The Government Won't Always Fund Your 'Ham and Eggs'

In November 1938, 1.1 million Californians voted for "Ham and Eggs"...

The Ham and Eggs movement was a pension scheme that promised "$30 every Thursday" to every unemployed man and woman in the state aged 50 or older.

The idea was formed in 1937 by radio personality Robert Noble, who took it to advertising agency owners Willis and Lawrence Allen. Together, they used the movement as a way to make money for themselves and gain political power. But the idea behind the scheme – taking care of older folks – had merit.

During the Great Depression in the U.S., around $7 billion in assets were lost as 9,000 banks failed. At its peak in 1932, nearly a quarter of Americans were unemployed...

Millions of people had no jobs, no savings, no food, and no homes.

The lasting images of the Depression tend to be panicked stockbrokers... lines of men waiting for jobs... and hungry families. But seniors were also hit hard. Their children couldn't afford to help them, and even if they could work, few jobs were available.

The Ham and Eggs movement (which narrowly lost at the ballot box) wasn't the only one that promised a way to provide for the older unemployed. For example, the Townsend Plan wanted to use a national sales tax to give every American aged 60 or older a $200 monthly pension payment. Similar plans were proposed all across the U.S.

But the one that took root was the Social Security Act... which promised that every individual 65 or older would receive a monthly "old age benefit." The first Social Security check – for $22.54 – was issued to Ida May Fuller on January 31, 1940.

Social Security was meant as a temporary solution to pull Americans out of poverty. But decades later, around 90% of people 65 and older receive Social Security. A 2020 report from the National Institute on Retirement Security found that 40% of those recipients rely entirely on their Social Security income.

But last week, some bad news hit the headlines... So today, I (Laura Bente) want to explain what this means for your retirement.

We've written before that Social Security is living on borrowed time. And, according to a new report from the Social Security Administration, its trust fund will run out November 2033. This is a slightly better outlook than the agency had last year... But if the funds do run out in 2033, it means a 21% cut in benefits.

So if you're already depending on your monthly check – or plan to do so in the future – you should consider this worst-case scenario.

Does this mean the end of Social Security?

Probably not. Despite its cost, it's still a popular program that too many Americans entirely depend on to fund their retirements. But that doesn't mean things won't change.

The biggest reason there's not enough funding is that not enough workers pay into the program to cover all of the Americans already getting Social Security.

The other issue is that we're living longer. Back in 1940, when the first checks went out, a 65-year-old could expect to live another 14 years. Today, with our higher life expectancies, the average Social Security recipient will collect an additional six years of monthly checks.

Politicians have various fixes to consider... One proposal is to raise the retirement age (like France did, amid massive protests, last year). Another is to lower folks' monthly benefits. Or a tax increase could make up the shortfall.

Any of those changes would generate opposition from some party or other, and it's tough to imagine which one is more likely to get through our divided Congress.

But whatever comes next, it's clear that Social Security shouldn't be the lynchpin of your nest egg. Don't count on Congress to step up and protect your retirement.

If you're not already, make sure you're maxing out contributions to retirement plans like individual retirement accounts ("IRAs") and 401(k)s. You can contribute $7,000 to an IRA in 2024 ($8,000 if you're 50 or older) and $23,000 to a 401(k). If you're 50 or older, you can make an additional $7,500 catch-up contribution. And, as we regularly tell readers, make sure you're putting your money to work in the markets. Stocks are the best way to grow your wealth over the long term.

If you're struggling to set money aside for retirement, take a hard look at your finances while you still have time to prepare. If you're living beyond your means now, you're not setting yourself up for a sustainable retirement.

One of the best ways to do this is to treat saving money like you would a bill... not as an afterthought. You wouldn't skip out on your electric bill because you want to keep the lights on. Think of saving the same way.

The best way to do this is through your employer's 401(k). The money you contribute to a 401(k) is pretax. Plus, that money is tax deferred as well. That means you won't pay any taxes on it until you start taking money out in retirement (when your tax bracket will likely be lower than it is while you're working).

And if your employer offers a matching contribution, that's just bonus money for your nest egg.

You can start small with just a few percent. It's automatically deducted from your paycheck, so once it's set up, you won't have to do anything. And some providers allow you to automatically up your contributions at certain times, say an extra 1 percentage point each year. You likely won't even feel the difference in your paycheck.

The government might not take care of you in the future, but you can take care of yourself if you plan.

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Here's to our health, wealth, and a great retirement,

Laura Bente, CFP®
May 14, 2024