The Financial Crisis NO ONE is Talking About

So first of all I have to say that I am shocked more people aren't talking about this because we are barreling towards a massive financial disaster and the scariest part is that no one is doing anything about it case in point this article from DW news which describes the slowest moving financial crisis you probably haven't heard of retirement. 

As they explained half of all boomers are soon going to be running out of money and pretty soon the entire economy is about to pay for it so given the fact that most people are going to be directly imped by this in one way or another.

Let's discuss exactly what's going on what to look out for the biggest mistakes that most people are making and ytw news calls this the financial crisis that no one is fixing.

All right so in order to understand what's going on and how on Earth we got here we first have to talk about where all of this starts which is retire retirement see what most people don't realize is that the concept of retirement is actually fairly new like 150 years ago.

It was common practice that people would simply keep working until they passed away but in 1889 a German chancellor decided to pay workers over the age of 70 to voluntarily leave their job so that the young unemployed Marxist didn't attempt an uprising and I guess in doing so the concept of retirement was created.

But as I'm sure you're aware all good things eventually come to an end and all of that abrupt stopped after the 1929 Great Depression so in order to prevent older Americans from Starving in poverty in 1935 the Social Security Act was created and by the 1950s.

The American dream of leisurely retirement was in full swing however there was one glaring issue because when the concept of receiving Social Security at 65 initially went into effect the average life expectancy was just 58 so as people began living longer and longer that created the problem of going broke like here's the thing thing Social Security is currently funded through payroll tax at a rate of 12.4% now you would think that this system puts your money away in a safe account that you're able to use from your own proceeds when you're older.

But it doesn't work like that instead your money goes towards paying out current retirees and by the time you retire future workers will contribute their salary to pay you yes this sounds kind of like a Ponzi scheme and that's because in a way it kind of is now in a perfect system.

Incomes increase and the population growing so that more people are able to pay into it to keep it funded but it's not instead the population is slowing down and even declining incomes are barely keeping up with inflation and starting in 2023 the Social Security Administration will run out of the excess reserves it has and will only be able to pay out a portion of a retiree's full benefits 77% to be exact and that is where the problem begins.

On the surface there are three major issues that need to be addressed for everyone watching and the first would be poverty according according to the Census Bureau 44% of boomers are at retirement age.

And by 2030 the largest generation to enter retirement will all be older than 65 now even though this in and of itself is not that big of a deal it was reported that 43% of 55 to 64 year olds had no retirement savings at all 30% of people over 65 are economically insecure earning less than $27,000 and as a result it said that most of these people have no other choice other than to become financially reliant on their children.

It's also suggested that the government will need to allocate more spending to older people who have nowhere else to go creating a financial burden that America has not prepared to manage second. 

We also have what's called a savings Gap flat out Americans are not saving enough money and for many people it's just too late in fact it was recently found that half of Americans have absolutely nothing saved for retirement whatsoever and for the people between the ages of 50 to 54.

Only a third have more than $100,000 to make matters worse when all households are included not just those with retirement accounts it was found that the typical working age household has only $3,000 in retirement and the typical near retirement household has just $122,000 that's it 

This means that based on their current assets 92% fall short on their target and finally third it's just the perfect storm the fact is people are living longer health insurance costs are increasing there's a lack of access to retirement plans. 

Millennials are having fewer children and as a result retirees are forced to continue working later in life because what they've saved is nowhere close to being enough Business Insider says that this creates what's called a sandwich generation which consists of the 23% of people who are caring for both aging parents and young children at the same time.

This is also why it's said that without more nursing homes American retirees are going to be left depending on their cash strap Millennial children and jenzy grandchildren. 

Why is this a big deal ? well as of right now retirement budgets are going bust America's population is aging quickly the entire economy is about to get hit hard and the solution is likely going to impact all of you watching so in terms of what that means here is what you came for to start in terms of how much money you need a recent report found that for most people the American dream now cost is staggering $3.4 million and that dream is broken down as follows $36,000 for the full cost of a wedding $800,000 as the average cost of a home with interest over3 years $271,000 is the lifetime cost of owning cars $5,800 for having two kids with insurance $575,000 for raising those two kids until the age of 18 $934,000 as the lifetime cost of health insurance $68,000 taking care of pets $42,000 for college $715,000 for retirement and then $7,800 to pay for a funeral when you die.

How lovely now obviously you could choose to buy the American dream for a lot less as long as you drive a used car longer than 6 years get lower than a 7.2% interest rate on your mortgage maintain good health insurance through your employer reconsider going to college and spend a lot less money on a wedding. Not to mention some could also say that this study is double counting the cost of raising children since additional housing and Healthcare is already included but regardless this should give you a good idea that all costs are rising very fast the reality is unless you prepare yourself now.

You will get left behind and in terms of what to expect this is what's most likely to happen although while we're on the topic of investing Building Wealth and optimizing your finances the one aspect that people really underestimate is the value of their time and health like when it comes to myself I find that my work dramatically suffers when I don't eat healthy. 

I don't eat full-size meals throughout the day and I just snack on them whatever because it's convenient.

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All right now in terms of the retirement crisis it's pretty clear what's going to happen and most likely it'll be a combination of the following one Social Security benefits will be reduced by the time all of us retire.

Two the government increases the retirement age by the time we retire so that that way they could pay out less money or three the government increases taxes to help pay for the deficit and if you think any of these can't happen think again according to CNBC the last time Social Security faced a deficit was back in 1983 and it was resolved through an agreement that raised the full retirement age from 65 to 67.

