Here’s Why (And How) The Government Will “Borrow” Your Retirement Savings

Submitted by Simon Black via SovereignMan.com

Confiscation

According to financial research firm ICI, total retirement assets in the Land of the Free now exceed $23 trillion.

$7.3 trillion of that is held in Individual Retirement Accounts (IRAs).

That’s an appetizing figure, especially for a government that just passed $19 trillion in debt and is in pressing need of new funding sources.

Even when you account for all federal assets (like national parks and aircraft carriers), the government’s “net financial position” according to its own accounting is negative $17.7 trillion.
And that number doesn’t include unfunded Social Security entitlements, which the government estimates is another $42 trillion.

The US national debt has increased by roughly $1 trillion annually over the past several years.

The Federal Reserve has conjured an astonishing amount of money out of thin air in order to buy a big chunk of that debt.

But even the Fed has limitations. According to its own weekly financial statement, the Fed’s solvency is at precariously low levels (with a capital base of just 0.8% of assets).

And on a mark-to-market basis, the Fed is already insolvent. So it’s foolish to think they can continue to print money forever and bail out the government without consequence.

The Chinese (and other foreigners) own a big slice of US debt as well.

But it’s just as foolish to expect them to continue bailing out America, especially when they have such large economic problems at home.

US taxpayers own the largest share of the debt, mostly through various trust funds of Social Security and Medicare.

But again, given the $42 trillion funding gap in these programs, it’s mathematically impossible for Social Security to continue funding the national debt.

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NO ONE TOLD YOU WHEN TO RUN, YOU MISSED THE STARTING GUN

Ticking away the moments that make up a dull day
You fritter and waste the hours in an offhand way.
Kicking around on a piece of ground in your home town
Waiting for someone or something to show you the way.

Tired of lying in the sunshine staying home to watch the rain.
You are young and life is long and there is time to kill today.
And then one day you find ten years have got behind you.
No one told you when to run, you missed the starting gun.

Pink Floyd – Time

I stumbled across two mind blowing charts yesterday that had me pondering how generations of Americans had frittered their lives away, spending money they didn’t have on things they didn’t need, utilizing easy to acquire debt, and saving virtually nothing for their futures or a rainy day. We are a nation of Peter Pans who never grew up. While I was driving home from work, one of my favorite Pink Floyd tunes came on the radio and the lyrics to Time seemed to fit perfectly with the charts I had just discovered.

We were all young once. Old age and retirement don’t even enter your thought process when you are young. Most people aren’t sure what they want to do for the rest of their lives when they are in their early twenties. Slaving away at your entry level low paying job, chasing the opposite sex, getting drunk, and having fun on the weekends is the standard for most young people. But you eventually have to grow up. Because one day you find ten years have got behind you. No one tells you when to grow up. And based on the charts below, tens of millions missed the starting gun.

I graduated college in 1986 and started my entry level CPA firm job, making $18,000 per year. I did live at home for a year and a half before getting an apartment with a friend. I was able to buy a car, pay off my modest student loan debt, go out on the weekends, and still save some money. I was in my early 20’s and had opened a mutual fund account at Vanguard. Anyone who entered the job market from the mid 1970s through the mid 1980’s, which would be the late Baby Boomers and early Generation Xers, had job opportunities and the benefit of low stock market valuations.

P/E ratios of the market were single digits in the late 70s and early 80s, versus 20 today. Dividend yields on stocks averaged 5% for the S&P 500, versus 1.9% today. The Dow bottomed out at 759 in 1980, while the S&P 500 bottomed at 98. A 20 year secular bull market was about to get under way. Baby Boomers and Generation Xers had the opportunity of a lifetime. Even after six years of the bull, when I graduated from college the Dow stood at 1,786 and the S&P 500 stood at 521. I had just begun to invest when the 1987 crash wiped out 20% in one day. It meant nothing to me. I didn’t have much to lose, so I just kept investing.

