Friday's Thoughts for 11-02-2012
Government obstruction, interference and impediment not only affects the working class trying to protect their wealth, but also has done its best to screw who have left the working rat race and enjoy the Golden Day's of retirement.
Some of my retiring friends have come to the realization that they will not be able to retire gracefully as they once hoped, including yours truly. A fair amount of them are going to carry debt into their retirement which could be seen as alarming and serve as a wake-up call for modern financial planning.
Some unlucky souls will continuing to seek employment well beyond their useful fulfillment to society. More yet will have to alter their expected lifestyles to different degrees of austerity, none of it for the better. Those who are younger will have to start practicing self-denial now by not partaking some of the rewards they are earning today. This self imposed flagellation is obligatory so they can survive in tomorrow's austere world of government hand-outs, higher taxes and inflation.
There should be a point in one's life where the working class can sit back and relax after busting their ass for decades in modern day sweat shops. In today's world it is sometimes all one can do, just trying to get by. Many have saved and made their investments diligently and intelligently with the idea of living off what they put away for that sunset in the future. Well, so much for that concept, as the US Government has really screwed its peoples once again and there is no end in sight.
A close friend of mine who owns a very successful manufacturing business literally shut the doors of his business Monday and assets will go to auction in the middle of next month. Long past 65 years he has done quite well over the decades and it was long past the time to hang up the keys to the front door. He has tried to find a buyer to take over but has been unsuccessful in wooing an purchaser partially because of Government controls (AECA, ITAR, etc) and a stinking US economy. Selling a small business in today's soured economy, a successful one at that, is just about impossible simply due to the many unknowns of Government regulations. The business loss won't put him in the doldrums of a retirement village lost in the swamps of the Florida Everglades, but a loss never the less and the government overlords win again.
He is one of the lucky few to retire in good health and what I would call gracefully. However, the VAST majority of those approaching retiring are not as fortunate and will have to seek out alternative life styles that were not part of their original plan.
I am not sure that political parties have the real direct influence over individual’s wealth that some pundits claim. Although it would appear that the Democrats would prefer to take care of you instead you taking care of yourself in a 'Nanny' state. However, if you are not very smart or prefer not to work hard, maybe the Republicans plan of 'salvation' is not for you either.
What I think is the 'real' cause of loss of wealth going into retirement is the fact the elected governing parties have not paid much attention to either the working class or the retiring folks for decades. One example of not having more oversight is by not controlling government self interest groups like the Federal Reserve, the banks and even Wall Street itself. These groups do have a direct influence over your wealth and how it ultimately affects your life style in the future.
Thanks to Dr. Ben Banana and his thieving band of dovish Fed monkeys, the reducing of interest to nearly zero (ZIRP) has royally screwed the savers of this country. The introduction of QE3, like QE1 and QE2, was again to help the people of the USA, or so Bernanke claims. That concept is in dispute as it isn't exactly true, but that is O.K., because the 'Banks' have been saved and that is all the FED is worried about. The retirees still have no say in the matter and instead almost insures inflation in the future.
Money Magazine reports that the number one retirement risk is inflation. They go on to say, “Inflation of just 2% a year can reduce your purchasing power by roughly a third over 20 years”. So it is good luck to those in their mid 40's and Uncle Ben's QE's and Twist should eventually raise inflation to serious levels in just a few years to add insult to injury. Is this a great Country or what? To wit, more control of the 'sheeples'. Your Government's answer to everything lately.
Maybe I am just a sour note in all of this dispute, but I believe the US Constitution assures us of life, liberty and the pursuit of happiness. I suspect 'Happiness' is where the Government has other ideas and for sure it doesn't include retiring gracefully.
Given the Fed's ZIRP impact on expected returns, PIMCO notes that those approaching retirement have three choices: a) save more, b) work longer, or c) tighten their belts in retirement. If everyone saves more, we consume less, and therefore GDP growth slows down.
Anemic growth leads to a Fed on hold for a prolonged period - and even further lowered return expectations in an ugly paradox-of-thrift-like feedback loop. PIMCO has found a concerning empirical link between lower rates and longer periods in the workforce as a higher fraction of older Americans remain employed.
This has the structurally dismal impact of reducing (implicitly) the level of 'prime working age' employment and has 'convexity' - in other words, the lower rates go, the greater the inertia of the elderly to stay in the workforce.
Intuitively, low rates leading to longer work lives just makes sense – especially in an era where fewer retirees will draw defined benefit pensions. This is why some of us are wondering if the Fed is spinning its wheels by sticking to the old model of trying to stimulate growth.
So expect lower-rates and longer working years or go all-in on HY CCC debt with 20% of your savings.
I mentioned in my last Friday's article that a large jar of Vaseline will go go a long way in assisting the US Government help you. But having thought about it and considering if some lubrication would help I am sure the government would require a working permit plus a fine for using it. (No reason, just a fine as that is the way things are done in Washington D.C.)
It is a terrible thing to have the official's you elected end up screwing you. But then again, YOU did elect them! Without term limits, the folks you elect today may be there when you retire. The laws they pass today may not take effect for years in the future becoming too late to effectively to reverse them. Perhaps it is time to seriously consider term limits and look more closely at who you are putting into office so you might have a chance to retire gracefully. In the meantime invest in a jar of Vaseline; a big one as you will need it.
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Written by Gary