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Will Your Retirement Efforts Achieve Escape Velocity?

Adam Taggart
November 9th, 2018
PeakProsperity
Comments (25)
Read by 2,337 people

This report was originally published by Adam Taggart at PeakProsperity.com

The concept of ‘retirement’, of enjoying decades of work-free leisure in your golden years, is a relatively new construct. It’s only been around for a few generations.

In fact, the current version of the relaxed, golfing/RV-touring/country club retirement lifestyle only came into being in the post-WW2 boom era — as Social Security, corporate & government pensions, cheap and plentiful energy, and extended lifespans made it possible for the masses.

But increasingly, it looks like the dream of retiring is fast falling out of reach for many of today’s Baby Boomers. Most will outlive their savings (if they have any at all).

And the retirement prospects look even worse for Generations X, the Millennials, and Gen Z.

A Bad Squeeze

While the US enjoyed a wave of unprecedented prosperity throughout the 20th century, the data clearly shows that halcyon era is ending.

Real wages (i.e., nominal $ earned divided by the inflation rate) for the average American worker have hardly budged since the mid-1960s:

Yet the cost of living has changed dramatically over the same time period. Note how the rate of increase in the Consumer Price Index (CPI) started accelerating in the late ’60s and never looked back:

Squeezed between stagnant wages and a rising living costs, perhaps it should be little surprise that so many Americans are having difficulty finding anything left over to save for retirement.

We’ve written about this extensively in our past reports, such as Let’s Stop Fooling Ourselves: Americans Can’t Afford The Future and The Great Retirement Con. But as a way of driving the point home, here are some quick sobering stats from the National Institute On Retirement Security:

  • The median retirement account balance among all working US adults is $0. This is true even for the cohort closest to retirement age, those 55-64 years old.
  • The average (i.e., mean) near-retirement individual has less than 8% of one year’s income saved in a retirement account
  • 77% of all American households aren’t on track to have enough net worth to retire, even under the most conservative estimates.

(Source)

To these grim stats, we have to add in the likely additional challenges that will be brought by the coming epidemic of failures of underfunded public and private pension plans, the loss of jobs due to automation/outsourcing/competition from younger workers/layoffs during the next recession, the extra years of funding demanded by longer lifespans, falling home and asset prices as interest rates rise, and the vaporizing of any existing savings as the Everything Bubble finally bursts.

We’re already seeing a new term appear in the research: senior poverty. We’re going to hear this term a lot more over the coming decades.

Keep in mind that things have gotten this bad during the longest bull market in US history. How much worse will it get during the next downturn?

The problem is growing as more Baby Boomers reach retirement age—between 8,000 to 10,000 Americans turn 65 every day, according to Kevin Prindiville, the executive director of Justice in Aging, a nonprofit that addresses senior poverty. Older Americans were the only demographic for whom poverty rates increased in a statistically significant way between 2015 and 2016, according to Census Bureau data. While poverty fell among people 18 and under and people 18 to 64 between 2015 and 2016, it rose to 14.5 percent for people over 65, according to the Census Bureau’s Supplemental Poverty Measure, which is considered a more accurate measure of poverty because it takes into account health-care costs and other big expenses. “In the early decades of our work, we were serving communities that had been poor when they were younger,” Prindiville told me. “Increasingly, we’re seeing folks who are becoming poor for the first time in old age.”

This presents a worrying preview of what could befall millions of workers who will retire in the coming decades. If today’s seniors are struggling with retirement savings, what will become of the people of working age today, many of whom hold unsteady jobs and have patchwork incomes that leave little room for retirement savings? The current wave of senior poverty could just be the beginning. Two-thirds of Americans don’t contribute any money to a 401(k) or other retirement account, according to Census Bureau researchers. And this could have larger implications for the economy. If today’s middle-class households curtail their spending when they retire, the whole economy could suffer.

(Source)

Yikes.