Well guess what back then when that agreement was reached the average life expectancy was 74.6 and now it's 79.5 therefore it would make some sense that they try to push the retirement age up even further right alongside with it in addition to that a recent proposal would raise Social Security taxes on those making over 400 ,000 a year while inflation pushes the top earning Social Security recipients to almost $5,000 a month or I guess they could just reduce the amount that you could paid in retirement but realistically that's probably just not going to happen anyway in terms of how much of a tax increase we could see the Social Security Board of Trustees recently said that we'd either need an immediate reduction in benefits of about 133% or an immediate increase in the combined payroll tax to 14.4% or some combination of these changes to allow the full payment of scheduled benefits for the next 75 years so in terms of what you could do about this and the changes that you could begin making today to make sure that you're not just another statistic.

Here's what you need to know first of all not everybody agrees that there's going to be a retirement crisis and since I love covering both sides here's something to consider despite everything that we've just covered some Outlets are calling Baby Boomers the luckiest and wealthiest generation we have ever seen now sitting on roughly 78 trillion dollar and when you look at the statistics their timing could literally not have been any better like since 1983.

Stocks have increased by almost 8,000% home prices have appreciated 500% and a 60/40 portfolio of stocks and bonds would have returned more than 14.5% a year.

We've also seen a history of incorrect calls for retirement crisis dating all the way back to the 1960s when defined benefit plans were cut from large corporations after that the 401K was introduced but of course as you would imagine critics of that said that it lacked a guarantee and that was a problem in fact the commissioner of the SC even said that putting money in the hands of employees in the form of individual accounts rather than having it managed by an employer would be the end of the American dream.

Then again in the 1990s it was published that retirement as current retirees know it may be impossible for all but the most affluent and 53% of people surveyed agreed that a retirement crisis was coming from there in 2008 just as you'd imagine. 

Experts were telling Baby Boomers that they would have no choice but to delay retirement by 5 years at least but since since then we've seen the strongest bull market in history with the greatest wealth transfer ever just around the corner. All of this suggests that everything we're currently seeing is overblown it's nothing to worry about and at the end of the day it's really not a big deal however even with all of that said they do admit that even though many people will be fine some people won't but that's nothing new nearly a quarter of every generation has live long enough without the means to retire.

And if you want to make sure you don't fall in that category here is what I believe personally I never think it's a good idea to rely on the government in Le of taking full control over your money it's just too risky instead it would be significantly better to diligently save as much money as you can.

Live below your means learn as many skills as you can to increase your income and then do that consistently for decades now I'm sure there's always going to be people out there who say but dude you could get hit by a bus tomorrow so it's really important that you live in the moment for today but personally I tend to believe that you can still live for today as long as you budget for it like I'll admit there's no point in living like a Hermit just for the sake of saving money so that one day finally you'd be able to live your life at 65 although there is a balance to it.

If you've calculated how much money you need in the future you're saving enough and your expenses are reasonable then go and take a portion of that and spend it enjoy it but don't go and blow money at the expense of your future self because I got to say it's so much easier saving money when you're young not only do you have more time to compound your money and see it grow but psychologically it is a lot easier to keep your lifestyle the exact same and save the difference that it is to start spending more money and then need to make more money to sustain that lifestyle plus the money that you're able to save at 20 years old is significantly more valuable than the money you're able to save at 30 years old.

Like just consider this if you invested $110,000 at 20 years old at an 8% return by the time you're 60 you're going to have $217,000 but if you waited and invested that very $10,000 at 30 years old instead you would only have $100,000 by the time you're 60 that literally means that your $10,000 invested at age 20 is worth $117,000 more than just that same money 10 years later.

Let that sink in all of that should be enough to make you realize that you really just have two options one you could invest a small amount of money throughout your 20s or two you could invest a lot more money throughout your 30s and 40s to make up for it to me that first option just seems a lot lot easier of course as far as how much money you would need to retire that's the million dooll question quite literally and to figure that out let's work backwards and I'll assume that you want to replace the median income here in the United States of $50,000 a year generally speaking the rule of thumb is that if you invest in a broad Index Fund you would be able to spend 4% of that portfolio every single year throughout retirement without running out of money and that would mean you need $1,250,000 in order to retire.

But sometimes you know what life just happens so let's bump it up to $1.5 million just to be on the safe side and here's exactly how you could get there if you're 20 years old you'll need to invest $416 a month or $5,000 a year and by the time you're 60 you'll have just over $1.5 million invested.

If you're able to do this within a Roth IRA that means all of this money is going to be yours completely taxfree however if you start doing this at 30 years old you'll have to save $950 a month or $1,400 a year year to reach that very same $1.5 Million by the age of 60 and if you start at 40 years old you'll have to save $2,300 a month or $228,000 a year just to be able to reach that very same amount so you tell me would you rather invest $416 a month at 20 years old or have to invest $2,800 at 40 years old which is better ideally.

If you take Direct Control now you shouldn't have to be miserable working away your entire life just to be able to retire and then die there's options to finding work that you thoroughly enjoy that you don't mind doing on a day-to-day basis it's worth passing up on discretionary expenses for the possibility of saving more money.

And as long as you're hitting your savings goals if you have anything left over feel free to spend it responsibly on things that bring you long-term value by doing this you'll hopefully get to enjoy the benefits of Both Worlds of being able to live well now but also enough that you'll still be able to support yourself if you live past the age of a 100.

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