Monday, March 30, 2009
Friday, March 27, 2009
US Debt to Net Worth Per Capita and the S&P 500 Performance
The sum of US Treasury debt outstanding per capita and consumer debt outstanding per capita divided by real GDP per capita creates the factor of 1.08. The function (1-1.08) is the nation's net worth per capita index. Compare this over time to the performance of the S&P 500 and draw your own conclusions.
Tuesday, March 24, 2009
Bankrupt at Birth Also Means Bankrupt at 25
Age 25 and you just landed a great new job. Now get ready to retire.
An Unimaginable Burden!
Chances are your employer does not have a traditional pension plan and offers a 401k instead - unless you are fortunate enough to work for a public institution, such as a school or municipality, that still funds a pension for you and also let's you participate in a 403(b) plan.
Your employer has no obligation to fund your retirement other than making voluntary nominal matching contributions to your 401k account.
Nor does your employer have any obligation to compute for you how much in assets you need to save to have income in retirement that will maintain your standard of living at that time. Furthermore, they probably will not give you advice on what investments to choose to fund your retirement. You now have the task of doing all of this on your own. Were you taught this in high school or college?
Let's put this retirement problem into perspective. If you want a retirement starting 40 years from now - at age 65, and you think you will live into your 90s, which is not impossible to contemplate, and you need annual income of $100,000 in today's dollars, also not impossible to contemplate, you will need assets at age 65 of $5.9 million to fund your retirement. If you started saving right now, you need to put away $27,000 per year for the next 40 years and hope you can earn 7% with inflation contained at 3% per year.
But you also want to buy a home, get married, have children and enjoy life. Some tough decisions need to be made about your priorities. I hope the following financial blueprint for a 25 year old frames this task for you.
Extract: "Bankrupt at Birth - America's Struggle to Achieve Financial Security in the 21st Century", by Thomas Warren, CFP(TM)
Copyright 2009 Y Squared Advisers
An Unimaginable Burden!
Chances are your employer does not have a traditional pension plan and offers a 401k instead - unless you are fortunate enough to work for a public institution, such as a school or municipality, that still funds a pension for you and also let's you participate in a 403(b) plan.
Your employer has no obligation to fund your retirement other than making voluntary nominal matching contributions to your 401k account.
Nor does your employer have any obligation to compute for you how much in assets you need to save to have income in retirement that will maintain your standard of living at that time. Furthermore, they probably will not give you advice on what investments to choose to fund your retirement. You now have the task of doing all of this on your own. Were you taught this in high school or college?
Let's put this retirement problem into perspective. If you want a retirement starting 40 years from now - at age 65, and you think you will live into your 90s, which is not impossible to contemplate, and you need annual income of $100,000 in today's dollars, also not impossible to contemplate, you will need assets at age 65 of $5.9 million to fund your retirement. If you started saving right now, you need to put away $27,000 per year for the next 40 years and hope you can earn 7% with inflation contained at 3% per year.
But you also want to buy a home, get married, have children and enjoy life. Some tough decisions need to be made about your priorities. I hope the following financial blueprint for a 25 year old frames this task for you.
Extract: "Bankrupt at Birth - America's Struggle to Achieve Financial Security in the 21st Century", by Thomas Warren, CFP(TM)
Copyright 2009 Y Squared Advisers
The "Ownweship Society" in the "New Era of Responsibility"
On Your Own From Beginning to End
The “new era of responsibility” for the “ownership society”
“In an ownership society, more people will own their health plans and have the confidence of owning a piece of their retirement. We’ll always keep the promise of Social Security for our older workers. With the huge baby boom generation approaching retirement, many of our children and grandchildren understandably worry whether Social Security will be there when they need it. We must strengthen Social Security by allowing younger workers to save some of their taxes in a personal account, a nest egg you can call your own and government can never take away. In all these proposals, we seek to provide not just a government program, but a path, a path to greater opportunity, more freedom and more control over your own life. And the path begins with our youngest Americans.”
- President Bush’s Acceptance Speech to the Republican National Committee, September 2004.
“What is required of us now is a new era of responsibility, a recognition, on the part of every American, that we have duties to ourselves, our nation and the world, duties we do not grudgingly accept, but, rather, seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving all to a difficult task. This is the price and the promise of citizenship.”
-President Barack Obama Inaugural Address, January 20, 2009Economic State of the Union, circa 2009
So let’s do a summary of the economic state of our union as it exists now for all living generations who are now part of the "ownwership society" tryimg to cope within a "new era of responsibility".
Here are some of the conditions affecting today’s “everyday citizen”:
· Today’s workers are too easily disposed of by their employers
· Older workers who must remain employed and invested in the stock market to meet their retirement liability have become permanent casualties of the economic calamity of the last 18 months
· College students have no clear sense of the skills required for 21st century jobs because of the fear of outsourcing
· A public lacking basic money management skills that is now expected to manage their own retirement, health care and other obligations that used to be managed on their behalf by trust worthy professionals who are now hard to find
· Substantial unfunded future “life liabilities” for anyone born in the second half of the 20th century and the first decade of the 21st century
· Governmental economic and citizen welfare policies that are inconsistent across administrations making it virtually impossible for the average person to know what they are personally responsible for to be financially secure
· A federal government bankrupt because of its huge unfunded future liabilities stemming, in part, from its past deficit spending and now trying to figure out how to balance our welfare against national interests such as defense, energy and preserving democracy around the world
· State and local governments bankrupt also because of their massive unfunded future liabilities for pension and health care promises to public employees, Medicare and Medicaid obligations, over extended commitments to schools and taxing anything that they can except maybe the air we breath
· The worst performing start to a new millennium for financial markets ever with two massive bear markets that were just 5 years apart , due in part to a massive overhang of securities sold to the public in the last 20 years of the 20th century that have significantly declined in value forcing a massive recapitalization of our banking industry.
