Retirement Crisis, Baby Boom Gerneration, p
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ZingerKing is Published on Monday, Wednesday and Friday of each week.
Friday May 29, 2009
The Weekend Edition
Today’s Zinger:
This Is Change The Baby Boomers Did Not Count On
The Morning Briefing:
President Obama rose to office on the vote of the 18-29 year old age bracket. The younger voters supported Barack Obama with 57% of the vote. Many young voters saw his candidacy as a change from the Bush years, in particular the end of war, a new energy future and an opportunity for the country to have its first African American President. The older voters (50+) supported Barack Obama with approximately 40% of the vote. Barack Obama represented a new face with the prospects of a new direction for the country. Yet it is this age group that stands to be the most negatively impacted by the changes underway.
The 55 and over population has been forgotten by the Obama administration. With a focus on national healthcare, job creation, war, immigration, energy, the Supreme Court, keeping Nancy out of the country, Joe muffled and deficits the size of China, the retired and soon to be retired are staring at an unknown future. At a time when people feel most vulnerable, the security of Social Security is going bankrupt, Medicare is terminally ill, their retirement nest egg has been pummeled by a ravaged stock market and the single largest investment for most individuals, housing, is under water.
This group of Americans may become a major burden to society. Not because they didn’t plan, but rather the rules are changing at the end of their game and there is little time left to resuscitate their dying retirement portfolios.
The Discussion:
Much has been said about the graying of America. The baby boomers are coming of age. With 10% of the US population entering retirement age over the next 10 years, which represents almost 18% of the workforce, the Ponzi scheme known as Social Security may well look like a Bernie Madoff investment strategy. There will be too few new investors (workers) to pay off the future commitments. All of the money that has been collected has already been spent by the government on other programs and expenses with a note left behind stating “backed by the full faith and credit of the United States Government”.
With record deficits and government spending which may reach almost 80% of GNP by 2019, based on Congressional Budget Office estimates, the full faith and credit of the US government wouldn’t get you a loan from my cousin Vinnie, let alone the Bank of China.
Much of the 20th century was built around the growth of industry and the social contract between a company and employee. With it came a transition from the family farm to urban centers offering lifetime employment and retirement benefits of pension plans and medical programs. The later 20th century saw a transition from company man to individual. No longer would the company provide for the employees future. The growth of 401K’s, self directed accounts and employees moving more frequently between jobs has placed responsibility for retirement planning back on the individual. Even those employees that stayed with a company long enough to receive retirement benefits are now vulnerable as many companies are filing for bankruptcy or renegotiating commitments leaving the retiree to their own planning and left with social insecurity.
Individuals that have been planning for their future relied on the growth of their investments to carry them through their retirement. Most invested in stocks, corporate bonds and housing to generate sufficient future income. Since 1980, the stock market has risen from 900 to 14,000 in 2007. In the 19 months since its' peak, the stock market has declined 40%.
Housing, which had increased steadily since the 1980’s saw a dramatic acceleration since the mid 90’s as interest rates declined and incomes increased. Over the past two years the price of the average house in the United States has declined 25% (average price of new homes in 2007 was $329,000 and currently $250,000 according to the US Census Bureau), with some areas experiencing declines of 50% and more. Many people planning for retirement included the anticipated gains in home equity as a source of retirement funding.
Those that chose a more conservative approach to retirement planning invested in bonds. Those that invested in corporate bonds have found the value of their investment to have decreased as many companies, like the automakers and other industrial giants, come under increasing financial pressure.
The radical decline in asset values has put extraordinary pressure on retirement portfolios. Retirees, and the soon to be retired, have lost as much as half of their investments in the last two years. Given their age and earning potential, there is insufficient time to recover their investments unless there is a dramatic change in the value of companies which translates into higher stock prices and wages. A 50% decline in an asset requires a 100% increase from the lowered price just to break even. Combine the required return with the fact that most retirees must continue to deplete their savings and investments to meet current financial obligations and they are left treading water. Unless we experience 25% growth per year for the next 6-7 years, these individuals will be unable to recover and will be left with greater reliance on Social Security.
The Obama administration is already warning that the elderly cost too much and there has to be a radical change in Social Security and Medicare in order to for these programs to survive. At a time when retirees will become more dependent on these programs because of the loss in their retirement portfolios, the government will reduce the security net for these people.
