Warning: Disaster Ahead for Retirement Savers

[marmar]

WSJ via Yahoo:



Don't let the rally in the stock and bond markets fool you. Many Americans are still hurtling toward a retirement disaster. Few realize it. Even many of those running the big pension funds don't know.

That's the conclusion of John West and Rob Arnott at Research Affiliates, an investment management firm, in Newport Beach, Calif. In their latest report, "Hope Is Not A Strategy," they have some numbers to back it up.

"I worry a lot about people reaching their golden years and discovering, 'Oh, I should've saved more,' and 'Oh, I don't qualify for Social Security anymore because it's means tested,'" says Mr. Arnott, a widely respected market strategist. "We're headed for a retirement train wreck," he adds, "and it's going to get really ugly over the next 15 years."

Alarmist? Perhaps. But follow the math.

The returns you will get from your stock funds can only come from four things, they note: dividends, earnings growth, inflation and changes in valuation.

Right now the dividend yield on U.S. stocks is about 2.2%, they note. Historically, earnings have only grown by a surprisingly low 1% a year in real, inflation-adjusted terms. Mr. Arnott tells me the average since 1900 is only about 1.2%, and in the last half century just 0.6%. Will we get more in the future? With the U.S. population aging and heavily in debt? It's hard to imagine. .............(more)

The complete piece is at: http://finance.yahoo.com/focus-retirement/article/111138/retirement-disaster-ahead?mod=fidelity-readytoretire&cat=fidelity_2010_getting_ready_to_retire

[stray cat]

1. Those who haven't saved are in even more trouble

[msongs]

2. reward for saving - zero % interest rates from our government agencies lol nt

[SoCalDem]

3. My advice for younger ones...

Buy LESS house than you want, pay it OFF ASAP, and save every penny you can, even if the interest is low.

Without the cost of housing, retirement is a LOT more do-able, even if you live in a not-so-cheap state.

[DCKit]

5. +1. Excellent advice. n/t

[dkf]

6. Overextending on a residence is the biggest financial mistake a person can make.

And encouraging overspending through the mortgage deduction is a trap.

[NNN0LHI]

8. Property taxes are whats going to do me in even after I pay my house off

When we moved in 20 years ago they were $1200 a year and now they are over $4000 year with no end in site. If they double in another ten years, which appears highly likely, we will have to move. That will be more than the total of 12 monthly original mortgage payments(including taxes, insurance and interest), we had when we moved in.

That is something else people need to be thinking about.

Homeowners insurance premiums have went through the roof too. $200 a year 20 years ago and a grand now. Unbelievable.

Don

[mainer]

10. True. Ours doubled in one year.

And the valuations are so inflated that neighbors can't sell their houses for what the town appraised them at.

[leftyladyfrommo]

12. Can you have your house appraised by a licensed appraiser?

To show the actual value and then take that to the courthouse and get your taxes re-evaluated?

I'm pretty sure we can do that here.

[mainer]

25. Several people have tried it

I think they may have knocked a few thousand off the appraised value, but it was a long battle. I know one couple who fought for years, and finally won. The appraisals were done prior to the falling real estate market. I think this is happening in communities around the country, where real values have fallen for everyone -- yet communities require the tax base they've become accustomed to.

[Lochloosa]

17. Most municipalities have a way to challenge the appraisal. I would look into it.

[Paper Roses]

16. This is exactly what is happening to me.

In fact, the figures are almost the same. I have to fork out over $1000.00 in a few days fir this quarter. I will pay it but will struggle until the next SS check comes. I live a frugal life but the old savings account is about to hit rock bottom.

[cilla4progress]

24. Isn't there a cap for folks on fixed incomes in your state?

There is here (Washington)...but I don't know how it works.

[NNN0LHI]

26. Got to be 65

I am 55 and retired when I was 48.

Don

[cilla4progress]

27. Wow - sweet deal

I'd wager most of us expect to keep working at 65+! Know I do...

[NNN0LHI]

28. Began working full time in a Union auto plant a couple of months before I graduated High School

Got an early start.

Don

[cilla4progress]

30. Go, unions!

I didn't fully appreciate the struggle until recently reading Zinn's "A People's History." Should be required reading.

[LiberalArkie]

9. And buy what you need and not what you want..

[HughBeaumont]

11. If we were to go in together, the wife and I would qualify for a McMansion in Ohio.

I'll keep my 55-year old, 1200 sq-footer which I'll realistically pay for in 15 years, thanks.

Newer homes are wasteful, income-draining, unnecessary, a bitch and a half to clean and not good value for the money. Those keep-up-with-the-Joneses dupes in the McCastles are screwn and they don't even realize it yet.

I'm willing to bet that only 10% of McMansion owners can truly afford to be in one (that is, where the monthly payment is less than 20-25% of their take-home pay).

[Lance_Boyle]

19. All newer homes are not mcmansions.

Energy star rated homes might be very worthwhile. And cheap - lots of modulars are energy star rated.

[Ginto]

14. I'll add one thing

Have as few children as you can.

