At the risk of inducing a collective yawn, I am going to reminisce a little.
Forty years ago, expectations were to develop a craft, perfect a skill, or learn a profession. Workers then applied that knowledge to business and industry in exchange for salaries and benefits. They exchanged work for pay, insurance and a large staple of retirement in the form of guaranteed pension income for the rest of their lives. They would also receive health care for life as a supplement to Social Security and Medicare. Social Security would be perhaps 35% percent of a retirees income with pensions contributing about 40%. The balance would be from personal investment income.
When my wife and I were mid-career, that plan seemed solid as a rock. We knew we needed to set aside about $700/month into a mutual fund for the balance of our working lives and we would be set.
Fast forward to today! A lot has happened since then. The pension plan we were counting on went bankrupt along with the insurance company that held the assets and guaranteed the benefits. Fortunately, we made the right decision and liquidated the present value of the defined benefit plan when we separated from contractual employment in 1994. But, the world of guaranteed income vanished forever with that decision. Even today I am reluctant to hand great bundles of money to a massive financial conglomerate with the promise of guarantees. I just have no faith in those promises or guarantees.
Our health care costs are now $22,000/year instead of being pre-funded. Income from Social Security is under stress as well; (see my recent blog “The National Debt and the Annual Budget Deficit”). The expectation is higher taxes and lower (yes, you read that correctly, lower) benefits.
Okay.. okay.. okay.. you can wake back up now. The change that has occurred so far is only the beginning! The environment is permanently changed. The entire idea of work and retirement is being redefined. When I offer advice and counsel to young people, I say “I am teaching you how to learn, adapt, and behave in a new environment. This is not your parents’ or grandparents’ environment, and five years from now it will continue to fall into the hands of the learners/adapters. You will very likely work well into your seventies because the new economic reality is continued movement toward a self-directed future with fewer guaranteed benefits.”
If you have already retired, it’s time to rethink your plans. Higher inflation along with lower returns is possible going forward. Health care costs are on a steady escalator going higher. People are living longer in an environment that is experiencing unprecedented tectonic shifts. As a retiree, you need to be aware of the new environment and adjust your planning to reflect the new reality.
At Destiny Capital, we are experts at helping people reorient their thinking. After that reorientation, we then readdress the capital and investments necessary to be successful in the next environment. Here is the really big news: As fast as the environment is changing, reviewing our plans and investments is now massively advantageous. It is likely the only method to regain a sense of managerial control in a hyper-changing marketplace. It is almost the only way to restore some sense of comfort as we move together into the future.
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