Saturday, June 02, 2007

Bad Personal Finance Choice? - I Don't Expect The Government To Save Me

Since the early 1900's , the government has made protecting citizens from there own mistakes one of it's responsibilities. Bank failures from the 1920s led to the creation of the Federal Deposit Insurance Corporation (FDIC) in 1933 by the Glass-Steagall Act. When poverty rates among senior citizens exceeded 50%, Social Security was created in 1935 to provide "social insurance." When corporate insolvencies began to put pension programs at risk, the Pension Benefit Guaranty Corporation (PBGC) was created in 1974.

These programs all have good intentions - protect the financial security of US citizens. While initially solvent programs, many of these government protections are starting to have financial sufficiency issues. Many of these programs seem like Ponzi schemes to me, where the benefit to current recipients are paid by current participants in the program. And Ponzi schemes are doomed to eventually fail. The PBGC is struggling with possibly absorbing auto and airline pensions and probably will no longer able to guarantee 100% of everyone's pension. Social Security's funds are estimated to be depleted by 2042. The FDIC, while still strong, would likely have some issues if several major banks failed simultaneously.

Therefore, I am conservative with personal finance choices and do not count of the government to save me.

I am saving as if there will be no Social Security. My personal goal is to have 20 times my income saved before retirement. At this level of savings, I will not need Social Security payments. Thus, any Social Security received will be a bonus :-)

I choose to have accounts diversified at strong financial institutions. I use Merrill Lynch, TD Ameritrade and Charles Schwab for my brokerage account. I bank at a very strong regional bank. While I find new financial institutions, such as, interesting, I will not put any money there until they are a proven to be a strong financial institution. Net, unless there is a total failure of the US economic and monetary system, I will not lose all my financial assets if one of these companies fails.

I take high risks only when I am willing to lose 100%. High risk mortgages? Never, since I can't afford to lose my home. Buy equity options? Yes, I can minimize my losses to the cost of the option. Invest in a bar? Yes, but only as a Limited Liability Corporation (LLC) so that my maximum loss is my investment.

Net if I ever expect the government to protect me, I first look at how I can save myself :-)

For more on Reflections and Musings, check back every Saturday for a new segment.

Photo Credit:, Paul Anderson

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

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