OK, so the masses are screwed. Retirement is nothing but a pipe dream for them.

But what about for you?

Will Your Retirement Fail To Launch?

Rocket science has a concept that’s very relevant to retirement planning. It’s called escape velocity.

When attempting to shoot a rocket into space, you need to make sure it’s travelling fast enough to get out of the Earth’s gravity well.

Not enough speed, and your rocket plummets back to the ground (catastrophically). Just enough speed gives your rocket orbital velocity, where it stays in constant motion circling the Earth. Anything faster than that achieves escape velocity, sending your rocket out into the larger solar system:

This is a good analogy for retirement planning:

  • Not enough savings and it’s a lifetime of work until you’re simply too old to continue. Beyond that point, unless you win the lottery or find a generous benefactor, you’ll likely live below the poverty level and depend on whatever government subsidies are available to you and the growing army of impoverished seniors like you. This will not be a fun outcome — trust me. I’m supporting a close family member going through this now.
  • Just enough savings and you can retire, albeit cautiously. The main danger to those in this situation is that living costs may rise faster than anticipated. If so, falling out of retirement is a real threat. Frugality and vigilance are key.
  • Ample savings let you achieve escape velocity. This doesn’t necessarily mean you can enjoy a caviar-and-champagne lifestyle; but you can leave the rat-race behind to focus on your interests, and sleep at night without worry. This is the state most of us aspire to, but fewer and fewer of us will actually attain.

The critical question each and everyone reading this needs to ask themselves is: Are my retirement efforts on track to achieve escape velocity?

Statistically, for most of you, the truthful answer is: No.

So get started by getting clear about what your current shortfall may be (we’ll talk about steps for addressing any shortfall later on below).

As a jumping off point, use the Multiply By 25 Rule. Many financial planners use this as a general rule of thumb: to be able to afford to retire, you should have at least 25x your desired annual income saved up before you hang it up at the office.

What’s your current household’s annual burn rate? Do you want to maintain that same standard of living as a retiree, or are you willing (and able?) to get by on less?

Don’t forget that the older you live, the higher the probability you’ll need to enter assisted living or a nursing home at some point. Here are some figures for you on that (from the Genworth 2017 Cost of Care Survey):

  • $100,000 a year = the median cost of a private room in a nursing home
  • $85,000 a year = if you don’t mind sharing a room.
  • $50,000 a year = if you can manage with just daily help from a home health aide. $50,000 pays for one shift a day; the rest of the time you’re on your own

(Source)

Whatever the final estimate, given your current savings rate, is it realistic to expect you’ll have 25 times that amount saved by the age you’d like to retire?

If you’ve never yet done this simple math, do it now.

If the numbers reveal you’re on or ahead of track, congratulations! And if not, at least you have a sense of what the gap is and can get to work on devising a credible plan for either closing it or ratcheting your retirement goals downwards.

(Of course, the Multiply By 25 Rule is just a rough guideline. The correct multiple for you may be higher or lower depending on your personal situation and goals. As always, we recommend working with your professional financial advisor — or the one we endorse at Peak Prosperity — when developing your retirement plan.)

For as they say, to fail to plan is to plan to fail. Workers who plan to fail rarely succeed in achieving retirement escape velocity:

Multiplying Horror Stories

The media is increasingly peppered with heartwrenching stories of seniors unprepared to support themselves.

Many have spent their lives working, but were simply unable to put enough away:

In a perfect world, the perfect retirement is where life begins. But for people like Debra Leigh Scott, there’s the very bleak possibility that retirement is where life might end.

Suicide is my retirement plan,” Scott, a 60-year-old adjunct professor, said in an interview with Vitae. “Unless you have a spouse or partner, you’re looking at dire poverty in old age. In addition to poverty, you’re looking at getting no additional work because of your age, or you’re looking at dropping dead in the classroom.”

Scott, a divorced mother of two grown children, has been teaching for over a quarter century but never received the tenured position she hoped for. After years of financial struggles — including the loss of a home — she has no money saved for retirement.