The 20 year bull market took the Dow from 759 to 11,722 by January 2000. The S&P 500 rose from 98 to 1,552 by March 2000. You also averaged about a 3% dividend yield per year over the entire 20 years. Your average annual return, including reinvested dividends, exceeded 17%. Anyone who even saved a minimal amount of money on a monthly basis, would have built a substantial nest egg for retirement. If you had invested in 10 Year Treasuries, your annual return would have exceeded 11% over the 20 years. Even an ultra-conservative investor who only put their money into 5 year CDs would have averaged better than 7% per year over the 20 years.

Even with the two stock market collapses since 2000, your average annual return in the stock market since 1980 still exceeds 11%. That’s 34 years with an average annual total return of better than 11%. Every person who had a job over this time frame should have accumulated a decent level of retirement savings. That is why the chart below is so shocking. Over 15% of all people 60 and older and 23% of people 45 to 59 years old have NO retirement savings. None. Nada. Zilch. This means 25 million Boomers and Xers are stuck living off a Social Security pittance and choosing between keeping the heat on or eating a feast of Ramen noodles and Friskies. It seems they let 30 years get behind them. They missed the starting gun.

I’m not shocked that over 50% of 18 to 29 year olds have no retirement savings. With the terrible job market, declining real wages, massive levels of student loan debt, two stock market crashes in the space of eight years, and 4% annual returns since 2000, young people today have neither the means nor trust in the system to save for retirement. Their elders had no such excuse. Just a minimal amount per paycheck saved over the last 30 years would have compounded to well over $100,000, even at modest salary levels. It is disgraceful that 25 million people over the age of 45 have saved nothing for their retirement. Far more disgraceful is the median household retirement balance of $3,000 for all working age households. There are 122 million households in this country and 61 million of them have $3,000 or less in retirement savings.

The far worse data points are the $12,000 median retirement balance of aged 55 to 64 households and the $10,100 median retirement balance of aged 45 to 54 households. These people are on the edge of retirement and have less than one year’s expenses saved. There is no legitimate excuse for this pitiful display of planning. These people had decades to save, strong financial market returns, and if they worked for a decent size organization – matching contributions to their retirement accounts. They didn’t need a huge salary. They didn’t need to save 20% of their salary. They didn’t have to be an investing genius. A savings allocation of just 3% to 5% would have grown into a decent sized nest egg after a few decades of compounding.

We know from the data in the chart, it didn’t happen. The concept of delayed gratification is unknown to the millions of nearly broke Boomers and Xers, shuffling towards an old age of poverty, misery and regret. A 64 year old has a life expectancy of about 20 years. They’ll have to budget “very” frugally to make that $12,000 last. The question is how did it happen. I don’t buy the load of crap that you can’t judge people as groups. I judge people by their actions, not their words. I know you can’t lump every Boomer and Xer into one box. Individuals in every generation have bucked the trend, lived within their means, saved for the future, and accumulated significant nest eggs for their retirement. But the aggregate numbers don’t lie. The majority of those over the age of 45 have squandered their chance at a relatively comfortable retirement. These are the people who most vociferously insist the government do something about their self created plight. It’s their right to free healthcare, free food, subsidized housing, free utilities, higher minimum wages, and a comfortable government subsidized retirement. They are wrong. They had a right to life, liberty and the pursuit of happiness. It was up to them to educate themselves, get a job, work hard, and accumulate savings.

The generations of live for today, don’t worry about tomorrow Americans over the age of 45 have no one to blame but themselves. They bought those 4,500 sq foot McMansions with negative amortization 0% down mortgages. They had to keep up with the Jones-es by putting in granite counter-tops, stainless steel appliances, home theaters, Olympic sized swimming pools, and enormous decks. They have HDTVs in every room in their house and must have every premium cable channel, along with the NFL package. They upgrade their phones every time Apple rolls out a new and improved version. They pay landscapers to manicure their properties. They lease new BMWs every three years. They have taken exotic vacations on an annual basis. They haven’t packed a lunch for themselves since they were 16 years old. Eating out for lunch and dinner has been a staple of their existence for decades. That morning Starbucks coffee is a given. A new wardrobe of name brand stylish clothes for every season is a requirement because your neighbors and co-workers are constantly judging you. Nothing proves you’re a success like a Rolex watch, Canali suit, Versace boots, or Gucci handbag. The have it now generations got it then and have virtually nothing now because they acquired all of these things with debt.