President Obama has said that he should not worry about the stock market and that it will take care of itself. He has said that the road to recovery is long and we should not expect a quick return. Government spending, deficits and interest payments will displace capital from the private sector and changes in government policies and intervention will reduce business profit margins, incomes will decline in most traditional companies, stock prices and housing will remain lower. The market will not return to historical P/E ratios for quite some time and the 55+ age group will not recover.
The administration has warned that there will be sacrifices ahead. The changes that have occurred in the past year, and the changes being driven by this administration, will have a dramatic impact on our nation. But it is not our nation that will experience this change but rather each individual. The retiree, and the soon to retire, may have built a future based on certain assumptions. These assumptions are being rewritten and the impact will be enormous.
The Conclusion:
The administration needs to think about the near term stock market, share price, housing values and their impact on the aging population or the government may be left trying to support a generation victimized by rapid change. Government spending will not fix the value of these assets. It is the growth of a robust economy led by business and individual wealth that will put the over 55 age group on the road to recovery. This will be difficult for an administration that looks at Wall Street as the root of the nation's problems and individual wealth as a basis for class warfare.
If Congress and the administration do not pay greater attention to this group of Americans there will be hell to pay at the voting booth as the baby boomers still represent the largest voting block. Their voting power is greater than Hispanic Americans and greater than African Americans. There are 75 million Americans born to the baby boom generation. Every 8 seconds another baby boomer turns 65 years old. Nothing will organize this group of voters more than a shared crisis and as President Obama's Chief of Staff, Rahm Emanuel said, "a crisis is a terrible thing to waste".
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Lessons Learned In Obama's First Four Months
Outsourcing Torture to Middle Eastern Allies
California is going to "pot" to cure its financial crisis
Nancy Pelosi's war with the CIA
Running on empty, federal deficits
Obama's management style
Islamic Fundamentalism. Stage four religious cancer
To access these articles click here or go to www.ZingerKing.com.
Unashamed Request:
Please forward a link to ZingerKing to friends, family members or colleagues that would enjoy or benefit from the content and discussions of ZingerKing.
ZingerKing is Published on Monday, Wednesday and Friday of each week.
Friday May 29, 2009
The Weekend Edition
Today’s Zinger:
This Is Change The Baby Boomers Did Not Count On
The Morning Briefing:
President Obama rose to office on the vote of the 18-29 year old age bracket. The younger voters supported Barack Obama with 57% of the vote. Many young voters saw his candidacy as a change from the Bush years, in particular the end of war, a new energy future and an opportunity for the country to have its first African American President. The older voters (50+) supported Barack Obama with approximately 40% of the vote. Barack Obama represented a new face with the prospects of a new direction for the country. Yet it is this age group that stands to be the most negatively impacted by the changes underway.
The 55 and over population has been forgotten by the Obama administration. With a focus on national healthcare, job creation, war, immigration, energy, the Supreme Court, keeping Nancy out of the country, Joe muffled and deficits the size of China, the retired and soon to be retired are staring at an unknown future. At a time when people feel most vulnerable, the security of Social Security is going bankrupt, Medicare is terminally ill, their retirement nest egg has been pummeled by a ravaged stock market and the single largest investment for most individuals, housing, is under water.
This group of Americans may become a major burden to society. Not because they didn’t plan, but rather the rules are changing at the end of their game and there is little time left to resuscitate their dying retirement portfolios.
The Discussion:
Much has been said about the graying of America. The baby boomers are coming of age. With 10% of the US population entering retirement age over the next 10 years, which represents almost 18% of the workforce, the Ponzi scheme known as Social Security may well look like a Bernie Madoff investment strategy. There will be too few new investors (workers) to pay off the future commitments. All of the money that has been collected has already been spent by the government on other programs and expenses with a note left behind stating “backed by the full faith and credit of the United States Government”.
With record deficits and government spending which may reach almost 80% of GNP by 2019, based on Congressional Budget Office estimates, the full faith and credit of the US government wouldn’t get you a loan from my cousin Vinnie, let alone the Bank of China.
