|| Write Us | Help | Sponsors | Classifieds | Employment | Forums | MarketPlace | Calendar | Headlines | Announcements | Weather | More... ||
|02-14-2009, 06:26 AM||#1|
Member Since: Feb 2001
...and the health of the US economy.
Set aside your ideology for a moment, and consider the economy, as a whole and how it ultimately impacts you, long term.
You are going to work about 40 years or so and live another 20, give or take. Before that, you had another 20 years where you more or less were a dependent be it school, living under someone else's roof or simply not making very much money at all.
So, for 20 years you are someone else's problem, 40 you are your own problem and then 20 you either have had to earn enough to get you through those last years or you're back to a dependent state.
Let's look at you as taking care of yourself from age 20 on to your demise. Assume you need about 1/2, yearly, of what you used to get by on. Depending on the rate of return, how much interest your savings is earning, etc. the amount you need to be saving each year is going to vary wildly.
Let's say you average, over your 40 years, $50,000 a year or $2 million in income. That's gonna be high for some, low for others and will also depend greatly on how old you are now, but, just to set an example, you can certainly do some basic figuring from there.
If you need $25,000 for 20 years retirement, that's $500,000, or 25% of what you earned in your life. Whatever you earned over your life, if needing 1/2 per year in retirement is pretty close, that is your basic number; 25% of whatever you earned over your working life needs to be available to you.
Starting with 0% interest, you'd need to have saved 1 our of every 4 dollars, 25%, you ever earned.
If you earn 5%, average return, over those 40 years, you need to save 9% of your gross, per year, to get to $500,000.
Americans just hit 3% savings after years of near 0, for the last quarter of '08so, as a nation, we'd need to be earning about 9.5% to get there.
With me so far? We ain't cutting it, as a nation.
Now, we haven't talked about inflation or Social Security or health expenses yet. With a 3% inflation rate, a reasonable number, we need to be saving 3% a year to just stay even, 0% return, which puts us back to needing to save 25%.
All this money needs to come from the economy, obviously. Health care takes up 16% of gross domestic product, the national income, per year. That's not being saved. Social Security/Medicare is consuming over 7% of GDP now and that will grow as th Boomers age. That money is not being saved. That money is not building any kind of asset.
So, right away, nearly a quarter of GDP is being consumed, not saved, meaning whatever you're gonna save needs to, in effect, come from 75% of your income. Now you need to save $500,000 out of $1,500,000 or 33%. Assuming 0% return and 0% inflation.
I need to go to work now and I'll come back to this. So, put on your thinking caps and start thinking about the rest of national spending, government, what you spend on, and start thinking of it in context of how you're gonna retire, where that money can possibly come from.
"...When law and morality contradict each other, the citizen has the cruel alternative of either losing his moral sense or losing his respect for the law. These two evils are of equal consequence, and it would be difficult for a person to choose between them."
|[ Reply w/Quote ]|