Real cumulative household income is up 10% since 1980. Consumer debt outstanding has risen from $350 billion in 1980 to $3.267 trillion today. That is a 933% increase. We’ve had decades of faux prosperity aided and abetted by Wall Street shysters, corrupt politicians, mega-corporation mass merchandisers, and Madison Avenue maggots trained in the methods of Edward Bernays to convince willfully ignorant consumers to consume. And consume we did. Saving, not so much. You can blame the oligarchs, bankers, retailers, and politicians for the fact you didn’t save, but it rings hollow. No matter how much propaganda is spewed by the ruling class, we are still individuals with free will. The older generations had choices. Saving money requires only one thing – spending less than you make. Most Boomers and Xers chose to spend more than they made and financed the difference. When the average credit card balance is five times greater than the median retirement account balance, you’ve got a problem. The facts about our consumer empire of debt are unequivocal as can be seen in these statistics:

Average credit card debt: $15,593
Average mortgage debt: $153,184
Average student loan debt: $32,511

$11.62 trillion in total debt
$880.3 billion in credit card debt
$8.05 trillion in mortgages
$1.12 trillion in student loans

I don’t blame those in their 20’s and 30’s for not having retirement savings. Anyone who entered the workforce around the year 2000 has good reason to not trust the system or their elders. There have been two stock market collapses and every asset class is now extremely overvalued due to the criminal machinations of the Federal Reserve. There are far less good paying jobs. Real wages keep declining. They were convinced by their elders to load up on student loan debt, leaving them as debt serfs. The Wall Street/Federal Reserve scheme to boost home prices and repair their insolvent balance sheets has successfully kept young people from ever being able to afford a home. So you have young people unable to save, invest or spend. You have middle aged and older Americans with little or no savings, mountains of debt, low paying service jobs, and an inability to spend. The only people left with resources are the .1% who have captured the system, peddle the debt, and reap the rewards of consumption versus saving. They may be able to engineer a stock market rally to further enrich themselves, but they can not propel the real economy of 318 million people. Our consumer society is dying – asphyxiated by debt – shorter of breath and one day closer to death.

I’d love to offer some sage advice on how to fix this problem, but it’s too late. Too many people missed the starting gun. More than ten years got behind them. No one is going to come to the rescue of people who never saved for their future. The Federal government has already made $200 trillion of entitlement promises it can’t keep. State governments have made tens of trillions in pension promises they can’t keep. They can’t tax young people who don’t have jobs. Older generations who think the government is going to rescue them from their foolish shortsighted choices are badly mistaken. Their benefits are likely to be reduced because the unsustainable will not be sustained. The 45 to 64 year old cohort who chose not to save can run and run to try and catch up with the sun, but it’s too late. It’s sinking. Their plans have come to naught. They are destined for lives of quiet desperation. There is nothing more to say.

So you run and you run to catch up with the sun but it’s sinking
Racing around to come up behind you again.
The sun is the same in a relative way but you’re older,
Shorter of breath and one day closer to death.

Every year is getting shorter; never seem to find the time.
Plans that either come to naught or half a page of scribbled lines
Hanging on in quiet desperation is the English way
The time is gone, the song is over,
Thought I’d something more to say.

