I’ve already wrote about the feasibility of social security being able to support the upcoming generations in a previous post. In this post I want to talk about how social security still can apply to your investment strategies.
First of all if you are under the age of 30 I’d write of planning social security into your retirement income right now. You can factor the extra savings and return required to make up the difference now instead of when you’re 50 and the numbers look too large to conquer. With the joyous power of compounding returns time is still on your side, it won’t be if you ignore the problem.
Second, it’s good to free your mind from the concept the government will take care of you. You have already taken the step by deciding to invest for retirement or to make your living off investments / trading or else why would you be reading this site? You know no one cares about your financial future as much as you do so why plan on anyone else helping? This includes government, company pensions, and rich Uncle Joe. If any of those pan out great, bonus! But if not, you already planned it that way and no harm done.
So now that you’ve made an investment plan that doesn’t include social security how does social security apply to you anymore? The initial fear is that many people will be unable to retire and this will force more people to be unemployed. That would be bad for the general economy. I happen to think it may not be so grim, here’s why:
- The average experience level will remain higher in the work force. I know this is good for new employees learning curves as well as effective execution of business plans. The only bad side is this sometimes can be bad for innovation. How do you think this will affect some of your long term buy and holds?
- People tend to spend more when they are working than when they are retired. As the news has make abundantly clear over the last few weeks this economy is driven by consumer spending. When the baby boomers retire there will likely be a sharp drop in spending in the economy due to their needing to live off a fixed income. Keep them working and you’ll keep them spending. If we increase the working life of an individual you’ll also increase the average spending of a lifetime for the average person. From a heartless macro-economic stand point this may not be a bad thing. Would your stock of choice do well if people stayed working longer? Or perhaps your stock would do worse? If you invest on a longer time span it may be worth considering.
- The country has been slipping away from it’s manufacturing based economy for decades now and moving to a service – knowledge based economy. In this field where the mind often has more sway than your back I believe many people will want to stay in their field because they enjoy it. Age won’t wear them out nearly as quickly as working in the steel mill or on the auto assembly line.
So do you still wonder “does social security apply?” I believe it still does, just not in the way it used to. I know I’ll be following the legislative debates over the next few years because it may change some dynamics in this country.
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