Sunday, July 6, 2014
The Average American Has Insufficient Money Saved for Retirement
The Average American Has Insufficient Money Saved for Retirement Less Than 12 % of Americans Have More Than $250,000 in Retirement Funds in IRAs or Pensions with that There is No Way They Can Replace the Income They Are Accustomed to After Retirement ( formerly from Lex Loeb, Yahoo Contributor Network ) . Americans are vastly unprepared for retirement. Few realize that their savings and pensions accounts including IRA are probably insufficient for the likely life span they will have after retirement. The reasons why Americans are vastly unprepared and have such low assets available for their retirements is not that they have not made enough money over their years working nor because they could not have. The main reason why is that a lot of people have been led to believe they can rely on social security. An other reason is that high taxation from state, local and federal government is eating their future retirement lunch today. The third reason is that US government economic policy as made it virtually impossible for Americans to "save" money in traditional ways. If you saved your money in now deferred IRA or pension taxable accounts and got standard interest rates available from US banks you would have lost much of your purchasing power over time thanks to inflation compounding on an annual basis., If you kept cash in personal taxable bank accounts or higher paying certificates of deposit you maybe showing a loss even though your net assets seem higher because each and every year you report to the IRS the income you get on those accounts and pay taxes on them. Coupled with inflation these taxes would have destroyed your savings. Even when people have put money in IRAs and pension plans that are tax deferred they end up paying the taxes at the time they remove the money from tax deferred accounts not at the rate of lower cost capital gains tax rates but at the full personal income tax rates. What it means is that thanks to your thoughtful caring government you need way in excess of a million dollars just to get out a reasonable income after taxes. Retirees who own stocks find themselves having to sell personal assets and pay capital gains taxes that may seem low to billionaire stockholders compared to ordinary income tax rates but the reality is that these ordinary people's capital gains taxes are taxing them on inflation that government created so it amounts to a sort of double taxation often reducing the net funds available to retirees which makes it very difficult to keep up with consumer prices. That is something to keep in mind even if you are buying gold as a hedge against inflation. That hedge will not prevent you from paying capital gains taxes when you go to sell the gold. If gold prices only keep up with inflation then you are in trouble because the capital gains will undermine part of what should have been your net worth at retirement.. With gold prices obscenely over any rational metric as they are at the time this article is being written the capital gains tax is negligible on the profits because gold has recently gone into bubble mode where it far exceeds the growth of prices in the consumers price index meaning that the growth in value far exceeds the intrinsic value of gold if it merely is supposed to be stable money. Americans saving for retirement are being shafted because they vote for big government policies that ultimately they have to pay for. It hits us all immediately when we pay higher consumer prices because of inflation. Americans also get smart and quit saving when they realize that the investments are far too subject to future taxation or present taxation and don't keep up with consumer price indexes due to inflation. The average American believes that social security and medicare and maybe soon obama care will be there to take care of them in their old age. People who think the government is going to take good care of them don't necessarily see the importance of saving money independently of the government programs and leave themselves exposed to running out of cash in retirement. Many Americans invested in their homes as a sort of retirement savings plan . The problem with that is over a certain limit when not putting the money back into a new home the government imposes the capital gains taxes even after the owner has paid off the mortgage and this tax can quickly erase the investment gains that just keep the homes they sell in retirement at about the same price level as the consumer price index after inflation. Then when home prices fall because the baby boom generation all decides to sell their big old family size homes at the same time the loses can compound and purchasing power is still lost on paying capital gains in many cases. The sentiments of being anti immigrant in the US are going to further put pressure on home prices because there will be fewer younger people available in the home real estate market places who have the 30 plus years of working to pay off the mortgages. At some point the US will need to import people with money who can afford to buy homes between the ages of 25 and 42 just to get home prices up to levels that have kept up with consumer prices with inflation. A lot of elderly people have virtually no money left after taxes on their retirement incomes to fix things like roof tops on homes that have a limited lifespan because their states and local governments are so damn greedy that they cannot deduct basic home maintenance from the high property taxes paid. Property taxes in some states are so high that the taxes are actually causing a decline in the intrinsic value of the asset up which the value tax is assessed! In Oregon they get hit with part of the $15.000 per student charges of local schools and none of this adds up for retirees who have paid property taxes over 35 years enough to cover their own children's expenses over the year on average several times over. Government is not at all on the side of retirees and strangely many retirees are left in a state of ignorance joining groups like AARP that supports the same politicians who would never consider cutting capital gains or exemption income in retirement or pension income from taxes. In Oregon we have this Ron Wyden senator who masquerades as the friend of the seniors and elderly in our state but in reality he is just helping the government we have robbing them blind. Retirees have paid enough property tax at some point for the services that they will get or will be getting. Oregon is certainly not a state that exempts retirement income of seniors from state income taxes. Our senator so says the local media is on their side. It's bogus! Had the local media just explained how things work to seniors this particular senator would not be re-elected instead he gets a wide margin of senior