Much of the 20th century was built around the growth of industry and the social contract between a company and employee. With it came a transition from the family farm to urban centers offering lifetime employment and retirement benefits of pension plans and medical programs. The later 20th century saw a transition from company man to individual. No longer would the company provide for the employees future. The growth of 401K’s, self directed accounts and employees moving more frequently between jobs has placed responsibility for retirement planning back on the individual. Even those employees that stayed with a company long enough to receive retirement benefits are now vulnerable as many companies are filing for bankruptcy or renegotiating commitments leaving the retiree to their own planning and left with social insecurity.
Individuals that have been planning for their future relied on the growth of their investments to carry them through their retirement. Most invested in stocks, corporate bonds and housing to generate sufficient future income. Since 1980, the stock market has risen from 900 to 14,000 in 2007. In the 19 months since its' peak, the stock market has declined 40%.
Housing, which had increased steadily since the 1980’s saw a dramatic acceleration since the mid 90’s as interest rates declined and incomes increased. Over the past two years the price of the average house in the United States has declined 25% (average price of new homes in 2007 was $329,000 and currently $250,000 according to the US Census Bureau), with some areas experiencing declines of 50% and more. Many people planning for retirement included the anticipated gains in home equity as a source of retirement funding.
Those that chose a more conservative approach to retirement planning invested in bonds. Those that invested in corporate bonds have found the value of their investment to have decreased as many companies, like the automakers and other industrial giants, come under increasing financial pressure.
The radical decline in asset values has put extraordinary pressure on retirement portfolios. Retirees, and the soon to be retired, have lost as much as half of their investments in the last two years. Given their age and earning potential, there is insufficient time to recover their investments unless there is a dramatic change in the value of companies which translates into higher stock prices and wages. A 50% decline in an asset requires a 100% increase from the lowered price just to break even. Combine the required return with the fact that most retirees must continue to deplete their savings and investments to meet current financial obligations and they are left treading water. Unless we experience 25% growth per year for the next 6-7 years, these individuals will be unable to recover and will be left with greater reliance on Social Security.
The Obama administration is already warning that the elderly cost too much and there has to be a radical change in Social Security and Medicare in order to for these programs to survive. At a time when retirees will become more dependent on these programs because of the loss in their retirement portfolios, the government will reduce the security net for these people.
President Obama has said that he should not worry about the stock market and that it will take care of itself. He has said that the road to recovery is long and we should not expect a quick return. Government spending, deficits and interest payments will displace capital from the private sector and changes in government policies and intervention will reduce business profit margins, incomes will decline in most traditional companies, stock prices and housing will remain lower. The market will not return to historical P/E ratios for quite some time and the 55+ age group will not recover.
The administration has warned that there will be sacrifices ahead. The changes that have occurred in the past year, and the changes being driven by this administration, will have a dramatic impact on our nation. But it is not our nation that will experience this change but rather each individual. The retiree, and the soon to retire, may have built a future based on certain assumptions. These assumptions are being rewritten and the impact will be enormous.
The Conclusion:
The administration needs to think about the near term stock market, share price, housing values and their impact on the aging population or the government may be left trying to support a generation victimized by rapid change. Government spending will not fix the value of these assets. It is the growth of a robust economy led by business and individual wealth that will put the over 55 age group on the road to recovery. This will be difficult for an administration that looks at Wall Street as the root of the nation's problems and individual wealth as a basis for class warfare.
If Congress and the administration do not pay greater attention to this group of Americans there will be hell to pay at the voting booth as the baby boomers still represent the largest voting block. Their voting power is greater than Hispanic Americans and greater than African Americans. There are 75 million Americans born to the baby boom generation. Every 8 seconds another baby boomer turns 65 years old. Nothing will organize this group of voters more than a shared crisis and as President Obama's Chief of Staff, Rahm Emanuel said, "a crisis is a terrible thing to waste".
Recent ZingerKing Articles:
Lessons Learned In Obama's First Four Months
Outsourcing Torture to Middle Eastern Allies
California is going to "pot" to cure its financial crisis
Nancy Pelosi's war with the CIA
Running on empty, federal deficits
Obama's management style
Islamic Fundamentalism. Stage four religious cancer
To access these articles click here or go to www.ZingerKing.com.
Unashamed Request:
Please forward a link to ZingerKing to friends, family members or colleagues that would enjoy or benefit from the content and discussions of ZingerKing.
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