Americans Are US$6.6 Trillion Short Of What Is Needed For Retirement

A study conducted by Boston College’s Center for Retirement Research reports that Americans are $6.6 trillion short of what they need for retirement.  The figure is based on projections of retirement and income for American workers ages 32-64 and assumes a growth rate of 3% per year on current assets.  To make matters even worse, this news comes amid recent reports indicating that a White House – created panel is considering proposals to cut Social Security benefits and raise the retirement age, according to CNBC.

This information comes as no surprise seeing that the recent 2008 stock market crash wiped out a good proportion of our retirement savings.  What is surprising however is that most Americans still haven’t realized, or are too concerned with the fact that the United States government is broke.  As of September 16, 2010 according to Treasury Direct, the total public debt outstanding is $13,464,896,653,374.11 ($13.4 trillion), and of the total debt $4.5 trillion of it is owed to trust funds such as the Social Security trust fund which alone has lent $2.5 trillion.  This means that employees and employers who have contributed $2.5 trillion to the Social Security trust fund have now loaned that money to the federal government’s general fund because our income taxes cannot cover the cost of general government services such as medicare, state owned highways, and military.

Wait, You Mean The Government Spent My Social Security Contributions?

Yes pretty much, but of course they aren’t going to let the Social Security trust fund go bust.  Instead they’ll print more money to adjust the balance.  Sounds simple right?  Wrong!  If you’re unaware of what printing money does to the economy, it drives inflation through the roof causing everyday household consumer goods to become more expensive.  From an international perspective it absolutely destroys the value of the US dollar which has been one of the recent driving forces behind investors fleeing to precious metal based commodities such as gold and silver, or other currencies such as the Japanese Yen which hit 15 year highs last week before the Japanese government intervened.

Printing money that we don’t have is NOT the answer although the Obama administration seems to think so lately.  It may be a quick fix, but the root of the problem is only going to get worse.  No one wants to prevent the United States economy from collapsing more than the government themselves, but at the end of the day it’s not entirely up to them what happens moving forward.  It’s up to the American people.  If we buy (import) more goods then we sell (export), if we keep spending money we don’t have there is only one direction the economy is going to go.  As a nation, we need to get a grip on the way we spend money.  The days of borrowing funds from the bank to then leverage it to the hill in order to buy 5 luxury properties are over.  Not to mention this is exactly the kind of behavior that got us into this mess in the first place.  If we don’t individually take responsibility as an American people to financially plan better, or to make make wiser decisions with how we spend or invest our money, we are going to only end up prolonging the inevitable.

Are We Really that Broke?

Our government has no money, in fact we are 14 times more in debt then we were when the Social Security trust fund nearly went broke in 1983.  Americans aren’t contributing enough to their personal pension accounts and the days of relying on your 401K for retirement are drawing to an end.  Currently, only 18 percent of Americans are confident about having enough money for retirement, and only 60 percent of Americans are even saving for their retirement hence the reason we are short $6.6 trillion from what is actually needed for retirement.

”If we don’t individually take responsibility as an American people to financially plan better, or to make make wiser decisions with how we spend and invest our money, we are going to only end up prolonging the inevitable”.

How Do I Take Control Of The Situation?

To start, get the idea that the government will take care you out of your head.  It’s not going to happen, and even if things do turn around and we find ourselves in a position of financial stability then great, consider that as a pure bonus.  Take a look at how much you spend each month.  If you find that you’re in a position where you are spending more than what you take home constantly racking up a debt, then it may be time to make cut backs in your lifestyle in order to live within your means.  Get your debt under control, and try to get out of the habit of charging everything to your credit card(s).  If you can’t help charging items to your credit card, pay off the entire balance every single month in order to keep the amount of debt you owe to a minimum.  This is a great way to financially discipline yourself.  Not to mention, you would be amazed at how much money you can save in late fees.  That same amount can now be used towards your retirement goal.  It may not be that much to start with, but over time it all ads up.  The point is that it’s up to us as Americans to take control of our financial future, and even the simplest changes in our lifestyle will make such a massive difference throughout retirement.

It’s never to early to start thinking ahead, and If you don’t know where to start or are having trouble determining how much you need in order to achieve your financial goals, visit my Financial Freedom series.  It will walk you through step by step on how to financially plan for your future.

It’s Time To Leave Home

When deciding how to balance your portfolio in order to best maximize your wealth it’s important that you are aware and understand where the opportunities lay today.  As far as the United States is concerned let’s be honest.  The US government is on the verge of bankruptcy so investing in bonds is probably not going to get you anywhere.  The national unemployment rate is near 16%, so if people aren’t making money they’re definitely not spending money.  Although the markets have bounced back over the last year and a half, if we don’t get unemployment under control, it’s just a matter of time before we see a double dip recession driving the US equity market into another frenzy.  With the real estate sector heading for a further 20% correction according to experts, buying property as a means for secondary income is not looking like a safe play either.  As this pretty much rules out investing in the United States altogether, the only thing left to do is look abroad for investment opportunities.

Investing in the United States over the past 30-40 years has had its moments.  Many investors made their millions or even billions in both the real estate and equity markets.  However, times have changed and the world is a very different place now. The vast majority of wealth has slowly shifted from western regions of the world to the East.  As a matter of fact, year to date for 2010 United States domestic equity mutual funds have experienced an outflow of nearly $42.2 billion.  Contrast that with the haul for emerging market funds so far this year: $40 billion dollars flowed into emerging market stocks and a record $25.6 billion into emerging market bonds.  Last year, investors put a record $83.3 billion into emerging market stock funds.

”So far, investors’ bets in developing countries have paid off. The MSCI emerging market stock index posted a 78 percent gain for 2009 and is up 3.8 percent this year. Funds that invest in emerging-market bonds returned 32 percent last year. This year, JPMorgan’s emerging market bond index has gained 7.4 percent on price terms alone”.  Source: Associated Press

Don’t Panic Just Yet, There Is Hope!

If you are one of the unfortunate ones who suffered catastrophic losses to your portfolio just years before retirement there are ways to make a vast majority of it back within a short period of time, but you need to keep an open mind.  You don’t need to settle for anything less than 10% per year anymore.  Investors willing to diversify and look overseas particularly in Asia and the emerging markets can realistically achieve 15-20 percent growth per year.  Emerging market bonds alone returned 32% last year which is a testament of the amount of potential the emerging markets have to offer.  Is this sustainable?  It’s too early to tell, but you don’t need to be an analyst to know that the emerging markets and Asia show no signs of slowing down.  Using these markets to help get your portfolio back on track may be the only option you have.

As an international financial firm, Elite Investment Group focuses on educating Americans on the importance of diversification as a means to see 30-40 percent better returns than what they are used to in the United States.  Investing in high return growth prospects helps them to achieve their financial goals quicker but most importantly relieves the financial stress of relying on the US government to get them through retirement.

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