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Retirement Reality Full Frontal: Why Every 30 Year Old Must Risk It All To Be Able To Retire
Exceptionally low interest rates are bad for banks, insurers, and, more generically, anyone wishing to save money. Of the three, it’s the situation of the savers that is most untenable. In particular, Citi notes in a recent report, those wishing to retire at 65 or thereabouts are in for a nasty surprise when they start to run the numbers.
Citi: US Credit Outlook
Given that real yields are negative for Treasury bonds inside of 20-years, the steady stream of inflows into investment grade bond fund that hold a mixture of government, agency, and high grade corporate securities, will simply fail to return an adequate rate of return commensurate with the current savings rates of most retirement savers. What savers need to do is find higher asset returns or increase their personal savings rate.
And therein lies the crux of the problem facing the central banks.
Ideally, the Fed and ECB want to encourage investors to buy riskier assets and corporates to borrow more with the hope being that wealth effects, corporate risk taking, and Keynes’ animal spirits will revive the economy.
But so far the US has failed to respond to Fed’s treatment plan and the inflows into bond funds continue unabated while corporate net issuance is nonplused. One presumes investors are wary of returning to an asset class, like equities, that performed so miserably over the last decade amid global growth concerns.
But an unintended consequence to resisting the Fed is that the average retirement saver will need to double their rate of savings in order to be able to retire even five years later than originally planned. If and when that sort of analysis enters into the collective consciousness of the typical American, the economic impact is likely to be grim.
As we’ve seen in the UK, higher savings rates lead to lower consumption, a decline in corporate profits, and recession.
Source: Citi
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Mortgage debt?
Now that the Mafia has moved into legitimate banking, how about loan sharking. You need a little capital and a couple of guys named Vinne. Parlay a little money into a lot of money in just a couple of years.
Hard-money loans with collateral--and enough of it that you hope your borrower defaults.
the best investment right now could be yourself and your loved ones.
The Fed's policies are once again planting the seeds of yet another capital misallocation disaster, a fact that should be obvious after so much experience but, apparently, is not to FRB members.
Yet another anecdote: My friend showed me his 75 year old dad's portfolio this weekend which was entirely in bonds. His broker had done exactly what you would expect and focused on getting a high coupon without regard to risk. In this case it was at the cost of a 25 year average maturity and lower credit quality, as in Morgan Stanley, State of Illinois, GMAC, etc, etc. We all know the client said, "I need a 6 or 7% yield" and the broker gladly obliged.
After 4 years of ZIRP, with many more to come, this story is likely repeating itself millions and millions of times over across the economy but, of course, no one sees it coming. The future Fed chief in the year's ahead will happily point the finger at greedy Wall Street brokers and once again assume zero responsibility for destroying the future of retirees who are in the process of eating their seed corn with never ending ZIRP and endless inflation causing QE.
That the Democrats and NY Times are not all over how damaging the FRB's policies are to the lower income people they claim to represent is apalling.
I will take the bait. The Fed has maintained they will keep interest rates at 0 well into 2014. Japan has a decade of basically little growth, inflation or hope. If inflation creeps up, I am stilling drawing 7% in a no growth area. I am not convinced we get Zimbabwe inflation. With no velocity of money, where is my inflation?
If nothing defaults on him and he realizes 6 or 7 %, that would be amazing and he wins. If he ends up with a few Stockton, CA or Lehman bonds going to zero, the math changes quickly. The coupons were 6 and 7%, I don't know if the YTM was...it may have been lower.
I agree that there is no significant inflation now or likely for awhile, but can you guarantee me 25 years of contained inflation in a world where Europe, the US and Japan are or will be printing? That's a long time and inflation's a bitch, once it starts it can be hard to stop. In Germany in the 20s, they had to keep printing once it started just to keep gettiing money to people to afford the ever rising cost of living.
But if the TPTB hold the 7% bonds then why would they encourage long-term inflation. If the actual emphasis was to go austere and get rid of Western pension and social payments, then they could earn their 7% and transfer wealth concurrently. Until Germany capitulates, this is what is acutally in play in Europe.
You neglect to mention the rumors swirling about Morgan Stanley -- AND A FEW OTHERS. Corporate bonds are just another flavor of toilet paper. Yum!
If inflation creeps up, I am stilling drawing 7% in a no growth area.
Then you're still losing overall. Inflation is 10% - 15% / yr these days.
There's really no way to get ahead when inflation is 10% - 15%. You have to beat that, and I know of no way to do it in fixed income paper in a ZIRP environment.
Actually I do know a way. Start a payday loan business.
I am not convinced we get Zimbabwe inflation.
Carry on, you'll find out the hard way.
With no velocity of money, where is my inflation?
What does velocity have to do with inflation?
Do you buy groceries? Gas? And you're asking where inflaiton is?
China and the rest of the producing world have a shit-ton of FRNs piled up behind a massive dam. Any kind of geo-political event, from the disintegration of the petrodollar to the US poking it's finger in China's eye one too many times, could set of the avalanche. You ever seen the velocity of one of those suckers?
Your argument is bullish for a vacuum. Right now we are living in "interesting times."
Unemployment will rise, regardless of what the orgamechs do.
For how long, is the ?
