The Special Social Pension of the Financial Frolicker

Do you remember when i told you all to remember that frolicking wildly can only help your retirement?  Canny readers may have picked up on my participation as a beneficiary in several social pension schemes.  Well, it is time to reveal the Oracle.

The very Special Social Pension of the average FF, is no more than a portfolio of national scheme social pensions, assiduously acquired and nurtured over the term of an adult life.  Personally, i will be a fully entitled recipient of an australian state pension, half of a fully-franked american social security cheque, a fully franked british state pension, and a part german social pension.  

In fact, when my would-be financial advisors cock their heads at me (pun intended) and suggest that i am not saving enough for my retirement and they have products that could help me do that and save me some tax too, i whistle jauntily and tell them that i do not need their products.  I do not - because i actually use an additional state pension (the german one) as a savings vehicle.  It gives me longevity insurance and inflation protection, and a bunch of gateway benefits too, and it is not subject to significant rule changes that erode its value, well not without mass electoral revolt countrywide.

Yes, guys and gals, many social pension schemes, once you are enrolled, allow voluntary payments - globally with caveats.  In my case, the american and australian ones do not, but the british and german ones do.  They can be franked as private pension schemes, just like private pension accounts but without the tradeoffs between tax convexity and political and regulatory risk and treatment.

You will pay your tax, and your social contributions - and you will get your social pension.  Social pension rules may change - but you are going to get one, and they can't change too materially because too many seniors depend on them and little else.  It's incredibly hard politically to change entitlements systems for social pensions.  People vote hard on things they rely on in old age and contribute large sums of money to over a working life.  This financial frolicker considers risk of major material reform to social pensions almost vanishing, but the risk of major material reform to private pension funds absolutely overwhelming and imminent.

I listen to the debate in america about entitlement programs like Social Security being unfunded and unsustainable and i just laugh out loud.  Of course, it is great press for selling private pension accounts and the lobby groups are all for that, but the bottom line is if you think getting universal health care in america took a long time, you ain't seen nothing compared to taking people's social pensions off them...  

I will bet you your house that in 15 years time absolutely nothing will have changed materially except some additional sources of funding for those programs.  They are untouchable.  The australians as always offer a real clue on directionality.  You do need to worry about your private pensions and assets and income being used to offset your social pension entitlements.  That is a real risk.  However, the first asset they will use for offsetting will be your private pension pot - count on that.  They want to use those politically for fiscal purposes.  That Baby Boomer crowd is just itching to use those pots to cash them out on ponzi housing en masse.  Trust me.

By imminent reform to private pension rules, i mean the next stock market and macro crash which we are currently on the precipice of.  My bet would be that after they expunged monetary policy to put a floor under the GFC, then expunged fiscal policy to put a floor under covid, they will be putting a floor under the next crisis with your private pension pots.  Sorry.  Hard politic is something generation Baby Boomer has excelled at for a long time.  Their private pots are full for them, and the Devil take the hindmost - literally.  

That is Baby Boomer political lore when it comes to growth and inter-generational equity.  You do not want to be the youngest.  I sometimes think everybody who is not a Baby Boomer should answer to the name 'Patsie' for what we continually allow them to get away with, but i think that day of reckoning is coming too.  I just want you guys to have viable financial situations when that social conflict gets real, in the later years of this decade.  It is going to be a doozy.  One for the ages...

So, my advice to all would-be financial frolickers is to go out there and frolick. Work in several countries, and smile broadly at the line on your payslip that represents social contributions.  Everybody should have 3-4 social pensions, that they keep franked with direct labor or voluntary contributions.  Every non-baby boomer who is short housing on this planet should answer ponzi housing with replicated social pensions.  Every single one of you.  The older you are and the longer you have been short housing the more desperately you need several social pensions.

We all know conventionally that one social pension is not, on average, enough for a decent lifestyle as a senior, and that you certainly cannot be paying rent as well.  That is the whole 'carrot and stick' act on getting you into private pension pots that are subject to re-regulation by Baby Boomer politicians.  However, if you have 3-4 social pensions then one of them will pay the rent so cover the short housing position, and a second will cover the gap that your private pension pot is for.  The third is the charm.  ... and the 4th is a bit of tactical insurance that you get aggressive with if you see features being modified against you.  

You do not want more than 3-4.  The likelihood of asset tests which limit your income in retirement by offsetting your entitlements is real and growing.  It has already been the case in australia for decades, although it was a serious political fight to bring it in.  Don't get crazy - just get your middle class income covered.  It is very possible to put together a few entitlements as outlined here that will pay 50 000USD in retirement, indexed every year for cost of living, until the day you die - with survivorship benefits for your family.  It is also possible to pay rather amazingly little for it on one side of a married couple.  We are going to get to that...  When it comes to social pensions and the financial frolick, marriage really is bliss...

One pension broker who i am currently carrying out a due diligence exercise on in germany has a typical pitch deck presentation that suggests a viable pension plan is comprised of an owned home, a fully franked state pension, and a private pension pot.  That fairly classic appraisal then devolves into debunking alternative private pension alternative selections to its own of course.  

I agree with the brokerage that for generation Baby Boomer this was very solid sensible advice.  For the next two generations i doubt it very much.  I suspect a much better plan is to avoid ponzi housing until it touches heaven and falls to hell, and to avoid significant values in private pension pots due to the likelihood of those pots being assigned other purposes by substitution.  If you are not a Baby Boomer who has owned a home for 30 years.  If you are gen X and have not owned a home ever - you need 3-4 social pension schemes, and you need it now.  You probably want to be in a country with very developed socialised rental markets and a habit of lifelong rental.  Guess why an Australian non-boomer ended up in Germany?

In the next episode we are going to show you how cheaply a set of social pensions can be acquired, and just how flexibly some typical scheme features can interact to give you additional benefits, when you need them most.  You will be quite amazed at the economic powerhouse that is your social pension entitlement card.