He may be a murderous bastard with no conscience, but if Frank Underwood were a real-life candidate for the presidency, I would vote for him.
Frank Underwood is not a real person, of course. He’s the crooked politician portrayed by Kevin Spacey in the Netflix series House of Cards who claws his way into the White House by manipulating the press and ruthlessly crushing anyone that might get in his way. But sadly, with one line, he delivered more honesty than I have seen from any president, senator or House representative, from either party, in my lifetime:
We’ve been crippled by Social Security. By Medicare. Medicaid. Welfare. And entitlements. And that is the root of the problem. Entitlements. Let me be clear: You are entitled to nothing.
Underwood then goes on to propose a ludicrous $500 billion make-work program for the unemployed, but we’ll ignore that for now. Instead, I want to focus on that last line: “You are entitled to nothing.”
If you’re in or close to retirement, those words are going to rub you the wrong way. But that doesn’t mean that they’re not true. Social Security and Medicare are not “rights” in any sort of legal sense. Congress decides on the payout, and Congress can change it—or eliminate it— at any time. You really are not “entitled” to anything and certainly not guaranteed.
But that’s not the message we get from our leaders. Instead, they make promises that they know can never be kept, but they do so knowing that they will not be up for reelection—or possible even still alive—when they have to be broken.
You are entitled to nothing. It’s not fun to hear, but it’s important to keep it in mind when doing your retirement planning. You should go forward with the assumption that your benefits in retirement will be lower than currently promised…and possibly much lower.
Here are some specific recommendations on how to approach your planning:
- Focus on income rather that the “magic number.” Most financial planning centers around amassing a nest egg of a certain size, but this is completely backwards because it doesn’t take market yields into account. A million-dollar bond portfolio would have paid about $40,000 ten years ago. Today, it would pay about $22,000. So again, focus on the income being thrown off rather than a certain net worth number.
- Consider investments you might have never considered before. With the stock market priced to deliver lousy returns over the next decade—and yielding a pitiful 1.8% in dividends—investments like preferred stock and closed-end bond funds can good income producers if bought at a good price.
- While I’ve never been a fan of variable annuities due to their high fees and maddening complexity, an immediate annuity can be a way to turn part of nest egg into a safe stream of income resembling a pension.
Just take President Underwood’s words to heart—you are entitled to nothing—and set about planning accordingly.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.
Mr. Sizemore,
As someone who is still working, but nearing retirement, I have to remind you that when I was your age and younger, my Social Security and Medicare taxes went to your parents and grandparents (or others in their generation). I have not yet received any Social Security payments, and will not for another 10.5 years (full SS retirement age). In contrast, your parents and grandparents (just like mine), have received these “ENTITLEMENTS”, if that is what YOU, just like the politicians in Washington, like to call them. Don’t ask me to give up my so-called entitlements, unless you also ask your parents and grandparents to chip some back into the system.
I’ve been working and paying into Social Security since age 16 (40 years), and don’t appreciate so-called financial experts sounding like politicians in Congress by trying to fool the American citizens with disingenuous buzzwords like “entitlements”. The taxpayer-funded healthcare insurance that members of Congress and their staffs receive, through the Federal Employee healthcare “exchange”, should then also be called “entitlements”. Same with Congress members’ pensions. When are you going to call out those “entitlements” as well?
When my employer deducts Federal Tax, Social Security and Medicare taxes, they are THREE (3) separate line items. They are three separate accounts. Congress “borrows” from Social Security to pay for whatever Congress deems.
How do you think our government paid for the Wars in Afghanistan and Iraq? Since the Bush Administration and Republican Congress did not put ongoing annual war spending on the Federal Budget, it was handled through “Continuing Resolutions”. In effect, these two undeclared wars and other federal spending were covered in part with transfers (borrowing) from Social Security.
The Federal Budget and Social Security are TWO SEPARATE things. Only via Congress’ borrowing from Social Security and not paying it back as they should, can “financial experts” and dishonest politicians in Congress claim that Social Security is an “entitlement”.
You should either 1) call for an end to Congressional borrowing from Social Security, or 2) call for Congress to work out a payment plan to fully pay all that has been borrowed from Social Security. Both of those options have little chance of ever passing Congress. But please don’t try to fool us by parroting what dishonest politicians in Congress are saying.
BTW, how are your parents and grandparents enjoying THEIR Social Security and Medicare ENTITLEMENTS?
Ron,
I may be wrong, but I believe that Mr. Sizemore is not implying that people who pay into social security their entire careers and then expect payments in retirement are spoiled and entitled. I believe that his point is that because of the borrowing etc. that you (correctly) cite as a contributing factor to the eventual (inevitable?) failure of social security, and the assumption that the rules to the game can change at any time, it would be wise to plan for the worst and hope for the best.
I will often use similar strategies in planning for clients; such as using a 3% inflation rate, even though we are currently nowhere near such a rate, or assuming they will spend the same (or more) in retirement, instead of using the “80%” rule of thumb.
If you can manage to get yourself into a position where you are living on dividends, without invading principal, you have likely set yourself up for success. If you have social security and a pension that end up delivering as promised, that will be icing on the cake.
Thanks, Sam and thanks, Ron. You are correct. I am not faulting retiring Boomers for expecting what was promised them. I fault the people who made unrealistic promises and had no qualms about passing the bill on to later generations. And Sam has the right takeaway. Hope for the best, but plan for the worst.
Best wishes,
CLS