits cause your drawing too much money from your pension?  Was there anything you would have done differently to change what you now recieve in your benefit?  

[GailL1]

@StevenD434029 

I think those government employees that are involved in the Windfall Elimination Provision or the Government Pension Offset formulas of the Social Security program may wish today that they had forced their government employer to be a part of the Social Security system like everybody else.

I hope this does not involve you.

As to my own benefits - self-employed forever - thus NO pension but hefty Traditional IRA and SEPP IRA for which I now have to take RMDs.  I also have a ROTH which I converted as much as I could before I turned 70 to hold down my tax liability when those RMD's began.. 

I began my SS benefit at 70 - although I really pretty much retired at 60 due to a situation beyond my control.  I lived off of a widow's benefit, a small stipend income for helping others,  other savings and royalty income before officially retiring.  I had worked my expenses down to where I had no problem meeting these obgligation - house was paid off, car was fine, I (and my late husband) had always paid a hefty individual health insurance premium since we were self-employed - so what was "more" since he was no longer with me.  I had already had my feel of traveling during my working years - mostly I just had a long list of things to do that had been left over from those working years.

I'm still working on that list. 

Those taxes on my SS benefit are getting higher since the RMD's escalates as you grow older.

Then there is also paying more in those Medicare Income-Related Monthly Adjustment Amount (IRMAA).  You just really have to stay up on the math annually - I may consider a QCD (Qualified Charitable Distribution of my RMD) so that I can reduce my tax on benefits and not have any Medicare IRMAA premium liability.  I just didn't think that I would have to do so much thinking /planning about all of this in my later years.

You do have to stay on top of any (potential) law changes.  I remember once when President Obama was in office that there was a rumor (fake news?) going around - true, I don't remember,  that the RMD formula was going to be changed to include the money in a ROTH account to figure the annual IRA minimum RMD.  That would have sent my plan out the window.

OH, well, there is only so much we can do - so I just pay the piper but as little as possible.

Personally, I support Rep. John Larson's Social Security 2100 Act as a way to fix the system for the long term.  According to the SS Actuaries, it fixes the problem and it seems fair to all beneficiaries - rich and poor -  to me.

[retiredtraveler]

".....As though no thought is given to pensions or other employee benefits. And no thought to personal savings. I wonder "what's up with that? what about the lil' three-legged stool?"....".

You're discussing a very complicated issue that has no simple answers. There is some percentage of people who never had the means (income) to save anything on their own --- lived paycheck to paycheck. Another percentage that have no pension benes or 401k benes. Another percentage who 'spent it all' and never gave a thought to retirement income. Another percentage of people who did save, but got wiped out through losing their job or some kind of tragic events resulting in losing their savings (often due to medical expenses).  I don't have numbers to put to those percentages. I do know, through many polls, that a very large percentage of Americans simply never bothered to set a budget, set savings goals, or learn how to invest. In short, just didn't bother with personal finance.

   There are a lot of very different circumstances that cause people's finances to be less-than-desirable.

[GailL1]

@retiredtraveler 

It is not so much that people don't save - IT IS THAT THEY OFTEN LEAVE. . . . . (wait for it . . . . ) FREE . . .  MONEY ON THE TABLE.

The Savers Tax Credit has been around for MANY years - yet they don't take advantage of it.

IRS: Retirement Savings Contributions Credit (Saver’s Credit)

OR some may not even contribute to their employer plan - doubly stupid if there is an employer match.

Sometimes, I wish I could get hold of their finances and make them a plan, including a budget. 

As a self-employed couple, especially since our business was Fine Art (originals only) - we learned that you saved when times were good for those times that were NOT good.  In fact, you saved MORE in the good times because it always cost more when times were NOT good because you always had to try new avenues to sell in down times; more costly but you couldn't just sit on your laurels. 

[fffred]

Interesting comments all 'round.

I guess this same issue is why Aesop had that fable/parable of "the Ant and the Grasshopper". I'm sure we all (mostly) know this.

(it's interesting to me to find the Wikipedia page on this fable; I've glanced through it before writing this post. Apparently the fable was subject to much controversy even many hundreds of years ago!  "Even in Classical times, however, the advice was mistrusted and an alternative story represented the ant's industry as mean and self-serving."  https://en.wikipedia.org/wiki/The_Ant_and_the_Grasshopper)

[GailL1]

@fffred 

I guess we are back to who will supplement people who haven't planned and saved for retirement adequately.