Jackasses want you to invest in their bullshit paper, ok I will when I see john corzine in jail and when the courts rule that when banks,brokerage firms,and companies that go bankrupt that investor money be return to the investors first!
OMG, is that really Mr. 'I didn't have sex with that woman - Monica Lewinski' really on the idiot box?
Orgamech Heaven.
My father retired on his 56th birthday, escaped the city to a 2 and half acre lot up north and thoroughly enjoyed his country garden. This was at a time when CEO compensation was grounded, well paying jobs were abundent in western nations and pensions were honestly funded. He had a good couple of decades up there before his health failed and he passed on to a better place.
I know I'll never have what he had. The world has changed. I don't envy him or begrudge the life he was able to make for himself. Nor should I.
The real tragedy is globalization, political capture and corporate greed. These are the horsemen of of our demise.
Outstanding truth, beautifully said.
Kudos
The real tragedy is globalization, political capture and corporate greed. These are the horsemen of of our demise.
Add TV/media/govt complex.
"The TV Generation" aka the f***king sheep. The public in the West et al have been manipulated and controlled by TV and Hollywood. If you watch it - you enable it. They control the elections with it and your reality. The sheep are too stupid to pull the plug. Don't give me the "but I watch Fox or just ball games" It's all the same. Serfs watching the tube.
You left off a few things like: blatant fraud protected by governments, lies by government, a growing police state, the utter destruction of the Constitution, loss of privacy, lack of justice and complete disregard for private property.
The horsemen of demise that I fear most is the lack of justice and disappearance of rule of law.
I don't think it took a genius to decide at an early age that the pension/medicare/medicaid system wasn't going to cover a retirement. When I was 17 (1967), I had decided that I wouldn't have the same pension situation that my father and father in-law had. I started to save money then. I'm glad I did, because I don't have a pension, I own my own business, and I'm financially secure. I wish more young people had the same idea that I had. I've worked for others for about 20 years, but I've worked for myself for another 20. I can't imagine taking another job. I wish everyone had the balls and/or the opporturnity to work for themselve.
Young people can't think. W Buttfuck-Bush assured that no fraud left behind gutted education and made every child stupid.
Mission accomplished, go back to fantasy land thinking that the next generation of slaves even has a remote clue, let alone opportunity to get out of the dead bankers paradise.
Armored cars MoFo's.Just kiddin.
Young people need to get that non-existent job, put away 50% of their income a year in high-risk mutual funds to retire on, pay back 50% a year in student loans, pay the government 50%, pay 50% in mortgages, and spend big-time to keep the economy moving. We're asking a lot of our young people but I'm sure they can do it.
You nailed the math and the dilemma. Brilliant.
Where can I sign up? Got a link?
"Do unto others."
no worries, President O has promised not to leave debts to our children and we all know you can trust his word/teleprompter
How are his budget cuts coming along, only a $1 Trillion per annum deficit to go?!!
FUCK OBAMA.
Got silver?
Just put all your dollars in a savings account. They'll still be there when you need 'em.
Speaking of fiat, is it me or does it look like Draghi and Bernanke pegged the Euro to the Dollar?
... are in for a nasty surprise when they start to run the numbers...
When did Americans know any math at all?
I just bought a house. Imagine it's worth in 30 years when we achieve 0% APR Blackhawk Bernanke mortgages lol.
An advice, never buy an overpriced and overleveraged asset, especially when it can be taxed. Very few people can see 5 years in advance, especially in this environment and not to speak 30.
Good luck though, you may save on renting.
no need to risk it. preserve your wealth by buying tangible assets (SILVER, BITCHEZ!)
no need to rage against the machine, just be aware of the inflationary money tsunami coming in, and RIDE THE WAVE!
Pretty good article: (about how risking it all may not be enough (especially with futures up b/c the horseshit smell isn't as bad as previously thought)).
http://finance.yahoo.com/news/worst-retirement-investing-mistake-0959008...
"It sounds like retirement success depends on when you were born.
Yeah, that is certainly true. Young people should get down on their knees and pray for a brutal bear market at the beginning of their savings career, because that's going to enable them to buy a large number of shares cheaply. Having a sequence of bad returns first, followed by strong returns, is the best-case scenario.
I did a little thought experiment in which I calculated how many years it took people starting work in different years to make their number. I realized that the cohort that started working during the worst of economic times is the one that did the best.
The last cohort that actually was able to make their number started their careers in 1980, and they made their number in 19 years. And the graph ends in 1980, because no cohort that started work after 1980 actually made the number."
Got a feeling we're all going to retire together no matter what your age is.
In other words, not only is the Fed trapped, so is everyone and everything else. So, the most bewildering thing about the mess is the Fed will not admit it is trapped and, therefore, a solution lies in a domain outside its purview. Thus should the Fed be incited for serving an entirely sinister purpose, and its members condemned insane, as well.
Being ass raped by uncle sam for taxes and more taxes and then central banks inc fuking your throat through inflation with zero return to prudent and risk averse.
So, why the fuck work? So the 1% can keep labor enslaved with fraud money?
Employment revolt dead ahead.
Anyone that says "no one saw it coming" gets shot on the spot.
I think there is an error in the graphic. The text below the graphic mentions a 40 year old while the graphic itself mentions a 30 year old. Which is it? Ten years can make a world of difference. Either way the credibility of the graphic is called into question with the contradiction.