Lessons From Detroit

Recently, a judge allowed the City of Detroit to remain in bankruptcy court which will allow the city to try to find a solution for an $18 billion debt problem. As a part of the solution, the pension benefits for a lot of retirees and current workers may be significantly reduced. The city is in serious financial trouble and without some sort of drastic measures, it might never recover. 

This is not unique to Detroit.  There are many cities across the country in dire financial situations and it’s not unfathomable to believe that states and even the country could be in a similar situation if fiscal sanity doesn’t return to those who are in charge of making decisions about financial matters.  But, that issue is far too big to solve in this blog!!!

And, this situation isn’t just isolated to government entities.  It seems relatively often that I read about another company freezing or terminating a pension plan, merging with another firm or shutting their doors.  Things are rough out there!  And, all of this rough financial sledding can trickle down into problems for individuals.

Imagine yourself as an employee who is just about to retire or is recently retired from the City of Detroit.  How secure are you feeling about your ability to pay your bills and live the lifestyle that you had been “promised” during your whole career?  What will you do to make up for any cuts in your pension?  What about healthcare costs if your retiree benefits are cut or reduced? To pile on the potential bad news, does anyone feel 100% safe and secure about the level of Social Security benefits that you could receive in the future?  If you work for a company, do you feel, on a 1 to 10 scale, like a 10 when asked if you’ll be able to work there as long as you’d like to and that you won’t be on the wrong end of a downsizing or restructuring?

What does all of this mean to you?  What can you do in the face of all of this mounting uncertainty?  This is where you can look to names like Columbus, Lewis and Clark, Neil Armstrong and Buzz Aldrin, Edmund Hillary and too many others to name…

What did all of these people have in common? The odds were stacked against them.  They had a lot of uncertainty in their paths.  Maybe they weren’t always 100% confident in their eventual success.  But…all of them took on a do it yourself spirit of problem solving and would accept no other solution.  (Might I add that my Baltimore Ravens had the same spirit last year on their way to the Super Bowl? A few of our other planners are rabid fans of other teams, so I’m sorry for this gratuitous shot at their teams!  Not really…)

If you believe that you aren’t going to have a big pension and Social Security income stream during retirement, you will be part of the ever growing “Do It Yourself” retiree generations.  It’s your responsibility to prepare yourself for the long haul.  And this means aggressively looking at both sides of your retirement equation: saving and spending.  Save aggressively!  Spend judiciously! There is a school of thought today that “extreme” retirement savings strategies can allow a person to retire relatively young if they both save aggressively and spend judiciously.  It just makes sense!

Reducing debt and eliminating it altogether is an important way to position yourself for retirement.  Knowing where each dollar goes is a huge positive factor.  Getting not just to your company matching contribution, but to the IRS legal limit in your retirement plans should be a goal.  As a rule of thumb, for every $1,000/month you want to spend in retirement, you would need ~$250,000 in savings and investments.  What is your take home pay today?  Add in a significant amount for healthcare costs.   And…you can get the sense of how much you’d need to save before retirement becomes reality.  Minimizing your spending today will allow you to save more now, and set your “baseline” lifestyle spending habits.

I guess the message out of the mess that Detroit finds itself in today is that you don’t have to be like Detroit.  You can control your personal economy to a large degree and if you take two simple steps (save more and spend less) every day, you will position yourself to have any bad news in your financial life impact you far less than it otherwise could.  It’s a do-it-yourself world, so get out there & start doing…

 

 

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