vote just because they don't know or understand how they are being harmed financially.. If you are receiving or will receive a retirement social security check for $1600 a month it is the equivalent of having an account held by the US government with a principal value of $384,000 where by you would be receiving 5% interest. Of course the government is not holding that kind of capital. They cannot hold that much money and also invest it because the amount would dwarf the existing stock and investment markets nor could they hold it in gold or silver. It would be less efficient for government to hold on to assets and not just pay for the social security benefits on an annual basis out of funds they derive from taxes or just printing the money adding to inflation. $1600 only comes to $19,200 income a year and that does not replace income from working years necessary. Some Americans receive will receive more or less than that figure. The social security administration has the advantage of not having to have any underlining assets other than the collection of current social security taxes to pay out benefits that private pensions and IRAs do. Unfortunately Americans nearing or far from retirement are fooling themselves to think they can live the way they are accustomed to on the social security funds. Those earning over $25,000 or $32,000 retired with a spouse will be subject to paying income tax on the social security funding they receive and for the lucky retirees who will have benefit it could bump them up into a higher tax bracket or kick in the alternative minimum tax. Americans who wrongly believe they will be receiving their free lunch social security from the government do not consider the opportunity costs involved. Many American workers don't see the money withheld from their pay checks to pay the social security taxes and do not realize that they could have compounded their money not only to have had what they get in social security per month but a lot more if they had had a waiver to drop out of the plan and save the money themselves. Some retirees start doing the math and realize they could have had a couple of million dollars in assets to their names had they not been paying the social security money into the system and instead put it to work compounding interest tax free in pension plans in real assets. People know banks and insurance companies get rich collecting mortgage payments and /or insurance premiums over the years, Having your own retirement option as opposed to social security is an almost sure way to come out more or less ahead financially. The costs of the socialism of social security are much higher than people realize because they are unaware of the alternative benefits that could have accrued if the government was not involved. Fear of markets is one reason people think social security is a better bargain . It is not otherwise you would see people like Warren Buffet investing his money in social security and not in businesses. Social security has always been designed to provide very basic benefits at the cost of a mandatory tax payments. Those government checks coming in the mail are real. Welfare recipients and even welfare queens who collect as many of those checks as they can know very well they are very real money. The money that retirees could have otherwise had is also very real but so few people have any understanding that they could be writing their own checks to themselves for more money than they can expect to get in social security.. The deception is wonderful from the standpoint of an insurance executive. Under the Bush 2 administration the president did attempt to privatize part of social security and that would have allowed some bankers and insurance companies to take your social security and invest them instead of putting them in the social security pool which would have possibly made millionaires out of 40 million people or more over a period of 30 plus years. The media completely misrepresented what the Bush Administration was suggesting as it really would not cut into any-one's funding of traditional social security had they had the choice or any knowledge that an alternative might be better than the present system. As it is people have real money taken out of their pay check and it just disappears into the US treasury becoming what is called an unfunded liability on their books that is supported only by the future ability to tax us. The newspapers and magazines in the us tended to think it was a horrible idea that the people could decide to risk putting their retirement money in stocks , real estate, gold, anything besides the US treasury. The stories told of dire consequences of the US stock market being too small to have enough investments for all that money going to the US treasury! The reality is American got unfunded liabilities with the US treasury burrowing money from itself in treasury notes instead of having real assets to back up people's retirements. The politicians keep lying and saying everything is safe and well when it is not by their own agency's admissions. The Bush private social security plan made much more sense than you would have realized listening to all the criticism at the time and it was just a start with a partial waiver of having to give the money to the treasury and otherwise being able to put part of your actual money into real investments. The bush plan was not revolutionary it was just a sort of common sense from the ages or wisdom with less government propaganda blinding people. Americans who are still working now have to start saving for retirement now by every means they can find . It has nothing to do with becoming dependent on government social security plans nor with now little money that may actually turn out to be once received. It has nothing to to with social security going broke and disappearing either which is a real possibility according to the social security administration itself. The idea that you can depend on social security for a full retirement pension and have a lifestyle you are accustomed to is absurd since what is offered is closer to the poverty level. This can not be corrected by doing anything other than taking much more money out of your monthly pay check to pay for a more in benefits. Most American workers would not like the idea of paying 20-30 percent of their income per month on social security above other taxes and expenses to get more paid out. Since government produces nothing of value and lives off of taxation of productive assets that have cash flow in society it means that when you put your percentage of income into social security funding as the tax you pay that that much money is no longer available to productive growth industries in society. Lets say that 5% of American income goes to pay for every-one's eventual social security payments at retirement and that money