Yesterday seven members of the White House Deficit Commission voted to endorse the commission’s plan to reduce the country’s budget deficit. The recommendations are far-reaching and include cuts to Medicare and Social Security, gradually increasing the retirement age, and a broadening of the income tax brackets in what is effectively an overall tax increase.
You may or may not agree with the Commission’s recommendations. Additionally it appears unlikely that these suggestions will be enacted into law in the near-term by Congress. None the less there does appear to be a trend toward fiscal austerity and deficit reduction across the country.
The potential implications for our retirement planning should be pretty obvious.
What should we be doing in light of this? Much the same thing we all should have been doing all along.
- We need to assume that we will be primarily responsible for funding our retirement. I’m not saying Social Security and Medicare won’t be around in some form, but why would you want to be in a position where you have to depend on the government or anyone else to fund a comfortable retirement lifestyle?
- Save and invest as much as you can for retirement and other future goals. Balance current consumption and spending with the need to save as much as possible.
- Invest with a plan. Understand and implement investment diversification and rebalancing.
- Plan, plan, and plan some more. If you are not comfortable doing this yourself, hire a fee-only financial planner to help you. If you find a good advisor the money you spend will be repaid many times over.
- Planning doesn’t do much good unless you monitor your progress. Revisit your plan every year or so. Track your progress towards your financial goal(s). Just like any journey, how will you know when you’ve arrived at your destination if you don’t know where you are? Make adjustments as needed.
More than ever a financial plan is critical to your financial success. The past few years have taught us that taking on too much risk can be hazardous. However most of us will not reach our goals by playing it ultra safe either. If you need help on your journey to financial success please feel free to contact me.
Well said, Roger.
Good fundamentals help build a solid foundation for financial planning & decision making.
And while this is always true, it feels like we need to get back to the fundamentals now more than ever.
Russ thanks for the comment. It does seem like we are moving back to basics in a lot of areas. This is a good thing in the area of our personal finances.
Excellent quick read Roger. This will definitely change things moving forward. If they continue to push the retirement date further, and people continue to want to retire sooner, something will have to give. Healthcare could be a game changer. Thanks for the post.
Thanks Rich. I think we are on the cusp of some real changes, retirement planning will become even more important in this environment.
"I’m not saying Social Security and Medicare won’t be around in some form, but why would you want to be in a position where you have to depend on the government or anyone else to fund a comfortable retirement lifestyle?"
It has something to do with the intergenerational promise of supplementary retirement income. "[C]omfortable retirement lifestyle" is meaningless to the 16 million elderly kept out of poverty by SS retirement benefits.
We can do all the planning in the world but that doesn't amount to a hill of beans when the private sector can game the system so that private tax qualified plan investments lose half their value. I'm certainly glad I didn't retire during this bear market.
Thank you for your comment. I would agree that retiring during the depths of the recent (or current) bear market would put a crimp in anyone's retirement. I wasn't knocking Social Security but rather saying that any of us are better off building wealth so that we can sustain a better standard of living than SS might provide.
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President/CEO – Pro2Pro Network
http://www.Pro2ProNetwork.com
Hi Roger, As I've said before, the retirement age must be raised. AFter all, when it was set, we were expected to die 10 years after retiring.Social security cannot possibly be expected to fund our lives for an additional 25-30 years!
Len thank you for your comment and for visiting the site.
Barbara thank you for your comment and for visiting the site. Certainly the increase in life expectancy has put a huge strain on Social Security and Medicare. As unpopular as it might be raising the retirement age seems inevitable.
Roger:
My compliments on the excellent warning to be aware of the problems with Social Security and Medicare. There is too much risk that people will not get what was promised by those programs, so I agree with you that it is important to save and invest for retirement.
Don Martin, CFP®
Don thank you for your comment and for visiting the site. I don't think anything has really changed as far as the need to invest and save for one's own retirement, however the current fiscal environment brings this need to the forefront.