As I get older, retirement seems further off in the distance. Inflation is nibbling away at my savings. But there are bigger problems that lie hidden just beneath the surface.
The Robert Reich movie "Inequality for All," talks about the 1% getting richer and the middle class getting poorer. On the one side, the middle class still earns the same amount, but it doesn’t go as far anymore. This is called inflation, but a better description would be government printing of dollars. If we look at the rich getting richer, one item eludes people, the increase in wealth doesn’t mean that they now spend more, it most probably goes into a bank account. These extra dollars are not sloshing around in the economy, they have been absorbed into what could be labeled a “wealth sponge.” The excess of printed dollars is effectively removed from circulation.
On top of that, we have many people approaching retirement squirreling dollars away in their IRA’s and 401K’s. Many people believe that Congress enabled these retirement plans to help people save for retirement. That concept was a great vote getter, but the real reason for these plans was to increase the money available for Congress to borrow.
In two years’ time, my mint flavored Altoids have increased in price from one dollar to three dollars. The dollar double cheeseburger at McDucks is now $1.69. On Reich's documentary, he interviewed a guy making 12 million a year, and the gentleman pointed out that he only needs three pairs of blue jeans a year. So we can’t depend on the rich to stimulate the economy, and at the same time, I’ve cut down on double cheeseburgers and Altoids. Put it another way, the burn time on retirement funds has halved.
People today, are not saving for retirement like they used to. The silver foxes are starting to withdraw their retirement dollars, while the young question the concept of even saving money. Why put it in the bank at one percent when you can get a new car instead? Interest rates this low almost demand that you satisfy your urge for immediate gratification.
If we go back to Bernie Madoff, we stumble upon another problem not considered. All of his investors were rich up until they were advised he was broke. It's amazing how an excel spread sheet and a LaserJet printer can give an investor the appearance of a fabulous monthly statement, while in reality they're dead broke and clueless of the fact.
The real feat of accomplishment, is the 14 trillion dollars borrowed by the US government. It was sucked out of the financial system in a span of 10 years. This money was deposited in the banks when interest rates were 8% and higher. What happens now, when the baby boomers retire and start to withdraw their nest egg dollars? What happens if there are no new dollars coming into the system to replace the ones withdrawn?
It's kind of like the government selling 14 trillion dollars worth of tickets to the latest movie and the theater only seats 2,000. There is no problem until you decide to see the movie.
inflation has had 40 years to ravage your nest egg. As you run out of funds in retirement, your kids will try to help you out and will come to the conclusion that you just didn't save enough. They will grow up wiser--- When it comes time for them to retire, they can use their government Social Security checks to pay off their government student loans. ---Why do I get the feeling that I'm missing something here?