Count on yourself

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It’s early morning. I’m at the airport for a trip out to Dallas. The ticket agent behind the counter asked how I was doing, I mumbled “it’s still too early”. If it’s not for the trip, I should still be in the bed. What I didn’t know is that my sleepiness will be wiped out in just a few minutes.

The advantages of early flights is that not only the ticket is cheaper, but there are also less travelers. There were only a dozen people before me at the security check in. Everything went smoothly and I started to put my backpack and other stuff on the belt for the X-ray machine.
The TSA staff member on the other side of the conveyer belt was chatting with every passenger. He probably just had his morning coffee, I thought. And I just happened to overhear it when he asked the African American gentleman before me: “how old are you sir?”

“I am 76.”

Both the staff member and I raised our eyes and looked at the gentleman again in disbelief.

“Well you must be doing great!” The staff yelled.

Indeed. If this gentleman had said he is 60, I would have believe him. The way he looks, the way he moves, there’s no way I could tell he is in his seventies. I only wish I could look like that when I turn 76!

This is not the first time though that I have met people looking much younger than they actually are. It’s actually a trend around us. I believe a 70 year old person today looks much younger than a 70 year older person when I was a child. Today, thanks to the rapid advancements in the medical science in the past few decades, and the ever increasing awareness of healthful living, people are living a much longer and healthier life than ever. It’s actually time for us to change the expectation.

That’s good news for everyone to celebrate, but bad news for the Social Security System.

The Social Security System was established in the 1930’s as part of the “New Deal” by President Franklin Roosevelt. The idea is simple. It taxes people who are working and the money is then used to financially support the ones that are retired. If you have paid enough Social Security taxes (“credits”) during your work years, then you will be eligible to enjoy this benefit when you retire for as long as you live. Every year in January, my employer will send me a W2 form, and the amount of my Social Security Tax contribution for the past year is listed on the form.

The system works fine over the years, except that when people now live longer and longer than before, more money will be needed to pay the retirees, and it will eventually deplete the reserve. If nothing changes, it is predicted that the system will not be able to pay the full amount of benefit to every retiree starting sometime in the 2030’s.

Politically, this has been a very sensitive topic. Whether you are going to raise the tax, or reduce the benefit, or to even cancel the system, you are bound to lose the support of voters who are going to be negatively impacted. No politicians is going to risk their political life on this. So we are just watching the clock on the time bomb ticking.

If you retire early, you won’t be eligible for social benefit either. For most people, you are only able to enjoy the social benefit after you retire as early as 62. And if you do that, the payment is smaller than if you retire later. This is how the government wants to encourage people to delay the time when they can start to claim the benefit.

Therefore, if your goal is to become financially independent so that you can retire very early, you cannot count on the Social Benefit. And even when you reach the age to claim the benefit, the payment is likely to be less than what it should be, due to the increasingly larger pool of retirees in the system.

What about the retirement savings? The age limit for withdrawing from your retirement saving accounts is 59.5 years, although there are exceptions. If you are reading this, you probably plan to retire way before that age. On top of that, the value of your retirement savings is determined by the market, which fluctuates and is hard to predict. During the financial crisis in 2008, I have seen so many people (including my colleagues) whose retirement saving investment value decreased so much almost overnight, that they had to delay their retirement plan and were therefore forced to work longer.

My point is, we have to take control of our own financial life. When you take control, you reduce the risk that are caused by anything else: the longer human life, the government policy, the market, etc. Our society today is designed based on the assumption that the workforce will retire at around the age of 67 for most people, and if I would like to retire much earlier than that, obviously I can’t count on that system to help me.

I have to count on myself.

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