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Posted on 01/03/2022 9:58:15 AM PST by blam
We are on the cusp of a retirement crisis that will affect everyone. Far too many promises have been made and the demographics we face do not bode well for a bright future. The answer that some people tout is we should have more children or open the borders. This is based on the idea we need more workers and ignores many other factors feeding into this issue. There is simply no way “more children” or workers can ever pay enough into the system to fulfill the promises that have been made.
The competition for programs from the government to support the needs of different generations is about to explode as young and old Americans reach out for more help. Much of our problems stem from a slew of bad policies either driven by stupidity, corruption, or an unwillingness to accept the reality you can postpone a reckoning for only so long. Investors and the public at large suffer from a “recency bias of hope” that tends to blind them from unpleasant long-term realities.
The coming together of surging investment risk, an interrupted business cycle, and demographics are coming together to form the perfect storm. To clarify, much of the wealth in America is held in the hands of the baby boomers that have just or are about to retire, and over the years, many have moved into risky investment in search of yield. It has been years since we have had a major recession so sooner or later, it is logical one will arrive. Last, but not least, we are now seeing demographics play a larger role in the economy as boomers downsize (sell assets) and cut spending.
While we look upon a world of wealth, we also see a world of debt. Unfortunately, over the last few decades growing inequality has placed much of the wealth in the hands of a few and distributed the debt in places where it will come back to bite us. Below are a few ugly indicators highlighting some frightening imbalances.
Facts Indicating Problems Ahead
• Demographics show older consumers tend to downsize (sell assets) while spending less
• The boom-bust business cycle has been largely interrupted by surging government spending
• Stock buybacks continue to set new records and drive stock markets higher
• The top one-percenters own more than 90% of America’s wealth. Specifically, the 1% collectively own $43.27 trillion, while the bottom 90% earn $40.28 trillion combined.
• Moody’s estimate of Illinois’ retirement debts, made up of pension and retiree health shortfalls at the state and local level, hits $530 billion in 2020
The example of the pension and retiree health shortfalls in Illinois is well documented. Sadly, many other states and local governments have the same problem. This is despite a massive multi-year stock market rally and huge tax hikes that went to pension funds. It is difficult to imagine how many of these pension plans can avoid default. This is already baked into the cake.
The financial giants aided by media have created the myth that everyone is making money when they invest in a retirement plan. Financial companies often forget to tell investors that when they invest in a 401 plan, the risk falls directly onto the individual owning the plan. Adding injury to insult, looking deeper into these schemes you will find outlandishly high fees buried under a slew of different names.
Often the magic of compounded returns is overwhelmed by the tyranny of compounded cost. A report by Robert Hiltonsmith claims these are a retirement savings drain. Hiltonsmith revealed a slew of pay-to-play and hidden kickbacks dwelling deep in the details of long difficult and boring documents. These tricks used to drain wealth from a customer’s account helps to explain how financial companies pay for all those commercials and slick pamphlets constantly being thrown before us.
A big problem looms for those Americans that continue to believe disaster is something that hits other people but not them. Sadly, whether you have invested in a pension plan or a 401 account, prior economic crises show there is no guaranty that you will ever see your money again or if you do, that it will have retained its buying power. The risk is not only in stocks, but also lurks in bonds. Investors in bonds face a huge risk of default if they buy junk bonds and a good possibility of getting crushed if interest rates rise.
This Did Not Work For Japan And Is Not Working For America
Based on how Japan has fared over the last several decades it is difficult to see the green shoots of a global economic renaissance suddenly spring forth as the result of even lower interest rates. In fact, the next economic downturn will likely envelop the planet and may last forever and a day. This is because central bank intervention and manipulation often have negative unintended consequences. People often discount how lucky Japan has been following its economic bubble burst in 1992 to be located next to China. Because of China’s years of booming growth, Japan was able to mitigate much of the pain it was forced to endure.
The ramifications of a retirement crisis will affect everyone. When older people lose their savings or watch their wealth fall they have little time to earn more. They cut back or need help to survive. When these people sell their assets it could cause deflation but that is not a certainty. My feeling is inflation is strong enough it will only slow its rate as money flows to tangible assets and away from paper and promises. Regardless of how you view this, it is not a recipe for strong growth.
