If "Ifs" and "Buts" Were...

Create Your Own Social Security Fund

With a monthly deposit of $206 per month, you'd have $194,625 at retirement. If you continued to earn 5% interest on your money, you could withdraw $810 per month without touching your principal.

Welcome to the magical and mythical world of 5% interest rates, no inflation, and the ability to withdraw 4x your initial deposits per month until eternity. It truly does give the Social Security Trust Fund a run for the money.

If your money grew at an 8% interest rate, you could nearly equal your retirement principal from the 10.6% rate at the 5.3% rate.

If "ifs" and "buts" were candy and nuts we'd all have a Merry Christmas!

Here's an alternate scenario.

Let's say that the money you save exactly keeps up with inflation after taxes. It might not be easy in this low rate environment (especially if inflation picks up and/or taxes rise someday), but let's assume that you can actually pull it off. Who said I couldn't be optimistic?

We'll call it a Benjamin Franklin approach to saving.

A penny saved is a penny earned. - Benjamin Franklin

This makes the math so much easier and so much safer. Saving one penny and expecting it to spit out 4 pennies in the future is just asking for trouble in my opinion.

So let's do the math.

If you save $206 per month in today's dollars and do it for 32 years, then you will have $79,104 ($206 x 12 x 32) in today's dollars when you retire. That's it. Consider yourself lucky if you have more than that.

If you withdraw $810 per month in today's dollars, then it will last you roughly 8 years. You'd then be broke.

You can safely withdraw $0 of it per month if you don't want to touch the principal though. So have at it. Feel free to withdraw $0 as many times as you like.

We here at the Illusion of Prosperity blog don't believe in having your cake and eating it too. I think I can speak for the majority of the readers on this. If we save a slice of cake for the future, then we only count on having one slice of cake in the future.

That's if we are lucky. Governments of the world have been notoriously crafty at extracting cake wealth in times of economic peril. The currently pathetic 0.2% I-Bond rate is proof alone of that. Once expected inflation is factored in, it seems to come up a bit short of the 5% initial interest rate assumption.

Of course, we could simply take on more risk to fund our retirements. Although it hasn't worked out so well for the last decade, it might work again someday. Maybe. Who really knows?