Watching a Crisis in ‘Slow Motion’ Is Always Painful
Earlier this year, I turned 50 — a little factoid that means I was born in 1964. And as far as the U.S. Census Bureau is concerned, that officially puts me in the very last year of the massive population bulge known as the baby-boom generation — the 76 million people born in the 18 years between 1946 and my birth year.
Taking that 76 million and dividing it by 18 years works out to 4 million people hitting retirement age each year (65 for our purposes here, though some of us may retire early while many may retire later than that).
Now, I don’t know about you, but I have trouble wrapping my head around huge numbers. Somehow, they don’t seem real, so it’s hard to grasp the big picture sometimes. So let’s divide the 4 million of us hitting retirement age each year by the 365 days on a calendar.
Suddenly, the statistics get a lot more personal: 11,000 people hit retirement age each day — or about 25 people every minute.
And here’s the kicker: Every one of them, regardless of their level of wealth, is asking the same question . . .
Will I have enough money?
Unfortunately, for boomers and non-boomers alike, the news isn’t so good. The Employee Benefit Research Institute did a survey a few years back, and found that 90 percent of the working population had saved less than $25,000 for retirement.
And for working boomers who may have a saved a bit more — the results are not much better.
According to a 2011 survey by the Center for Retirement Research, the average baby boomer has about $120,000 in his or her 401(k) account. And if you use the widely followed “4 percent rule” to make sure you withdraw just enough each year to keep your nest egg sustainable over the 20-plus years of your retirement, then you’d have to limit yourself to withdrawing just $4,800 a year to fund your living expenses.
Of course, there is that bastion of retirement wealth known as Social Security.
But according to the Social Security Administration itself, the average monthly benefit for a retired person is only $1,294, or $15,500 a year. Add in yearly withdrawals from your 401(k) and you’re looking at living on about $20,000 a year.
I don’t know about you, but this wouldn’t be even close to my retirement dreams. In fact, it would be more like a bad dream that slowly played out for many, many years to come.
So how can you safely reach your financial retirement goals and make sure you have enough money?
That’s the million-dollar question. But if you go with the standard advice Wall Street has been feeding investors for decades, the options aren’t all that great.
Bonds? You could go that route. But a U.S. 10-year Treasury note — the benchmark for pretty much all interest-bearing bonds — has a yield of just 2.4 percent right now. In other words, if you took $100,000 and bought the U.S. government’s 10-year bond with it, your money would net you a paltry income of $2,400 a year or about $120 a month — maybe enough to pay your cable and Internet bill if you’re lucky.
Plus, by buying bonds that don’t mature for a decade, you’re taking on the added risk of inflation. So far, inflation has been reasonably tame. But all markets move in cycles, and when inflation becomes a bigger factor in the years to come, then the bonds you own today will be worth less to the investors you might want to sell them to tomorrow.
Why? Because of the corrosive effects of inflation. Think about it: Even a relatively benign inflation rate of 3 percent means that, in the course of a decade, the dollar you have in your wallet today has 30 percent less purchasing power a decade from now.
Bottom line on bonds . . . with low yields and the specter of rising inflation, there’s a good chance you’re going to lose out big time in retirement.
An alternative of course is the stock market. You could easily buy an S&P 500 index mutual fund, or an exchange-traded fund (ETF) that tracks the same index. And at current levels, you’ll get a dividend of not quite 2 percent for your money. Again, that’s hardly suitable as a source of livable income.
One bright spot might be the long-term benefit (I’m talking over many decades) of the S&P 500’s historic yearly average growth rate of about 8 percent. But that’s the average, which includes all the ups and downs that come with owning stocks. Who has the stomach to sit through a 30 percent bear market decline or a 50 percent crash from a bursting bubble?
Further, an 8 percent gain on your money each year isn’t likely to get you as far as you think. Remember, inflation is constantly eating away at the purchasing power of your money. A 3 percent inflation rate will drop your 8 percent return down to 5 percent. And note that if you’re using mutual funds, you could be hit with another 2 percent in hidden fees (more on that from Steve Forbes and John Shubert in another email).
The bottom line here is . . .
Where can you truly find financial peace of mind as you head into retirement? How can you grow your nest egg and still live the life you want in retirement?
That’s exactly what we will be discussing in this VIP Primer Series as we get you ready for the Investment Crisis Summit on November 6.
Over the next several days you will have access to exclusive resources from renowned Forbes editor-in-chief Steve Forbes, veteran investment mogul John Shubert, and me as we show you all the major obstacles that could derail your financial goals and retirement. More importantly, we show you a clear path to rapidly grow your wealth without taking on any additional risk.
So make sure you keep an eye on your email inbox tomorrow, as I will be sending you a link to a video where Steve Forbes, John Shubert, and I discuss one critical issue affecting the U.S. economy and the financial markets — an issue where unelected bankers had better get their hands out of the financial cookie jar before it ushers in another 2008-style crash . . . very soon.
So make sure you don’t miss this critical first video of the VIP Primer Series. And again, from Steve, John and me, we’re glad to have you on board for this watershed event.
Financial Director, Newsmax Media