Winning at retirement means playing the long game, the very long game. Planning ahead, through saving and investing, is essential to fund a “nest egg;” positioning your nest egg to protect it against untimely losses while compounding adequate returns secures it; eventually converting your nest egg into a personal pension focused on maximizing lifetime income gets you to the finish line.
As true as the foregoing formula may be for males, it’s even truer for females. As a rule, women outlive men. That’s why when we dig deep we discover that retirement planning is really about providing for spouses and significant others. That was certainly the original intent of the Social Security program when it was initiated in 1934; its purpose was to protect survivors from destitution rather than to sustain workers on a decades-long golf outing. Alas, improvements in life expectancy and the unbridled generosity of politicians building a welfare state have transformed the Federal government into a huge insurance company—with taxing power and a standing army.
Which brings us to one of today’s greatest headwinds facing contemporary baby boomers.
I’m referring to our national debt and its service. Both the debt itself and the cost of maintaining it are unprecedentedly high and persistently growing. What’s often missed in their exposition are the threats they pose specifically to retiree security.
So allow me a few words on the subject (for more cf. Chapter 5, “The Money Makers,” in my new best seller, Retire Reset!). At this writing, our national debt stands at $21 Trillion and according to the Congressional Budget Office long-term outlook released in July 2018, the GOP tax cuts and bipartisan spending increases enacted in Fall 2017 will add at least $2.3 Trillion in the next ten years, and possibly as much as $5.1 Trillion (not counting extraordinary expenses that might be imposed by new wars, financial crises, an economic downturn, municipal pension failures or natural calamities). What will be the impact on retirees over the next 15 years? The Medicare Hospital Insurance Trust Fund is projected to run out in 2026 followed by the Social Security Trust Fund in 2032. Those effects mean materially reduced benefits—unless of course the federal government comes to the rescue with emergency funding.
But here’s the rub. Reduced government revenue combined with increased government spending also means growing annual deficits. In fact, the deficit could reach $1 Trillion as soon as next year and certainly not long thereafter. The big question is with short-term rates still just around 2%, what happens when they reach the mid-3% range, which the Federal Reserve is preparing us to expect? Interest payable at 3.5% on debt of $25 Trillion will amount to $1 Trillion in and of itself. Interest payments as a percentage of the federal budget will grow, crowding out other expenditures including federal assistance to states and funding for social safety net programs. Where are the Social Security Rescue Funds supposed to come from especially if Washington will also be called upon to bail out failed municipal and state pensions?
To be counted among retirement’s last winners, you’re going to need to be self-reliant, confidently invested in a properly diversified nest egg prudently balanced between insurance and securities.
Learning how to shift your focus on portfolio balance is your indispensable first step. Take it now. Time is of the essence.