Here is a conversation that happened in 2007 and has relevance today (was in the forum and moved here to the blog. My how 2 years changes everything.)
If you think America will recover and remain a world super power then you may have to think again. This debt may cripple them forever. In the history books it might read America killed themselves by fattening their consumption appetites beyond their means.
According to Forbes, the personal savings rate as a percentage of disposable income (Yd) in the US last year was negative 0.5%, by far the lowest of any industrialized nation. In France, the savings rate was 11.6%. Germany’s rate was a robust 10.6%. Japan clocked in at 6.7%. Congrats US on propping up the world economy with your consistent need to buy things! You know what business I should be in , CREDIT CARDS! DiscussEconomics One and Gold for you….
How can you help yourself? First off, keep all debt low, and big debt lower. DO”NT PAY UNTIL….. has caught so many wiener Americans… and Canadians for tha matter. Don’t live without your means and please, thinkg about tomorrow, cause I don’t want my taxes to go through the roof to support all the homeless in 40 years….
Great post Barry. The scary thing about this (as you mentioned) is when the majority of voters are forced to lower their standard of living due to poor planning, will they rise up and tax those of us that planned ahead to provide their entitlements? What will happen to the people that are responsible and save for their retirement? Will we be taxed into oblivion to support those that did not plan for their future? Makes me want to go ahead and buy that new Porsche right now before the taxman comes!! Wink
If this survey is accurate (I have seen other surveys that show Americans are taking retirement saving more seriously now) , then it does make me question the point of saving for retirement. If the majority of Americans are poor savers, and the majority will vote in their own interest and elect politicians that will tax the rich to redistribute wealth, are we shooting ourselves in the foot by being responsible and saving? Would we be better off overall to join the consumerism party and live it up? If not, we may just end up old, bitter, and broke while we are taxed to support the irresponsible majority, having never really enjoyed the full fruits of our labors. And if we aren’t taxed directly, we still may be taxed by inflation as the Fed prints more money to cover entitlements.
One immediate option is to maximize Roth IRA contributions (as well as convert standard IRAs to Roths), since they won’t be taxed again in the future. If you anticipate higher tax rates in the future to support the non-savers or other government spending, then this could be a good way to insulate yourself from that. Of course, this assumes that the rules for Roth IRAs won’t be changed. Traditional IRAs as well as 401ks are vulnerable to increased tax rates in the future.
Although I see your point the alternative doesn’t makes sense. Sure taxes will increase (assuming your scenario) but does that mean you shouldn’t save for retirement and get in a lower tax bracket? No Way! You’ll have more money and a better lifestyle with better planning regardless of taxation.
The biggest problem regarding taxation won’t be anything to do with income/retirement, it will have to do with health. Boomers getting older means less tax payers and increased health costs.
My “alternative” was meant to be facetious and certainly does not reflect my view on retirement planning. I expect to be in a higher tax bracket than I am now once I turn 59 1/2 and start easing into retirement, hence my comment on Roth IRAs.
Agreed on healthcare, though I am curious as to how our “obesity epidemic” will affect mortality rates and health care costs for Medicare/Medicaid. Obesity is the new smoking. But that is for another thread….
If obesity reduces the life expectancy of Americans by 15 years then yes, I agree, there will be no health care/tax problem. maybe it’s a conspiracy–JUST LIKE CIGARETTES!
User Zan chimes in:
The surest way to provide for your retirement is to marry some gal like I did. At the time I needed a cosigner to buy my lunch. Hooboy did she fix that.
We both worked all the overtime we could get. Since I was a maintenance mechanic in a process industry I could work seven days a week till I dropped. I only did it about three fourths of the time. Couldn’t stand any more.
Her most effective trick was that whenever I started lusting after some new toy she would say “Allright but think about it for a while first.” Sure enough after a while the shine wore off that car, motorcycle or whatever. I would wonder then why I was so romanced up with it to begin with and keep on putting money in the bank. (30 year treasuries actually)
The most important fact to remember about investment is….financial planner is a euphemism for stock salesman. The second most important thing to remember is the rule of 72.
I once wrote a computer program just for my own use. In it you enter your total investments. Then you enter your total losses. It figured the percentage you must make on the remaining sum to break even and the percentage you must make to get 6%. At first I thought I had done the math wrong. It couldn’t be that bad. I checked the math. It was that bad.
Thanks for the interesting story. 6% is extremely low for retirement savings! 6% should be about the guaranteed amount of GIC’s (guaranteed investment certificates.) we would not recommend someone who is young to invest in bonds (Treasury bills) because the return is so low. When you get older then bonds are better since they are guaranteed (like I said about GIC’s). HEre is our post on the Rule of 72.
I have been in 30 year treasuries since the high interest days. I am 71. I actually get 6 1/2 %. This isn’t bad when you consider that I don’t lose anything. A forum friend of mine recently had to go back to work because his “financial adviser” put him in bonds that were junk mortgage derivatives. He lost all but 20% of his life savings.
It is very hard to tell how much anyone actually nets. So many of us are loathe to talk about losses but are quick to brag about their winners. It is a bit like Bush the First’s figures showing how many jobs had been created by NAFTA. He simply failed to mention the jobs lost which amounted to a great deal more.
I think the thoughts were that 6.5% over the ENTIRETY of your investment is very poor. Of course smart management is important since mortgage bonds would have been stupid (that’ snot diversification). 6.5% barely covers inflation over the period so really your may only be 2% better off year by year…… Of course, too late now
Back to 2009, most signs point to an American economy that has yet to show real signs of recover. Everything from consumer spending, to labor numbers, to holiday rush on sales. We’re not out of the woods yet….