goes tot he treasury instead of going to finance start ups like Apple computer corporation. Apple was able to turn $1 into $10 as an investment pretty easily. The US treasury actually turns one dollar in to ten cents thanks the inflation it creates! What does this all mean? It means that the social security system and our tax system in the US is completely broken. It means that our retirees are being taken advantage of with the status quo as is. It is true that investments can go bad. What do we have to compare investments subject to severe market fluctuations? We have government's ability to print money and essentially destroy it and we also have infinite example of how the government wastes our money and gets absolutely no return for anyone except the special interests who get the money they raise. Liberals can point to how Halliburton corporation was enriched during the war in Iraq as an example of how our government's money tends to be spent they see that abuse but think nothing is wrong with giving the money instead to the NEA public schools teachers union which is just as much of a special interest that provides a monopoly service to our people at an excessive cost far exceeding the benefits to the public. States like Idaho and Wisconsin are suddenly realizing that public employee unions are taking retirement funding out of the mouths of future retirees who pay into social security because as it turns out government , unlike the private industrial sector, is a zero sum game based on what taxes government can create or how much money it can print to make up for what it cannot get in direct taxes. The zero sum game means that taxes collected only and always only produce a pie of a fixed size. You cannot keep growing government by raising taxes because it does not work. In the old soviet union there was a 100% tax essentially on everything just as it is in Cuba and North Korea because the state essentially already owns everything including the industries. That does not work out very well as a means to collect taxes once government owns everything does it? Actually there is nothing to collect if and when the government owns everything. if it owns 50% of everything that means it only has 50% more property to appropriate to own everything and have nothing left to tax. Tax revenues became virtually non existent in the soviet union. There retirees had to get their pay check from the government no mater where they worked and the government was running the printing presses ten times faster than the US treasury does at the same time. At a certain point a citizen just becomes owned himself like a slave by the state once the taxes are so high that all left to take is forced or at least coerced labor as is what is now seen in North Korea. North Korea has virtually no production and can't feed it's people nor can they afford to buy the petroleum energy resources they need to run their military. This is all because of the same zero sum game problem we have with government in the US. The fall out in retirement for most American from bad government policy is artificial expectations of being able to rely on social security and then not saving enough because people feel they already paid into retirement because of social security taxes. Then coupled with high taxes on retirees using their retirement funds they need to put away twice as much as they would otherwise just because of the taxes that will be due once they start cashing in their tax deferred plans. States like Oregon have no sympathy for the elderly as they expect to tax their retirement benefits instead of exempting retirees as having already paid enough. Inflation then kills the value of all retirement funding once received after taxes and it helps destroy the incentive to save money. Americans rightly put more money into their homes as retirement vehicles but are becoming too xenophobic to realize they may need younger immigrants to come and live in the us to keep the value of their homes as investments high. Property taxes take money out of the pocket of people who own homes causing the value of the properties to degrade or force owners to borrow money they can' t afford to borrow during retirement years just to maintain the quality of the housing stock which is the basis for the ad valorem property tax assessment process. Yes the system is very broken and not easy to repair short of getting rid of organizations like AARP that really do not help senior citizens in the government policies they support. There are alternative organizations to AARP that realize that senior citizens deserve tax breaks and that social security really does need to have an option for people to put solid assets into it at least as part of their contribution to the program. AARP was one of the biggest groups the Bush partial privatization proposal. Senior citizens need exemptions for taxes like property taxes for basic maintenance of the assets they own upon which the taxes are based and they also need waivers to the complete repeal of capital gains taxes in the US so that their savings just don't get destroyed by inflation as the cap gains tax may only be taking away the benefits that helped keep their investments slightly ahead of or behind the rate of inflation even though it seems they made a lot of money. If the dollar was worth $5 forty years ago because of inflation that $75,000 house you bought 40 years ago is now worth $375,000. Once you are forced to pay capital gains taxes on any part of that appreciation you are not evening up with inflation nor are you going to be able to afford to buy at the new consumer price levels. Paying unionized public employees is giving your future retirement lunches away to other to consume for free now at your present and future expense. In order for Americans to really save more for their retirements they need an economic environment that really allows them to do so. Americans in the baby boom generation are just starting to understand how poorly they have provided for their own retirements. If they think that presdient obama is cute devaluing the US dollar so as to make exports cheaper for foreign buyers they don't realize that Americans will find they are working for nothing as a result. It also means that americans won't be ablet to take their meager social security payments and go overseas to retire because worthless dollars won't buy very much. Life as a retired expat can become too expensive. Americans may soon relize they may be forced to sell their homes because they can't afford the taxes and have a social security income. Others may have to rent out rooms in their homes to strangers just to find ways to live a relatively comfortable retirement if the homes are their main or only assets. Retirees then need to calculate how much money they might need from personal savings to retire and then how to expense the