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By TMFDj111
June 16, 2004

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This article is interesting (Mary Williams Walsh, "As U.S. Pensions Fade, Workers Lose Wealth," International Herald Tribune, 15 Jun 04, p 17):

The article is loosely based on research by Edward Wolff, an economist at New York University:

The thesis is today's retirees are poorer than previous generations' retirees in terms of constant dollars. According to the article, this generation's defined contribution plans are not worth as much as previous generations' defined benefits plans. The article goes on to claim that studies that come to contrary conclusions "...have been skewed upward by the extraordinary gains of a few wealthy households." Later in the article, the author states, "The advent of self-directed retirement plans, by contrast, is giving rise to an elite minority who are well prepared for retirement."

In many ways, this article reiterates points made in the TMF series of articles on retirement planning:

Past generations of serfs -- er, retirees -- benefited from systems in which benevolent lords looked after their peasants' interests in their declining years. The price the peasants paid for this safety net was they could not leave the manor without their lords' permission.

In contrast society probably will hold future generations of retirees accountable for their own comfort in retirement. Those folks who CHOOSE extravagant lifestyles may find they have only themselves to blame for a parsimonious retirement. On the other hand, those folks who CHOOSE to live below their means during their accumulation years and use the excess funds to invest intelligently and accumulate wealth probably will find their post-retirement lifestyle is as good as or better than their pre-retirement lifestyle.

I think the way to ensure that I am included among the elite minority mentioned in the article is to have a personal financial strategy. I have a list of things I want, and I'm working to accumulate those things slowly and piece by piece.

My wife and I found each other. While we have our ups and downs, we have more ups than downs, and I think a bad day with my wife is better than a good day doing anything anywhere with anybody. You'd have to ask her what she thinks.

I have a good education that allows me to earn a good living. I work hard to maintain and expand my credibility in my chosen profession and to maintain and expand my expertise in my technical field. I'm active in professional societies. I read professional literature, and I attend professional conferences.

We want to live in a nice home. It doesn't have to be the best that money can buy, but we want a home that is easy to maintain, inexpensive to operate, and comfortable. I want a home that's large enough that I can get out of bed in the morning without bumping my nose on the wall. My wife wants a home where we can have horses and dogs. We've owned our own home in the past, but we're renting two homes now -- I'm finishing an assignment in Europe, and my wife is a full-time student in North America. We have a war chest that will allow us to buy the right home at the right price when we're ready to stay in that home for a very long time. I wish our war chest was larger, but there are trade-offs to be made in life.

There are other things my wife and I want. We have a plan to get there.

Dwight Eisenhower once said something to the effect that a plan isn't important, but planning is. A corollary is most people don't plan to fail, but many people fail to plan. The bottom line is if you want to achieve your goals, wealthy relatives are nice, luck is good, but a plan to get from where you are to where you want to be is best.

Will you be the lord of your own castle? Or will you depend on the kindness of strangers and scavenge for wealth redistribution schemes?

Does the Fool work for you?

David Jacobs

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