The Retirement Income Truths

Let me start this article with what I believe are two great quotes from two very smart PhD. economists and a question posed by the Queen of England. In fact, these two economists directed the world’s largest economy and had teams of other PhD.s, the world’s most powerful computers and well vetted models. I will let these quotes about the great recession speak for themselves:
“Not my best call, we didn’t understand that financial institutions around the world were much more exposed to losses than we and they thought.” Fed Chairman Ben Bernanke
“We did not see it coming.” Fed Chairman Alan Greenspan
The queen asked members of the London School of Economics why no one saw the looming crisis. They didn’t see it coming because it wasn’t written into or reflected in anyone’s models. In fact, there are about 1 million worldwide trained economists only two could accurately predict the timing of the ’08 crisis never mind to the extent it crippled the economy.
It brings us back to a quote by Donald Rumsfeld, “Unknown Unknowns”.
If the people creating fiscal / monetary policy, printing money and writing tax laws are not sure what is going to happen, how can we be expected to plan for a financially successful retirement? We cannot! Unless we are very lucky (power ball type lucky) or die soon after retirement the challenges of not running out of money or living a reduced lifestyle are far too great.
Throughout these articles, I will attempt to present thoughtful and informed questions based on over 36 years experience. These questions will help you see things differently. This new vision will, in turn, help you to define and frame the problems properly. The goal is to push your thinking about these issues so when they are addressed you take the right approach. Only through careful preparation can you to address retirement’s challenges and manage the change that’s required for a successful retirement income stream.
My book, The Bad and Ugly: Eight Retirement Income Risks will reveal the problems and the steps you should take to prevent being hurt by these risks. More importantly, this book is not solely a defensive primer. It will allow you to actually take advantage of these negative events by actually growing wealth.
Addressing these risks are a must do! There really is not a lot of time to procrastinate. Why? Our Government does not have enough money to make good on all its promises! It boils down to simple math! The Federal Government collects $3.2 trillion of taxes including: income tax, Social Security, Medicare, corporate estate and misc taxes. The state and local level collects $2.8 trillion of taxes, including: income, property, and sales taxes. If you add both revenues sources, that total is $6 trillion in tax revenue. Divide that revenue by the $17 trillion of GDP and you arrive at 35 percent. That percentage is almost at the upper limit of what a healthy economy can bare. Nonetheless, the government must moderately raise taxes enough without destroying our economy.
Who is going to pay? Let’s face it, about 40% of the population currently pays no federal income taxes and many of those actually get a check through the Earned Income Tax Credit. That leaves the middle class and the 1%. If we took all the earned income from the 1%, it would only make a small dent in the total need. That leaves who? You guessed it, the Middle Class who will bear the brunt. The same class who were frugal and saved for their future will now face the greatest transfer of wealth in history. Unfortunately tax increases will not be enough. So if we can’t tax our way out of trouble, then we can reduce benefits to fix the problem. The government will continue to use “sneaky” ways to reduce our payouts. The government has already eliminated strategies with a simple pen stroke, like “file and suspend” with Social Security that cost many well over $100,000 in lost benefits. Social Security’s “deeming” is now forced on everyone further deepening the loss. These cuts still will not be enough. So we can always grow our way out of our current situation. Growing our GDP will help by getting more tax revenue. The Congressional Budget Office predicts the U.S. economy will be fortunate to average 2 percent annual growth over the next decade. On the other hand, if we look at other economies like Japan, which has had negative growth for a decade. South America and Europe will probably continue to see negative growth for at least the next decade. Even China’s growth has fallen to the 2 or 3 percent range. So where will they get the money to make good on their promises?
It is my belief as an economist, the government must institute a four part blended plan because no one of these solutions will fully address the problem. Increasing taxes, wealth transfer, benefits cuts and increasing the cost for those “less benefits” through means testing. These alone will not work unless combined. Using this “combo club” will be the best method for eliminating catastrophe by spreading the hurt. However, with the recent tax reduction legislation we are headed deeper into the abyss. Our legislators need to hear this old adage: “if you find yourself in a hole stop digging”.
As we review the eight risks, you will begin to see the difference between traditional income planning and nontraditional retirement planning. To summarize the difference, traditional income planning has been around for many years and will allow you to alleviate the eight risks with guarantees and to grow your money. Using the nontraditional retirement planning only offers a Hope and Pray (H&P) you don’t run out of money strategy and a lot less wealth for the family. The problem is that nontraditional retirement planning is being pushed on too many people who do not understand that it offers no guarantees.
Former President Eisenhower stated this very well, “I never did give anybody hell. I just told the truth and they thought it was hell.
German philosopher Arthur Schopenhauer wrote: “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident”.
These articles will finally help reveal the truth for you.