(Source)

Some are seeing their cost of living escalate much faster than expected, depleting their savings more quickly:

In one neighborhood in Jersey City, New Jersey, the average tax burden will rise to $29,026 from $16,591, an increase of nearly 75 percent.

Property taxes are up 38 percent year-over-year in Clark County, Nevada.

Meanwhile, homeowners in Williamson County, Texas — just outside of Austin — experienced a 15 percent tax increase last year.

(Source)

Others are learning that the pension promises made by their employers are in jeopardy:

New England Teamsters facing $5.1 billion pension shortfall, putting retirees at risk, study says (Boston Globe)

A pension plan covering more than 72,000 truck drivers and warehouse workers represented by the New England Teamsters union is the nation’s second most underfunded multiemployer pension plan, and is on track to run out of money within a decade, according to a new study.
Nationwide, the study said, 121 multiemployer plans covering 1.3 million workers are underfunded by a total of $48.9 billion and have told regulators they could slip into insolvency within 20 years.

And remember, this is all happening at a time of record-low unemployment, low interest rates, record high stock and real estate prices, 3%+ GDP growth, and relatively affordable energy prices:

Again we have to ask: How much worse will things get when the next recession hits?

Securing Escape Velocity

Everyone reading this is on a one-way path to old age. Whether you plan ahead for it or not.

For the majority of us who hope to avoid spending the rest of our lives *having* to work but do not yet have our retirement fully funded, the following strategies will prove critical:

  • Minimize your cost of living footprint — Your savings will go farther the less you draw from it. Which expenses can you reduce/remove when you retire without losing undue quality of life? Start with the big expenses first — housing, food, vehicles, education, etc. Moving to a smaller/cheaper residence or a lower-tax state can extend your financial self-sufficiency by years. Buy in bulk and cook more meals at home versus eating out. Become a 1-car household — or go carless (it may be much cheaper and more convenient to simply call an Uber when you need a ride).
  • Maintain your health — Failing health is typically the biggest financial and emotional drain of old age. Making wellness a priority now, and taking good care of your health will reap tremendous dividends in your retirement, in (potentially huge) savings and (potentially much) higher quality of life.
  • Line up family/community support in advance — Too many folks delay involving their support community until things devolve to crisis levels. At that point, options tend to be much more limited. Instead, start openly planning with your family and close supporters long before retirement, to clarify how folks may be able to support you (and what you can do today to earn that support tomorrow). For many, a return to multi-generational residential living make great sense — where aged parents move in and help with chores and child rearing while they’re able, and then are caringly attended to in their last years when they cannot.
  • Develop passive income streams — When you stop working, that doesn’t mean your income has to stop, too. In the years/decades preceding retirement, there are steps you can take to create income streams that will persist for the rest of your life. Real estate investing, creating or buying into businesses, allocating your portfolio increasingly into dividend and income producing assets, purchasing annuities — these are all examples of steps most of us should be looking into. The more passive income you have coming in during retirement, the less your need will be to draw down from your nest egg.

So the good news is that the retirement dream is still attainable. You’re just going to have to remain laser-focused and disciplined in your pursuit of it.

There are strategies and behaviors that, if adopted now, will make it much more likely for you to be able to afford to retire — and in a way you can enjoy.

If you haven’t already read it, be sure to read our report Success Strategies For Retirement by Charles Hugh Smith. It details out a number of the best practices needed for a solvent retirement in today’s environment, including providing 14 specific action steps you can start taking right now in your life that will materially improve your odds of enjoying your later years with grace.

For far too many Americans, “retirement” will remain a perpetual myth. Don’t let that happen to you.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

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Author: Adam Taggart
Views: Read by 2,337 people
Date: November 9th, 2018
Website: https://www.peakprosperity.com/

Copyright Information: This content has been contributed to SHTFplan by a third-party or has been republished with permission from the author. Please contact the author directly for republishing information.

