I now turn my attention to pillars which are less reliable: Social Security, Anticipated Inheritance, and Anticipated Lottery Winnings.
According to a 2019 annual report by Social Security administrators, the trust funds that pay out Social Security benefits will be depleted by 2035. From that point on the only funds available to pay benefits to retired Americans will be those actively contributed by employed Americans. Contributions by those employed are likely to only be about 80% of the amount to which retirees will be entitled.
That makes Social Security precarious.
Social Security is covered in greater detail in the retirement planning chapter.
Anticipated Inheritance Pillar
If you have a parent or relative who has promised you an inheritance, you’re the potential recipient of a free pillar of wealth. But until that money actually arrives, it’s still a potential—but not guaranteed—source of wealth. This is because despite the best intentions, the generous benefactor may outlive his money. He may squander it recklessly in a gambling establishment. Or, he may decide he no longer likes you, or your spouse, or your children, and may amend the Will to exclude you.
Even if you feel secure with the expectation of an inheritance, you should avoid relying on it as your sole pillar of wealth.
For the sake of conservatism, I recommend ignoring such anticipated pillars entirely during financial planning. The worst thing you can do is to squander all your earnings and not save in anticipation of an inheritance that never materializes.
Anticipated Lottery Winnings
A March, 2019, online survey found that “approximately 40% of U.S. consumers–and nearly two thirds of millennials—say winning the lottery could be a good retirement bet.” This despite the mathematical fact that only a tiny percentage of the population, battling million-to-one odds, will win a lottery.
Don’t procrastinate in the false hope that all your financial problems will go away once you win the lottery. For almost all of us, that isn’t going to happen.
Financial assets don’t magically appear in retirement. You need to get them the old-fashioned way, by building them carefully through hard work and prudent consideration of risk and return.