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Submitted by: Puthan(VJ) Vijayan
Puthan(VJ) Vijayan is the Principal member of PMV Investment Advisors, LLC. The firm is a Registered Investment Advisor. VJ is a Certified Estate Planner and Registered Financial Consultant, with over 15 years of planning and investment experience.
1) AGING OF AMERICA
Cerulli Associates said that in the next 20 years, 43 million households, nearly half of all American households will move into retirement, pushing the number of 65 + year olds to more than 69 million people. Since 1900, the average life expectancy of Americans has nearly doubled. The Society of Actuaries just increased the top age of its mortality chart from 100 years to 120 years(2).And for 65 year young couple, the odds that one spouse will live until age 90 are over 50%.
2) DISAPPEARING PENSIONS
44 million Americans are covered by pension plans, but the number of such plans are plummeting (3).Each year, more than 1,000 employers voluntarily shut down their pension plans, leaving a shrinking pool of employers paying into the federal retirement insurance program. Consequently, the number of employer sponsored pension plans has declined precipitously from 114,000 in ’85 to 31200 in ’04 (4).
3) SOCIAL SECURITY
The federal government owes social security over $1.5 trillion; without a tax increase or a reduction in benefits, social security is moving toward bankruptcy. Yet according to social security administration, nearly two-thirds of retirees rely on social security for 50% of their income and 33% use it for 90% of their income. Without social security, half of retirees would live in poverty.
4) TAX AXE
What is your family’s largest monthly expense? Typical replies include housing, healthcare, transportation, etc. Did you know that taxes are the single most monthly expense for most American families, accounting for 30% of their income-almost 2 times the next expense category? Most people are surprised by it. Aren’t taxes always going up on the rich? Yes, it is true. So, won’t the rich bail you out? Here is another shock- “They” is you. You may not consider yourself rich, but if your household earned $57,343 in 2003, that puts you squarely in the top 25% of all taxpayers in America (5).
5) THE INVISIBLE ENEMY-INFLATION
You may have forgotten about inflation, but inflation has not forgotten about you. Inflation is truly the invisible enemy of your income. It eats away at your purchasing power and can decrease the value of your assets. For example according to Ibbotson Associates (6), $1 in 1983 had the buying power of only 52 cents in 2003,assuming a average inflation rate of 3%.Similarly, if you need $50,000 a year in today’s dollars, you will need $65,239 in 10 years, and $101,640 in 25 years. Keep in mind, these amounts would just maintain your standard of living, not increase it.
6) THE HEALTHCARE NIGHTMARE
While the Whitehouse, Congress and the media focus on Social Security, the real “Gorilla in the room” is healthcare, a problem with no proposed solution. In 2005, elder care replaced child care as the number one dependent care in US households (7). The Employee Benefits Research Institute (EBRI) estimates that, even with Medicare, the average American will need almost $300,000 in inflation adjusted dollars just to pay Medicare premiums in retirement.
7) SAVINGS RATE
In 2004 America’s savings rate was at its lowest point since the Great Depression (8). Personal bankruptcies reached an all time high (9).Social Security was the major source of income, providing at least 50% of total income, for 65% of aged beneficiaries, and it was the only source of income for 21% (10). Remember, those are IOU’s not savings account.
These are some of the challenges facing every American household, together with lack of
preparation by investors, it is quite possible that many boomers, perhaps you, will enter
retirement with the very real prospect of running out of money.
(1) “But What If I Live? The American Retirement Crises; Retirement guide for Baby boomers
Gregory Salsbury PhD; The National Underwriter Company.
(2) “The looming retirement Income Crisis,” On Wall Street (June 2004)
(3) Greg Crawford & Vineeta Anand “The looming Retirement Disaster,” Pensions and Investments,
April 18 2005.
(4) Crawford and Anand op. cit.
(5) “Summary of Federal Individual income tax Data,” Tax Foundation, www.taxfoundation.org,
October 11 2005.
(6) Ibbotson Yearbook, Ibbotson & Associates, 2004.
(7) Don Kuhn, “Part 11: Shopping for long Term Care Insurance” April2003
(8) “Gold: There’s No Free Lunch.” John Ing March 30, 2006
(9) “Personal Bankruptcies Soar to All-Time High.” CNN Money.com, March 24, 2006
(10) Fast Facts & Figures About Social Security, 2005
Puthan Vijayan CEP, RFC, MBA
Principal
PMV Investment Advisors, LLC
Registered Investment Advisors
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