money on an annual basis so they don't run out. Say a retired couple has $300,000 in savings which seems lucky but is really not a lot of money and they expect to live for 30 years they can take out about $10000 a year to spend on top of social security if they get that. If that couple is getting 40,000 in social security and add in $10,000 they are already paying taxes on the social security plus may have to pay taxes on any income form their investments plus possible capital gains from their investments they may have to sell to net $10,000. What then if that couple lives in Oregon and they owe $5000 a year in property taxes ? People are just getting no real break from the federal state or local gofenemrnts for bothing to save money so then why do so many politicians keep telling us we need to save more? We can't without guaranteeing a fatter pay check to the goons controling the government! Expect a lot more liberal baby boomers to become tea party supporters once they find out what their retirement cirucmstances will be like with the present day status quo and the meager savings they have accumulated. Some of them will be calling for more socialism or even a new american soviet union the problem is that there are not enough rich people in the country that you can eat , as in eat the rich, on this kind of buffet where anything will have any value at all after you do so. No self respecting billionaire with the means is going to wait around and wait to be eaten by the hungry communists. They will flee with their money and assets as fast as they can, at least most of them, leaving even less to tax. The clearest solution to getting more real saving is investing much less money in the US treasaury and leaving much more in the private sector for productive uses. Anyone remember what happened to the US stimulus obama 800 billion dollars? Did it build any new dams to generate cheap electricity? No. Did it drill for oil so we would have lower gasoline prices so the economy would hum better than it is? No. Did any of that money go to "shovel ready projects". Obama says "there are no shovel ready projects." You got scammed then and you are being scammed the exact same way on an ongoing basis with your dependence of social security. When the socail security administration says the program is funded out to the year 2025 or any other year of it's chosing for calculation purposes you are listening to nonsense. I am not saying there won't be money for your retirement. I am not saying they are not indexing the money to inflation to give you about the same value in dollars you would now be getting to buy real things . I am saying you may have less to buy becasue the economy really slows down and prices rise and that the industrial pie will be possibly shrinking because productive assets are not being invested in with thte govenrment owning its own debt on the books as the way to save for your retirement. As things are the rich receiving social security benefits are taxed on their recieving them so it washes away a big part of the benefits you keep hearing from our great lying politicians of advancing the age to receive social security or of not giving it to rich people. Rich people are paying back a high rate of what they receive already so taking the rest from them just is going to reverberate in the economy as why should any make contributions to a system that was susppoed to be an insurance pogram for all. It turns out you may be rich with a failrly normal salaray accroding to governnmebent calucation limits. What happens then is less incentive to see the program as what it was designed to be and no benefits that change the zero sum game to produce more incomes to tax for paying out social security beneifts. The only real solution is a lot less government on all levels and that coupled with major retirement payout exclusions from all taxes for seniors and retirees. Your politicians won't tell you a thing except you will soon have to wait till you are 72 years old to get the benefit of your social security payements. Those great grand politicians are just quietly looking at actuary insurance tables seeing that they can get you to pay in more for less later on that way because they look and they see that the average person retring at age 72 only tends to live another say 13-15 years on average verses someone retiring at 62 -65 living an average of 20-25 years of socil security payouts! It is a huge scam and the media does not get any of it right. The average journalist believes that govenernment creates money and without government none of us would have any money. That is not a fact. The reality is that big company you hate or that small business on the corner creates the money that it pays employees and the government only prints , coins and provides to the public the symbolic medium of exchange to allow all kind of economic transasctions to be standardized in a way that barter or gold and sivler coins do not allow. The average politican is clueless too. They tend to believe we need government to make the eonomcy possible when in fact government is a quagmire of zero sum non productive spending of your money as the taxed worker and the businesses you work for are the ones really creating the money not out of thin air but by making products or growing product on farms that have value and that are then subject to taxation. Money does not come out of thin air or in the mail the way the govenrment used to get it. It takes work to make money and if you are a worker or serf or a salve it is your work that makes money and your work that gets taxed by government and then it is you they have to fool to make you think that by taking what you create and giving it back to you minus the fees required to pay for the enormous size of govenrment that your getting less than you pay back is in your best interests and in the best interests of society including people who don't do any work who for some reason deserve the same dilluted benefit they are offering you. Getting a lot more for less is always what the government promises. They can do it because they have magic powers in the temples of power in washington dc! The fact of the mater is that growth company like Apple Computers is selling you wath you are willing to buy from them without any coersion and they are indeed making money out of thin air and making it possible for a lot of people to have good rich retirement years and for governement to look at as the next victim to bleed money out when they need more to spend on publishing those guildes to the futrure of social scurity warning you that in 2028 the funding could run out if you are not forced to pay a lot more and are forced to wait till you are 72 years old before you can draw any social security payments because the govenemrnt is sad that your life expentency is too long to keep their promises to you! .