{ 2009 04 30 }

The Coming Mother Of All Bailouts That Nobody Ever Talks About

By Kevin
Investing, Politics, Retirement

Bailout is a word that you hear a lot these days.  We’ve had bank bailouts, auto company bailouts, even “bailouts” of home owners who are under water with their homes.  We’ve bailed out municipalities and insurance companies.  Arguably, there are more to come.  Perhaps, commercial real estate?  None of these compare to the mother of all bailouts that is a near certainty in our future.  Read on to learn more.

The mother of all bailouts that is coming, or maybe I should call it the mother of all crises, is retirement funding.  The reality is that the vast majority of Americans have nowhere near enough money to live on in retirement, even when social security is factored in.

I did some research, and it looks like the concensus retirement savings for baby boomers (ages 45-62) is somewhere between $50,000 and $75,000.  This does not include equity in a home because, well, most people don’t have any left and if they do, remember people still need to live somewhere when they’re retired.  Lastly, these numbers were taken in many cases before the recent stock market crash and the real estate crash.  The statistics are likely to be way uglier today.

It is absolutely insane how little the average American has saved for retirement.  How this can happen is beyond comprehension.

Social Security

Social security is under water.  It’s a huge ponzi scheme that has no money.  It pays people out by taking new contributions and distributing it out (Hello, Bernie Madoff).  It is ill prepared to take care of the huge increase of retirees as the baby boomers retire.  Plus, if we have any levels of inflation (which are very likely down the road), anyone on fixed income gets killed by inflation because their payments lose purchasing power.

Inflation

While most people have a tough time seeing inflation ahead because of all the talk about deflation, it is unlikely that we will have any level of recovery in our economy without some level of inflation.  This means that purchasing power is lost on savings and fixed income.

All Roads Lead To The Government

Add this ugly picture up and the road leads to one place: government.  With millions broke at an old age, the government and its politicians will not waste an opportunity to “help out” the American people.  The government will more than likely add retirement assistance programs with fancy titles like “The Amreican Rescue and Retirement Success Act” and try to put more money into social security.  There are only two options to fund this: print/borrow money or raise taxes.

Won’t People Just Work Longer?

Yes, some people will.  But, this is a decision that most do not want to make.  How much easier is it to vote for a politician that promises to provide you more assistance so you can enjoy your retirement!  Do you really think this won’t happen?  If you don’t, you must have been asleep for the last six months.

Reality and Action

As a productive citizen in his 20s, I am aware that I along with my peers will be forced to shoulder this burden.  It is likely that I will pay heavy taxes down the road to fund retirements of millions of people.  Also, any additional national debt or printing of money will come with heavy inflation which affects the purchasing power of my currency.  It is this very likely scenario that I must prepare for, and so should you.

While my first instinct is to complain and get pissed off about this scenario, the sad reality is that it won’t do anything.  Worse still, there’s probably nothing I can do to help our society avoid this scenario.  The only thing left to do is prepare for it and hedge against it with my financial decisions today and tomorrow.

To combat future inflation, I must have some of my assets in gold or other inflation-protected assets such as stocks.  Also, to combat the taxation of my money, I need to make as much money as I can now before such a crisis hits.  I need to work hard and save my money.  Unless the government sets its eyes upon savings (which could happen), the money I save now will be very beneficial down the road.  If you already have a nice level of net worth, you may want to consider having some money out of the country (consider it “diversification”).

Lastly, keep your eyes open.  The financial state of this country as a whole down to the level of the individual is overwhelmingly terrible.  When backed into a corner, mankind has a tendency to do whatever it takes to survive including taking from others.

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