Guest Post by Simon Black
Late last year, the investment management giant Morningstar published a report concluding that most people can either save money for retirement, or save money for their kids’ education… but NOT both.
They make the economic realities very clear: parents have to choose between their own future, or their children’s future.
And one of the report’s lead authors went on to say that the RIGHT choice– the ONLY choice– is to choose your retirement over your kids:
“If you sacrifice your retirement savings to send your child to college, you’re making a huge mistake.”
That’s a pretty sad statement. But it’s unfortunately true for most people.
University education is already -very- expensive, and tuition fees are rising much faster than wages and income.
According to Federal Reserve data, university tuition has risen an average of 4.5% per year since 2000 (meaning that university is twice as expensive as it was at the turn of the century).
This ‘inflation rate’ in tuition is more than TWICE as much as the growth in median household income (which has averaged just 2.2% annual growth since 2000).
This means that, for the past two decades, university education has become more and more out of reach. And it’s no surprise that student debt levels are at a record high as a result.
But on the other side of the coin, retirement is also incredibly expensive. And uncertain.
People are living longer than ever before… and they want to ensure that they have enough money to last.
You used to be able to save money for your retirement in easy, low-risk investments like government savings bonds that paid a healthy rate of return.
In 1986, for example, the inflation rate in the United States was just 1.86%. But a 10-year government bond paid as much as 9%.
This was a wonderful investment for retirees who could safely earn a strong return without having to take any significant risk. And this was the case throughout the 1980s and 1990s.
But for most of the last 10-12 years, interest rates have hovered near their lowest levels in 5,000 years of human history.
US government statistics show that the overall rate of inflation in 2019 was 2.3%. Yet a 10-year government bond now only pays 1.7%.
So if you’re a retiree today and you put money into that same ‘safe’ government bond investment, you’re guaranteed to lose money when adjusted for inflation.
This is why the CEO of Blackrock (the world’s largest money management firm), has said that people today have to set aside THREE TIMES AS MUCH money to save for retirement as their parents and grandparents did. It’s precisely because of these low interest rates.
Social Security is no comfort, either. We’ve discussed this frequently in previous articles: Social Security is massively and terminally underfunded.
And this isn’t some wild conspiracy theory.
The Social Security’s Board of Trustees publishes a report on the financial health of Social Security every single year.
And those trustees include some of the most senior people in the federal government, including the Secretary of the Treasury, Secretary of Labor, Secretary of Health and Human Services, etc.
In the 2019 report they forecast that Social Security’s primary trust fund will be fully depleted by 2034— just 14 years from now.
And in that same report, the Trustees show that Social Security would need a $50 TRILLION bailout in order to have sufficient funding for its long-term obligations.
That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.
That’s an impossible bailout… which means Social Security is no longer a tax or political issue; it’s a simple arithmetic problem, and one that cannot be solved.
These same conditions broadly exist across most of the developed world, especially in Europe and Japan where interest rates are actually NEGATIVE and national pension funds are woefully short of cash.
Now, I really don’t intend to be gloomy. But it’s important to tell the truth about these important issues:
- It is mathematically impossible for Social Security (and other national pension funds) to honor the promises they’ve been making for the past several decades.
- With record low interest rates, you have to set aside more money than ever before in order to secure your retirement.
- But simultaneously, with university tuition rising so much faster than household income, parents have to set aside more money than ever before to pay for their children’s education.
- And the government has few options to do anything about it.
The old rules simply do not apply any longer. You can’t keep money parked in a savings account for 20 years and expect to have a comfortable retirement or a college fund for your kids… let alone BOTH.
Conventional options no longer produce the same results that they used to.
But the good news is that there is an entire universe of options out there that can still generate superior returns without having to take on substantial risk– as long as you are willing to look outside of the mainstream.
For example, you can set up a SEP IRA or Solo 401(k) that can help you put away an extra tens of thousands of dollars every year for retirement – tax free.
And instead of investing into conventional investments that simply don’t work anymore, these structures allows you more flexibility to invest your retirement savings in alternatives like cash-producing real estate, secured loans, royalties, and even venture capital and crypto.
Point is, there are plenty of options. You just have to be willing to open your mind to look beyond the mainstream.
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How about the option we keep all but 7% of our income and NO property tax? And the tax rate can only be increased by a 75% of majority of the taxed individuals? I know this is a asking to much of all those living off the labors and small business owners backs.
How about we keep all our income and no property tax?
be great for a year or two. and then the chinese would land a few divisions in california and roll over all the militia and libertarians. and that would be that.
so true gman… that would be that.
what impetus would the chinese have to land invade conus? maybe alaska or hawaii. just controlling asia militarily would be a colossal achievement.
Many many many mouths to feed. You have no idea the bottomless hunger of billions of people. They are eating fucking bats, for chrissakes.
Stagnant wages for the past 20 years and you still put away “tens of thousands” in an IRA? Shyeah right. How about we dump the socialist thievery that is known as the income tax and I get to keep what I earn, instead? The govt has literally no right to my personal income, which is my personal property, anyway.
Any “informative” article about saving and investing that does not call out the purposeful and continuing destruction of the value of the US unit of currency is at least incomplete, and arguably fraudulent. The regular readers of TBP already know what sort of scams are being run on the working stiffs in this country, but not everyone is as well informed as they are.