[dixiegrrrrl]

18. And buy a mortage with NO p[re-payment penalty,

The reason?
NO escrow, NO P&I required.
Make sure that is in the mortgage papers.
To do that, you have to put 20% down.
which will lower your monthly nut.
then pay 50.00 to 1150.00 EXTRA on your mortgage payment for at least the first 6 years.
80% of mortgage interest is collected by the lender in the first 5 years.
That will save you thousands in interest, you can pay the mortgage off faster and cheaper.
( for get for the moment our current mortgage fraud does not even guarantee you get a legal title at the time of the mortgage payoff.

About savings:

Might as well save the money under the mattress.
the stock market is rigged, current interest rates for savings are zilch, but TAX rates on your invested savings ( interest, dividends, ) are 15%, lowest rate.
Plus, the dollar is being deeply devalued.

That is the current picture.

It will most likely change drastically in the near future. There is a good chance of higher inflation, more taxes. Most likely total devaluation of the dollar.

thinking gold?
remember the government just passed a bill requiring any purchase of 600.00 or more in gold be recorded.( that is less than 1/2 ounce now)
gee, why would they do that, unless they intend to tax it or confiscate it?

What IS planned, and you can hear about it if you listen closely now,
is that current retirement schemes ( 401-k, IRA, Roth) will be forced to invest in government funds
( read: treasuries) to prop up the debt bubble, payable in an annuity form, like life insurance is now
paid.
Write this down and believe it.
That was the original plan, the one that Bush could not get thru Congress.
You can bet the Catfood Commission is going to recommend some form of that plan.

When I was younger and very short of money, during the late '70's deep recession, I survived by house sharing, which was common in college towns. Saved a fortune.

[Poboy]

22. Good post dixiegrrrrl. -nt

[EmeraldCityGrl]

31. +10

[spinbaby]

21. We're looking for a house to downsize into

As soon as our youngest leaves the nest, we're moving into a smaller place. It only makes sense for retirement.

[xchrom]

4. oy. nt

[Ron Green]

7. Be happy with less.

Unfortunately no politician will ever get elected telling this truth: We must detach our human happiness from economic growth.

[leftyladyfrommo]

34. That works until less is a negative number.

Gazillions of boomers just simply got wiped out - 401k's and stock accounts just completely wiped out. And there is no time to put that money back.

It's going to be a real clusterfuck.

[MilesColtrane]

13. Heck, even people who have saved what they believe will afford them a...

comfortable retirement could be eating cat food.

Health care reform may put a tiny speed bump in the road of escalating costs, but they're still exploding.

[northernlights]

23. +1000

I was in good shape 10 years ago. One of the few that was "on track" for retirement savings, after years of living below my means (and being laughed at and scorned for it, including by my relatives), payed off the mortgage on a tiny condo in 10 years, drove used cars -- did buy one new once a civic that still purrs like a cat at 200K miles).

It mattered not.

Save and they'll find a way to steal it. Through unemployment. Through asset deflation. Through stock market manipulation. What passes for an economy is a casino. It's rigged in favor of the house. You are not the house.

My new plan is expecting to work until I drop, and hope I find a way to earn a living that keeps me happy day-to-day instead of sucks my soul.

Failing that, I will check out. I no longer plan or expect to have a retirement. It's already been stolen; their plans are in place. We just don't know it yet. What I won't do is spend another 15 years in misery dreaming of a break that comes only when I keel over. I just skip ahead to the keel over part, tyvm. :rofl:

[MilesColtrane]

29. I'm on the same path.

As a musician, I have never really expected to be able to retire in the conventional sense.

There will simply come a time when I am no longer physically able to play.

While I have a very small IRA and am contributing to a pension, I don't expect either will last long.

And Social Security? Ha.

I also am not keen on spending my final years in grinding poverty and will off myself if it comes to that.

(Aren't we two rays of sunshine today?)

:hi:

[lapislzi]

32. We need a club

Cause I'm with youse. If I am physically unable to work, and hence, die at my desk, I have a sufficient supply of prescription sedatives and opiates and the medical knowledge to take myself out.

[dixiegrrrrl]

33. Me too...

That is a conversation I have had with my 2 cherished sons since they were teenagers.
They know and understand that I reserve the right to control my ending if possible, and so does Mr. d.
who feels the same way.

the good news is I have never been rich, rarely had "extra", so having "just enough" to make the ends meet is an ok
pattern.
But there will come a time when "just enough" will not be there.

I suspect there are many who feel as we do.
Hmmm..wonder if I should "ask the Administrator" for a new forum?
And what it would be called?

[ieoeja]

15. I didn't see anything about the effect of increased dumping on valuation.

If you aren't getting enough income from your stock fund, you will have to sell the stock. When we have more retirees selling stock than workers buying it, those stock prices are going to plummett.

Those out ahead of that curve may do okay. I still have 15-20 years before retirement. By then, I expect my 401(k) to have lost all value. I might just do an early withdrawal and take the penalty. Better than losing 90%.

[MilesColtrane]

20. You should be gradually moving out of equities and into fixed income investments...

as you approach retirement anyway.

It is widely suggested that stocks make up no more than 20% of your portfolio by the time you are ready to retire.