Pink Floyd – Time

INCOMPREHENSIBLE

When I read stories like the one below and the information about how much people have saved for their retirement, I’m flabbergasted by the delusional, utterly ridiculous behavior of American consumers. We know for a FACT that 60% of all workers in the country have less than $25,000 of total savings. Many have absolutely nothing saved. Even better, over 25% of all 401k participants have borrowed against their 401k plan as of the end of 2010. This data is for people with jobs. How about the 88 million people who aren’t in the labor market? I wonder how much savings they have. In order to retire at 65 and live above the poverty line, people need to have saved at least a couple hundred thousand dollars. Those who retired in the 1980s and 1990s had equity in their homes, many had defined benefit pensions, and could rely on Social Security and their savings.

Today you have 55 year old people with $25,000 of liquid assets earning .15%, underwater homes, no pension plans, and $15,000 of credit card debt. They cannot afford to retire. They will stay in the labor market until the day they die. This is not good news for the Millenials.

What I find incomprehensible is that Americans ramped up their spending in the 1st quarter of 2012 and their savings rate in back at a four year low of 3.9%. With the data about retirement savings being so pitiful consumers SHOULD BE saving 10% of their disposable income like they did in the early 1980s. Going further into debt in order to enjoy going out to dinner two times per week is about the stupidest thing anyone could do. And our leaders, media and Ivy League trained economists actually encourage this delusional foolish behavior. Can this many Americans be this stupid? What are they thinking? Are they counting on the government to come to their rescue when they are 75 years old, broke, homeless, and begging?

I find myself shaking my head and talking to myself when I see this data and watch the behavior of the majority. We’re surely doomed.

Delaying retirement: 80 is the new 65

NEW YORK (CNNMoney) — A quarter of middle-class Americans are now so pessimistic about their savings that they are planning to delay retirement until they are at least 80 years old — two years longer than the average person is even expected to live.

It sounds depressing, but for many it’s a necessity. On average, Americans have only saved a mere 7% of the retirement nest egg they were hoping to build, according to Wells Fargo’s latest retirement survey that polled 1,500 middle-class Americans.

While respondents (whose ages ranged from 20 to 80) had median savings of only $25,000, their median retirement savings goal was $350,000. And 30% of people in their 60s — right around the traditional retirement age of 65 — that were surveyed had saved less than $25,000 for retirement.

As a result, many people aren’t in a hurry to quit their day jobs.

Three-fourths of middle-class Americans expect to work throughout retirement. And this includes the 25% of Americans who say they will “need to work until at least age 80” before being able to retire comfortably.

The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings

March 2012 EBRI Issue Brief #369 Paperback, 36 pp. PDF, 1,585 kb Employee Benefit Research Institute, 2012

Download Issue Brief PDF

Executive Summary

Americans’ confidence in their ability to retire comfortably is stagnant at historically low levels. Just 14 percent are very confident they will have enough money to live comfortably in retirement (statistically equivalent to the low of 13 percent measured in 2011 and 2009).
Employment insecurity looms large: Forty-two percent identify job uncertainty as the most pressing financial issue facing most Americans today.
Worker confidence about having enough money to pay for medical expenses and long-term care expenses in retirement remains well below their confidence levels for paying basic expenses.
Many workers report they have virtually no savings and investments. In total, 60 percent of workers report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.
Twenty-five percent of workers in the 2012 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that has grown to 37 percent.
Regardless of those retirement age expectations, and consistent with prior RCS findings, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure.
Those already in retirement tend to express higher levels of confidence than current workers about several key financial aspects of retirement.
Retirees report they are significantly more reliant on Social Security as a major source of their retirement income than current workers expect to be.
Although 56 percent of workers expect to receive benefits from a defined benefit plan in retirement, only 33 percent report that they and/or their spouse currently have such a benefit with a current or previous employer.
More than half of workers (56 percent) report they and/or their spouse have not tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement.
Only a minority of workers and retirees feel very comfortable using online technologies to perform various tasks related to financial management. Relatively few use mobile devices such as a smart phone or tablet to manage their finances, and just 10 percent say they are comfortable obtaining advice from financial professionals online.