Wednesday, December 5, 2012
The one-legged stool
Retirement is something everyone has to prepare for in one way or another. Traditionally there has been a three-legged stool which includes a defined benefit pension, social security, and personal investments. I probably don't have to remind you, but defined benefit pensions are going the way of the horse and buggy. It's too much risk and cost for employers so they heap those onto the workers nowadays with plans like 401k's. These are called defined contribution plans because you are the one contributing. Some do have an employer match which takes a couple years to become fully yours or "vested" as they say. I think social security will be there for a long time, but not everyone agrees with me on that one. There are many people that say don't count on it at all. That leaves personal investments. Scary isn't it! Most people are not saving nearly enough to fund a comfortable or even a minimal retirement. The trend is that we're more and more on our own. We can't count on employers and government to take care of us like previous generations did. And in my opinion I want to be less dependent on employers and government. That's just my preference. The more money you have socked away the more independent you are. Compounding can do wonders if you start young and give it time. There are people who have built portfolios of dividends coming in every month that don't need anything else. It is possible although not easy for sure. Concentrate on the one area you have control over: how much you invest for your future self. If you do that well enough you might not need the other two legs.