Balancing Act

In my formative years, back when dinosaurs ruled the earth, the common metaphor for retirement planning was "a three-legged stool." The idea was that your company pension was one leg of the stool, helping to support your retirement. Social Security was the second leg of the stool. Balancing out the stool was the third leg: private savings. Whenever I heard this metaphor used, it was always combined with an exhortation to increase private savings. Relying on pension and Social Security wasn't enough for a secure, comfortable retirement.

In the years since I first encountered this metaphor, the importance of private saving has grown by leaps and bounds. I passed up on my chance to acquire a traditional defined benefit pension when I left the Army in 1985. For the last 20 years I have worked for companies that do not offer a pension benefit. So that leg of the stool has been sawed out from under me.

Let's consider the second leg of the stool: Social Security. The Social Security trust fund goes into deficit mode in 2018, only 10 years from now. As the number of retired baby boomers increases, the ratio of employed workers paying into the system to retirees pulling out of the system is projected to shrink. Since the federal government currently needs Social Security taxes to help fund the deficit, I don't see where the money is going to come from to pay promised benefits to all the people scheduled to retire in the next ten years. My retirement planning assumptions don't include any Social Security. If the politicians can figure out a plan to pay all the benefits promised, great. But I'm not making that assumption as part of my personal retirement planning.

Now we've sawn off two of the three legs of that stool. The private savings leg is going to have to take up all of the slack of carrying me in retirement. That going to be quite a balancing act.