25 Comments...

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  1. Menzoberranzan says:

    I will probably have to work until I die.

    • Genius says:

      My pension is just a base income, I plan on making extra cash selling solar stuff etc. Many ways to make easy money if you have half a brain. But if you are in debt then you might be screwed.

  2. Duh jones says:

    I’ve had suicide as a retirement option for sometime now. If it comes to that point, and we get huge property tax hikes so the govt workers can all retire….I’m burning my house to the ground then off myself. Still years away, hopefully won’t come to that but it’s a valid thought. It’s going to be ugly for a lot of people. Those with money are already frothing over future distressed properties. Pathetic. Say what you want, millions are in this sinking ship and lied to all the way to the grave in which you won’t be able to afford either. Screw this society.

  3. Steve says:

    This incoherent pile of crap masquerading as an article can’t even keep its own premise straight. For instance:

    and the vaporizing of any existing savings as the Everything Bubble finally bursts.

    is almost immediately followed by

    Whatever the final estimate, given your current savings rate, is it realistic to expect you’ll have 25 times that amount saved by the age you’d like to retire?

    You literally just said that your savings will vaporize under the bursting of the “Everything Bubble.” You follow this up by asking if our savings will be sufficient. You answered your own question and then acted like it was the reader’s fault for not saving enough.

    You then follow this ridiculous, self-defeating premise up by insisting that we find “passive income” sources. Where, you moron? In the rigged stock market? Perhaps we should put our hard-earned and steadily-declining cash in the bond market instead, trusting profligate governments to actually pay their debts?

    Just to add insult to injury, you insist we slash expenses to the bone sufficiently that we’re buying food in bulk, then you demand a fee to tell us the rest of the article. That’s just low.

    I’ve never commented here before, but this brand of tripe demanded rebuttal from actual thinking grownups, not the five year old who hit the keyboard to pen this nonsense.

  4. lena says:

    I do not care who you are, even if you have a million dollars and no debts; the retirement of today is gone.

    the next recession will wipe out 1/2 or more of all savings and most pensions and job growth is largely automated, sent to china for 5 dollars a day or done by robots.
    your life will be shorter and worse than anyone since WW2 once reality hits and that may be 5 years away.

    • Genius says:

      Ya wiped out if you save in cash maybe. I don’t save a dime on paper just phyzz metals. Besides, if your stupid enough to have your savings in a bank etc. where every shark on earth can feed off it and tax it…… YOU DESERVE IT!

  5. Anonymous says:

    Retirement the way we now think of it has only been around for about the last 50 or so years.

    Before that retiring to a life of leisure and luxury for decades on end was nothing more than a dream for those who wasted their time dreaming instead of just trying to avoid poverty after they could no longer work.

    Get over it, if you’re not already rich and retired it isn’t going to be your future no matter how wishful your thinking about it may be.

  6. John33 says:

    This is bool. Crap article.

  7. rellik says:

    There is about 2 things this article is accurate on.
    The loss of American consumer buying power and money
    set aside for retirement. The rest reads like a advertisement
    for financial advisors.
    I retired at age 55 with two fully funded lifetime pensions.
    Though now eligible, I have not yet applied for social security.
    I’m doing just fine as long inflation stays low. I hope and pray for a depression.
    The biggest thing you can do for retirement planning is to have your home paid for and be debt free. Make very sure of your location when you retire. Figure in taxes, health care costs, general cost of living, weather, and general safety of you and your property.
    I live in VERY rural Hawaii. Adequate health care is nearby.
    Old people get a significant property tax break. My only utilities cost is electricity, telephone, and Satellite.
    I considered returning to WA state, but after adding up all costs, Hawaii is cheaper for me and despite all natural disaters we are exposed to probably the safest place to be. I have year a round growing season(also year round bugs!) and no heating bills.
    Another big factor in retirement, is never cause a divorce.
    If you are married, work at it. A un-necessary Divorce will destroy your retirement plans. Of course you are only 1/2
    of a marriage, so you can only do so much and take so much abuse.

