Will You Be Able to Retire? An 8-Point Check List.
February 21, 2009
Most working Americans will not be able to retire. They just don't know this yet. They don't want to think about it.
What about you? First, and most important, your retirement plans depend on your current and future employment. You think you will keep your job. You think your employer will survive the present economic turmoil, which is going to get far worse over the next two years. When you plan for retirement, plan for pre-retirement. What must you do to keep your job or match it if your company goes under?
Second, begin with your lifestyle. You won't want to change it after retirement, except to make it better. You want today's income with no job. How are you going to get this? Some retirement experts say you should plan to live on 70% of your current income. The Social Security Administration says at least 70%. Other experts say 80%. See this article.
1. What lifestyle do you want when you retire? Write it down.2. How much will this cost you per year? Make actual dollar estimates.
3. How long are you likely to live? Your spouse? To find out, use a life expectancy calculator. Use two, just to make sure.
http://read.nwsource.com/lifeexpectancycalculator/index.cfm http://calculator.livingto100.com/calculator 4. What rate of price inflation do you think will prevail annually from your retirement until your spouse's death? Factor this into your budget.
5. How much money do you want to leave behind? Write this down. You must not consume this in retirement. The passive income generated by your retirement fund must support you, plus capital consumption.
6. What is the market value of your portfolio today?
7. How well has it performed since March 2000, when U.S. stocks peaked in terms of the purchasing power of the dollar? Are you satisfied with this performance?
8. What annual rate of increase will you need to accumulate the portfolio that will achieve your goals? Use this calculator to find out.
http://www.finance.cch.com/sohoApplets/RetirementIncome.asp
There is a ninth factor. How much per year will you receive from Social Security? Do know? Find out here. I regard this factor as problematical. It assumes that the Federal government remains solvent. My prediction: if the checks do go out, inflation will be higher. The government will sell T-bills to the Federal Reserve to finance these checks. The FED will create the money: inflation.
If you refuse to go through this exercise, you are not serious about either investing or retirement. You should therefore plan to remain in the labor force until at least age 80.
The U.S. Stock Market: The Grand Illusion
In mid-March 2000 the U.S. stock market peaked. I had warned my Remnant Review subscribers to get 100% out in February. I repeated this in mid-March -- the week the NASDAQ peaked at 5040. Since then, consumer prices have risen by over 22%. Stocks are down at least 65% in purchasing power since 2000. Here is a decade chart of the Standard & Poor's 500 index.
In 1998, a major financial news magazine published an article by an unknown author who predicted the end of the stock market boom. He said that it was crazy to believe that stocks would provide a comfortable retirement. He made this observation.
The fundamental question is how millions of people will be supported during their later years. If they can't live on intergenerational transfers, either through the government or from stock sales, they will have to work or have other sources of income.
If you are a member of this site, you can read the article here. But you don't have to read it. You already know.
What about the capital markets today? They are in disarray, all over the world. It is commonly said that this is the worst cataclysm since the 1930's. I believe that it is.
Ever since September 2008, the U.S. economy has moved from capitalism to fascism: government control with the illusion of private ownership. I explain this here.
Europe's banking system borders on collapse.
Japan is in its worst recession since the Great Depression.
Stock markets around the world have fallen for over a year. None has risen. To see how well the best stock portfolio has performed, look at Warren Buffett's Berkshire Hathaway.
There will come a time to invest in Asian stocks. Not now.
Currencies have fallen against the U.S. dollar and the Japanese yen.
Real estate has fallen around the world. Foreclosures will continue in 2009 and 2010. It is time to start shopping for residential investment properties: 3 bedrooms, 2 baths. Get a sense of what houses sell for. You need dollars in reserve to buy. Keep then in a local FDIC-insured bank. You will want to get deals from the foreclosure department: REO (real estate owned) properties. It is time to visit John Schaub's site on real estate.
This is why I recommend a defensive portfolio. To see my recommended portfolio as of November 5, 2007, click here:
I got people out of the stock market. I had them short it.
I believe that few people will be able to retire. I never planned to. From age 17, I planned to work until I died. At it turned out, both of my grandfathers did -- my father's father dying about two hours after he told his final client that his account would be handled by his partner.
My site stresses the need to develop new streams of income. These, not your retirement portfolio, will provide you with those golden years. (So will gold.)
With this as background, you are now ready (I hope) for my recommended retirement portfolio. It will work for your non-retirement portfolio.