Seems others will have to continuously pay for this shortfall.  

So, should government force more retirement savings onto those who aren't preparing?  

Legislation is proposed almost every Congressional session to do just that - they go at it from the angle of all employers set up a plan where people can do this - I do not think this will help.  

Do you think giving people the option of upping their SS benefit or an additional retirement option with their own nickel would be an option?  I don't know.  Somehow, I feel that many people want somebody or some other entity to do it for them.  They are perfectly fine with getting a government based handout when they get old be that Medicaid for extra help or LTC or some other subsidy.  Then they complain that it is not enough.

I am not adverse to helping people but I think they need to put forth more effort in fore-thought during their working years.  How can we, as a free society, measure that effort?

[fffred]

@GailL1

I think there are plenty of opportunities currently to stash away savings for retirement, including employer plans (401K, etc) and personal plans (IRA, Roth, etc), so there doesn't seem to be a pressing need to create new plans. And certainly there is the option for people to actually save money on their own in regular accounts for long term use (the smart-aleck in me wants to add "gasp! save our own money?!", but I won't).

I say "regular" and I am thinking of non-tax favored accounts (tax favored accounts being such as IRAs, Roth, employer plans, etc), which provide the greatest flexibility in withdrawals as for home purchase, college, emergencies, and retirement. I think I have read of proposed, or perhaps actual, "savings" plans for low income persons that would have some form of government encouragement...through income tax savings or matching or something...since I would not be eligible I didn't pay too much attention to these.

The long term viability of SS is, I think, another topic entirely (versus personal responsibility), but I have no issue with increasing the ceiling of taxable salary to something higher. I recall reading what the rationale is for it being what it is and I don't recall what that is exactly but there is some rationale. But increasing modestly I think is okay. But that likely won't increase benefits over the broad range of beneficiaries.

So, overall, no, I don't think giving people the option of upping their SS benefit or other option on their own nickel will solve the main issue. I would like to think that more education on this issue would help. And that may be the case. The past few years I have seen endless articles related to these issues (similar to those articles that pummeled home to taxpayers that for special reasons there may not have been sufficient payroll withholdings for the 2018 tax year...yet many people were STILL surprised that they didn't have enough withheld). I hope, and think, that the message is getting out to younger generations that their retirement will depend in a major part (one leg of the three?) on their own savings.

There is much more general attention paid to investing these days than in, say, the 1960's when mutual funds were relatively rare and charged very high sales fees and expenses. Things are much more open and competitive these days and the knowledge is out there for those who seek it.

Although I am politically liberal I also see the other side of the coin. My wife's family in Canada benefits greatly from the social plans there. Without them several family members would be paupers. And yet they carry on without regard for financial reality as I see it (and due to their special circumstances, some of mental illness and others of advanced old age, I can't really fault them at this point in time). Though I would appreciate it if they showed some appreciation to the taxpayers of that country. And other family members in their old "home" country depend strictly on hand-outs from their Western relatives. They've been offered work but mostly just prefer to be on the dole. Maddening!

[GailL1]

Of course, SS should be only one facet of a person's retirement preparedness.  But how do we fix it if it isn't?

Should people be forced to save for specific things by the government?  Washington state just added another mandatory payroll contribution to workers for government provided LTC insurance.  Of course, this is to save Washington state money by hopefully cutting down on their LTC Medicaid cost.

[fffred]

Interesting points, Gail.

While I tend to be a bleeding heart liberal I am also a strong believer in personal responsibility.

I recall watching Bill Moyers on a television news special circa 1973 or so; I was young then. There was a recession around that time and people were hurting (probably around the oil embargo too, remember that?) Bill was interviewing some of the poor families, make that "unfortunate" families, who had been hit hard by this recession. They were generally workers in the auto industry and made relatively good money. But they spent it all! One family was very proud pointing out their hot cars, their "4 wheelers", their camper trailer, their VCR (I never even had a VCR until 20 years later), etc.

But when the layoffs came they had no money. No cash. No savings. Likely a lot of those "toys" were sold or repossessed, etc,

I didn't live like that at the time, myself. I didn't make enough to be able to save but I didn't get into huge debt either. And that's an approach I have stuck with ever since and it has done well for me (I do use credit cards extensively to charge daily purchases and more, but my balances are paid in full every month).

Any sympathy that Bill might have expected viewers to have was lost with me, due to my own straitened means yet still I managed to get along without having gotten into debt like that.