Get Ready, Because History Will Repeat Itself

Back in 1870 the U.S. resembled the China of today in many ways. Most of our citizens were still in the country, living near or working on family farms (this is the case in China today). Poor, disabled or ill and elderly people were taken care of by family or friends or through local religious groups in the local community. There was no health or disability insurance and no company pension to count on, only the hard assets that were saved or purchased or inherited. Today we are closer than ever to being back in the same situation we were in back in 1870.

From 1870 on as we became an Industrialized nation, people left the farms for the cities and gave up the social network that protected them for the lure of higher pay in the cities. The burden of caring for people in need fell on the people themselves or in many cases the sweatshops they worked for. Conditions in the slums around Steel Mills, Coal Mills and other manufacturing sites were harsh and the Poor Houses and Debtors Prisons were a form of slavery.  Local religious groups provided some relief too.

Gradually conditions improved somewhat as cities and states took on some of the social costs for the elderly and displaced in the cities and Unions gained some power to create livable wages and working conditions. The crash of 1929 resulted in an unemployment rate of 25% and with so many losing their life savings, created the need for centralized Federal systems to address nationwide problems.

After (or because of) the Great Depression our Government created and funded many important Social Programs, including Social Security in 1935. The idea behind Social Security was to create a safety net for working people in an industrialized economy in case they outlived their savings. If you look a the original provisions of Social Security, the age for eligibility was 65 at a time when average life expectancy was 67!

If you read a " History of Social Security " written by CPA's you will begin to understand the problems that will force government to cut benefits and increase the age for SS eligibility, or bring down the system. From the very beginning, the benefits paid out had a negative correlation to the money paid in by workers. Reading the Federal Government " Historical Background and Development of Social Security "  will give you the clear understanding that all of us need to prepare for our own retirement without counting on Social Security to protect us in the future.

In 2008, U.S. life expectancy has increased to age 78.  It was 70 in 1950 and as I said, 67 in 1935.  Social Security was and is not designed to handle benefits for such longevity. New medical advances are expected to increase U.S. Life expectancy. By the way, don't get too excited by the current U.S. life expectancy as 41 other countries have a higher life expectancy than we do. Perhaps this is because we work more and have less access to medical care than many others, even though we spend 40% of the world budget for healtcare in this country. There are many reasons for this mess. One obvious one is the bloated profits of pharmaceutical companies.

Contrary to what most Americans believe, the Government does not invest our SSI contributions to fund our future benefits.  In fact, the last several U.S. Presidents have raided Social Security surplus accounts by borrowing them to balance the national budget. What everyone needs to understand is that the money comes in through current taxes and is paid out to beneficiaries.  Right now there is still more coming in than going out.  That will not be the case in 10 years or so.

The original intention of Social Security was not to replace saving for retirement, but that is what Social Security has become. Some 30% of Baby Boomers will rely 100% on Social Security for their full retirement income, which will put them below the current poverty level in America.

This means that every rational American has to take full responsibility for the quality of their retirement. Based on the reliance of the Boomer Generation on Corporations or the Federal Government, subsequent generations will have the pain of seeing what failure to plan really means by simply seeing how most Boomers will live after retirement.

Wishing and hoping will not solve our individual financial problems, only good planning and investing in hard assets which return solid profits will.  A Self Directed Retirement plan will help those willing to take responsibility and control for helping themselves.

It's high time we all learned to fish again.