Writing and opining that the working man and woman in the US can possibly save enough money, invest it, and then stop working for 20 or so years at the end of life is deceitful. Maybe those fortunate enough to get an inheritance, or the top 5% can amass enough investable funds for a comfortable ride to the dirt, but a collapsing dollar will make that idea pretty dicey as well. Better that people should plan to just love much, work hard, and live frugally, and plan to do those three right up until very shortly before they die.
Tell us something we don’t already know…I learned over 25 years ago from wiser minds that funding your retirement is more important that putting money aside for kids (potential) educational needs. Who knows what your kids will want to do? School, military, work force, once they get of age? It’s up to them, not you. If you can afford to set aside money for their education ahead of time, thats great, and if you can’t, deal with it when you get there. Social Security is a simple equation. Numerous adjustments will be made by politicians and pedaled by various lobbyist/special interest groups, but two major things will happen, (1.) The earliest retirement/eligibility age will go up, perhaps to 75 or 80, or even higher (for the maximum benefit), from its current 62.5, on a sliding scale, based on recipients birthday,and (2.) The total amount paid out to the masses will decrease, on a variety of fronts and scales. If you draw it earlier than your normal eligibility, instead of 66% or whatever it is at 62.5, of what it could be, if you drew at age 65, you will get 10% less, or whatever the bean counters figure out to skin people by. The COLA increases will be reduced to half or less of the “official”rate of inflation, to reduce payments and slow the depletion of the SS fund. None of this will happen overnight, it will be most likely decades in the making, and it will be accompanied by much caterwauling and hoopla and drama, but it will happen. At the same time, the US Dollar will continue to decline to such a point as to no longer be the world currency standard, and be worth what the ruble, or yen, or dinar is worth. That will be a much more disastrous event for US citizens and its economy.
eh, they’ll limit medical benefits faster. quicker and more significant results than just toying with the age limits.
Just know, you will never recieve the value you anticipate in either your pension or 401. Have you seen the garbage they are invested in? Horrible.
SS isn’t much better. Every year the SS payout has a smaller amount of purchasing power.
Buy precious metals that you hold, in any amount you can afford. Then, Uncle Sam doesn’t know what you’ve got when SS becomes paid on “need or existing financial position ” or whatever justification they come up with to further screw you.
Steve, I am unimpressed by PMs mostly because of the large costs (it seems) to buy/sell. Like on the order of 10-20%. And that’s in “good” times. Maybe I’m not plugged in to the right outfits.
The “trick” that public-sector workers use is to amass as much overtime in their final 3 to 5 years of public sector employment. As overtime is figured into the final pension figures, this one move bumps up their pension amounts to astronomical levels, even exceeding the pay that they received while working.
It’s not unusual for public-sector retirees to receive $80,000 per year pensions.
Another tack is that police and firefighters can start collecting social security at age 55, unlike the rest of us. Talk about “double-dipping”…
This is a major reason why so many public-sector pension plans are on the brink of insolvency.
Send your kids to vo-tech school and let them learn a trade that will feed them for their entire life.
From T4C’s post on FF
the white women didn’t have many children. the pension money was all spent, and there’s not enough productive people left to pay the pensions. down we go.
“Give them, Lord— what will you give them? Give them wombs that miscarry and breasts that are dry.” hosea 9:14
Things will work themselves out. When the money runs out people will have to keep working. They will also die younger because others won’t be paying their medical bills. Sooner or later colleges will stop teaching crap and get cheaper because unless you are employed by the government everybody will be required to work. You cannot repeal the laws of nature.
When the planned take down of the world economy happens everything is going to change. Manufacturing got out of the great depression .America was on top of the world so companies could offer employees pensions and other goodies but now our industry has been gutted or offshored.What will get us out of the coming greater depression ? What will save us this time ?
The Antichrist.
The Antichrist….. meh!
His days are ovah!
No moar terrorizing truck stops and juke joints
Don’t worry Lil’ Trucker Buddy, Odin has yer back..
BB, there is no “planned take-down of the world economy”. It’s called PEAK OIL, mother fuckers.
An issue of “working”, though.. is that the work most people do DOESN’T NEED DOING, and is actually detrimental to our well being.
Yes, the laws of nature will not be abrogated.
I tell people I would be a kinder, gentler Pol Pot.
Sorry, no nail polish or hair dye for you. No play-stations. No multi-thousand-dollar car rims. No plastic surgeries except for cleft palates and the like.
They don’t get it.
“I said there was nothing so convincing to an Indian as a general massacre. If he could not approve of the massacre, I said the next surest thing for an Indian was soap and education. Soap and education are not as sudden as a massacre, but they are more deadly in the long run; because a half-massacred Indian may recover, but if you educate him and wash him, it is bound to finish him some time or other.”
Mark Twain
Funny all who are telling us we are not saving enough to retire or how our social security will gradually evaporate all either have government retirement and health benefits or run companies that offer no benefits at all or the biggest saving scam ever the 401k . Wow what a plan you put up all the money you assume 100% of risk and loss you pay all fees and in the end get 30% of any gains ! I wonder who sold us that pile of shit over a defined insured benefit package , oh I know the Circle Jerk Of Wall Street To K-Street to Capitol Street !
Don’t worry government employees the armed wing of government minions are always ready to force confiscation of all of the private citizens assets to pay you while their promised pension is an unsecured liability discharged in bankruptcy !
Wow what a fucking deal !
The revolution will not be televised LOL
We have to set aside 3x as much money to pay 3x as many of these parasites.