A. Never depend on government. Us Generation X'ers who've heard as long as we've been of working age that SS will dry up should have been investing in 401K's and Roth IRA's (I sure have).
B. I noted that the article says the top 1%'s wealth is the same as the bottom 90%'s income. That's an apples to oranges comparison. Heck, my wealth is way more than my annual income. LOL
C. I agree wholeheartedly with the main point of the article. We need to quit worshipping Government and treating it like the savior or mankind.
“The competition for programs from the government to support the needs of different generations is about to explode “
Everything wrong in a nutshell.
Other than "burning the furniture to heat the house", there's no way their children could afford to move back into those neighborhoods. Like Long Island, New York, the future of those neighborhoods is gangs like MS-13.
If it’s between dump on the older people (me) and dump on the lazy scum on welfare who game the system, and illegals——I say throw the latter ones under the bus. Now.
I am retired and EVERYTHING has become so expensive I decided to pick up a part time job!! It is so easy for a senior to get a job today AND the hourly wages are incredibly high, I started at $18.00 an hour, not only that my Medicare supplemental insurance is NOW only $28.00 a month through my employer!! I only work 24 hours a week employers are having a really tough time finding people to work, I don’t understand how they are surviving without a job??
Cloward-Piven Strategy in reality...............
Make all gov’t employees work to age 65 not allowing them to retire at age 53 with cushy benefits and pensions.
Police, firefighters all of them.
The coward Parkland police officer retired at age 53 or 55 with a $115,000 per year pension. That is insane.
Retire?
I plan to die in the office.
I had to laugh. So the companies in the state are getting hit with a brain drain of experienced people who show up with an intact work ethic every day, and the hope is that the needy, purple haired snowflakes will pick up the pace?
Don't be surprised if service and quality in every business dealing degrade significantly over the next couple of years.
“I am retired and EVERYTHING has become so expensive I decided to pick up a part time job!!”
Our CFP said so many of his retired clients are going to run out of money. Inflation and they are overspending due to the high stock market. He is warning them but they will not listen.
This is why we continue to work also even though on paper we have enough to retire. We both expect a major stock market correction this or next year.
We know some people who are still healthy but not enough to be able to work who ran out of money in their mid 70’s. It is a nightmare situation.
Anyone building retirement around Social Security needs their head examined.
I “retired” in March but went PRN at my job and am working about 27 hours per week. Everything in my life is paid for except monthly bills so the job paycheck pays for those. I put my SS check into savings. I’m good but in fear of the future.
Going to the Great One in Heaven.
Take the Name of Jesus with you.
It will bring joy and comfort (song Baxter)
I agree with all your points. My husband’s parents came of age in the depression, and my parents started over with nothing after coming to America. I was taught that the only things that can’t be taken from you are what’s in your head and what’s in your heart. That meant pursuing an education and living honestly. We have lived frugally and assumed we were on our own in retirement. We retired a couple of years ago and are frankly surprised that SS might still kick in something for us. We raised our sons to be frugal and resourceful. They are doing just that.
“Anyone building retirement around Social Security needs their head examined.”
I cannot remember the exact stat my numbers may be off but something like 25% of people age 65 have less than 5000.00 in savings and the next 15 or 20% have less than 25,000.00.
Oh, you’ll get your social security payments back. In fact, there will even be “generous” increases.
Unfortunately, by then, it won’t buy very much.
Yeah, I have seen them reports over the last decade. Sad, but I still stick by what I said. My mother-in-law retired based upon her monthly social security and crap work retirement and she is struggling, struggling hard. She would have been better off keeping on working till she dropped, imho.
That grumpy old codger in the office you always made fun of because he worked up till lunch, came back on time, and worked until 5 minutes before quitting time, is now about to retire and someone else is going to have to pick up the slack.
Someone else is going to be staying late covering his old work load, someone else is going to have to work thru lunch. or you're all going to go on unemployment.
otoh , the place I left just stopped doing all the things they used to, when too many older guys left. sooner or later its going to be a big pile of shtf.
My wife and I have zero debt. No house, cc or car payments. We are 59 and 60.
Our fixed annual expenses are over $50,000 per year-property taxes, utilities, house and car insurance. Most of it is health insurance at almost $2000 month which will drop when we get on Medicare.
But still that is no vacations, hobby money, presents or going out to eat money on and on.
Why we continue to work.
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