    • Genius says:

      Get divorced??? Screw that, put a big insurance policy on her and have an accident… 😉

    • Yahooie says:

      Rellik, great points.

      I started a spreadsheet a fair number of years back when retirement started becoming real. I laid out everything from expenses to income so I could see what to expect.

      There are some website like Kiplinger’s (ht tps://www.kiplinger.com/tool/retirement/T055-S001-state-by-state-guide-to-taxes-on-retirees/index.php) where people can find lists of taxes by state in some detail. There are places where seniors get big breaks on real estate taxes, personal property taxes, etc.

      I have often thought of retiring in HI for just the reasons you stated. My preference has always been the Big Island because it seemed nicer than frenetic activity of Honolulu.

      • Maranatha says:

        A lot of people could liquidate their real estate and move to Western Kentucky and live quite well. There are many quaint old fashioned towns and friendly country people here. And they are already like minded. And the seasons and rainfall support agriculture easily.

        Some town like Morganfield is extremely pleasant but tiny. You still can go to larger cities for supplies and culture as well as many nature activities.

        It is not at all like Eastern Kentucky and the hillbillies of Appalachia.

      • rellik says:

        Yah,
        I’m not trying to increase the population of the Big Island. I live there. It has become extraordinarily expensive, in the good areas to live. Lava rock is virtually free, but you don’t want to live there.
        I would choose Molokai if it were not for my wife. Molokai is REALLY rural she only accepts a certain amount of isolation. Still very pricey, but do-able. I generally would not buy anything less than 5 acres and more than a mile from the ocean in Hawaii.
        You have to have 4WD trucks to get around to the good spots on both islands.
        That may sound incredulous to most people, but Hawaii 50 is not the real Hawaii.
        Aloha and Mahalo’s.

  8. Barn Cat says:

    Buy gold and silver, guns and ammo. Store food and water.

  9. I think this article has some valid points.

    Don’t waste money on Cancer screening. It’s a racket. There’s no such thing as “early detection”. By the time those tests detect Cancer it’s already too late. If it’s big enough to detect it is already in your blood and spreading. It takes 30 years for Cancer to kill. If you live healthy and stay away from doctors you can save money and have a high quality life.

    The Amish farmers give the farm to the youngest child who cares for them. Amish don’t pay into social security. They have large families. Family is their security.

    _

    • Polyps can be cut off before they become Cancer.

      The Americans have all kinds of medical problems because they don’t eat right. Eat plenty of fruit and vegetables including potatoes. Sweet potatoes and regular potato. Walk and lift weights. People in other Countries don’t get Constipation related illnesses like Americans. And they don’t get cavities either.

      _

  10. durangokidd says:

    Great article. I found “senior poverty” an interesting topic as the past thirty years with the NWO in power by systematically stripping American wealth and shipping it offshore. (I see it all around me with those who worked for others instead of themselves.)

    All to benefit the 10% NWO Uber Rich Investment Class while devastating a very large number of BOOMERS; whose retirement pensions are underfunded, jobs destroyed, and yet still had to find a way to support their millennial children living in the basement.

    In REAL SHTF, and it’s coming, even passive income from real estate will be suspect. And the costs to keep it will exceed the returns as tens of millions of more Americans are turned out in the street, unable to pay you enough rent to pay the property taxes.

    We are in the Last Days, for however long they last. 🙁

  11. Archivist says:

    This article is crap. The guy suggests that you need 25 times your yearly income to retire. That means putting almost all your money in the bank and starving to death.

    I worked for just 30 years. I started out at $1.65 per hour. So how would it be possible for me to have put in savings 25 times what I was making at the time I retired? It’s not.

    But I retired at age 50 anyway, and I’m doing fine.

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