· The first time in history we have 4 generations of the same family living at the same time, all at once. The oldest generation is the only one that is solvent.
The audacity of the “ownership society” and our “new era of responsibility”
If we can’t plan our future as citizens how can we be expected to set aside enough resources to be financially secure?
If we can’t plan our future as workers, how can we even contemplate and save for retirement?
Extract from "Bankrupt at Birth - America's Struggle to Achieve Financial Security in the 21st Century", by Thomas Warren, CFP(TM)
Copyright 2009: Y Squared Advisors
The “new era of responsibility” for the “ownership society”
“In an ownership society, more people will own their health plans and have the confidence of owning a piece of their retirement. We’ll always keep the promise of Social Security for our older workers. With the huge baby boom generation approaching retirement, many of our children and grandchildren understandably worry whether Social Security will be there when they need it. We must strengthen Social Security by allowing younger workers to save some of their taxes in a personal account, a nest egg you can call your own and government can never take away. In all these proposals, we seek to provide not just a government program, but a path, a path to greater opportunity, more freedom and more control over your own life. And the path begins with our youngest Americans.”
- President Bush’s Acceptance Speech to the Republican National Committee, September 2004.
“What is required of us now is a new era of responsibility, a recognition, on the part of every American, that we have duties to ourselves, our nation and the world, duties we do not grudgingly accept, but, rather, seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving all to a difficult task. This is the price and the promise of citizenship.”
-President Barack Obama Inaugural Address, January 20, 2009Economic State of the Union, circa 2009
So let’s do a summary of the economic state of our union as it exists now for all living generations who are now part of the "ownwership society" tryimg to cope within a "new era of responsibility".
Here are some of the conditions affecting today’s “everyday citizen”:
· Today’s workers are too easily disposed of by their employers
· Older workers who must remain employed and invested in the stock market to meet their retirement liability have become permanent casualties of the economic calamity of the last 18 months
· College students have no clear sense of the skills required for 21st century jobs because of the fear of outsourcing
· A public lacking basic money management skills that is now expected to manage their own retirement, health care and other obligations that used to be managed on their behalf by trust worthy professionals who are now hard to find
· Substantial unfunded future “life liabilities” for anyone born in the second half of the 20th century and the first decade of the 21st century
· Governmental economic and citizen welfare policies that are inconsistent across administrations making it virtually impossible for the average person to know what they are personally responsible for to be financially secure
· A federal government bankrupt because of its huge unfunded future liabilities stemming, in part, from its past deficit spending and now trying to figure out how to balance our welfare against national interests such as defense, energy and preserving democracy around the world
· State and local governments bankrupt also because of their massive unfunded future liabilities for pension and health care promises to public employees, Medicare and Medicaid obligations, over extended commitments to schools and taxing anything that they can except maybe the air we breath
· The worst performing start to a new millennium for financial markets ever with two massive bear markets that were just 5 years apart , due in part to a massive overhang of securities sold to the public in the last 20 years of the 20th century that have significantly declined in value forcing a massive recapitalization of our banking industry.
· The first time in history we have 4 generations of the same family living at the same time, all at once. The oldest generation is the only one that is solvent.
The audacity of the “ownership society” and our “new era of responsibility”
If we can’t plan our future as citizens how can we be expected to set aside enough resources to be financially secure?
If we can’t plan our future as workers, how can we even contemplate and save for retirement?
Extract from "Bankrupt at Birth - America's Struggle to Achieve Financial Security in the 21st Century", by Thomas Warren, CFP(TM)
Copyright 2009: Y Squared Advisors
Thursday, March 19, 2009
National Economic Net Worth Index
My research has concluded that the poor performance of the equity markets since the start of the century is directly related to the decline in our nation's economic net worth - defined as Real GDP Per Capita minus the sum of consumer debt per capita and national debt per capita.
This information was extracted from official U.S. Government sources.
The sum of consumer debt and national debt has risen 77% since 1995. Real GDP per capita rose 28% in this period. At the end of 2008, the index turned negative for the first time after steadily declining since 1975.
See the relationships of the Net Worth Index ((C) 2009, Y Squared Ad visors) to the returns of the S&P 500 index spanning 1975-2008.
Comments welcomed. This is a proprietary index.
This information was extracted from official U.S. Government sources.
The sum of consumer debt and national debt has risen 77% since 1995. Real GDP per capita rose 28% in this period. At the end of 2008, the index turned negative for the first time after steadily declining since 1975.
See the relationships of the Net Worth Index ((C) 2009, Y Squared Ad visors) to the returns of the S&P 500 index spanning 1975-2008.
Comments welcomed. This is a proprietary index.
401(k) Watch
This is the hypothetical 401(k) account balance for an individual who was 56 at the end of 2008.
The result assumes the individual made maximum deferrals, including catch-up contributions, starting in 1987 - the year the 401(k) became institutionalized in American corporations and began the demise of the traditional pension benefit.
The modeled results assumes the individuals contributions were invested in the S&P 500 Index and the individual stayed fully invested since 1987, and will continue making maximum contributions until age 65 in 2017. No dividend re investments were assumed.
The far right of the chart shows the amount of assets an individual needs to provide today's income, inflation adjusted to 2017, and the average rate of return required over the next 9 years to reach these asset levels from the 12/31/12008 balance.
This chart will be updated weekly using the previous weeks returns through Friday.
Happy tracking,
Tom
The result assumes the individual made maximum deferrals, including catch-up contributions, starting in 1987 - the year the 401(k) became institutionalized in American corporations and began the demise of the traditional pension benefit.
The modeled results assumes the individuals contributions were invested in the S&P 500 Index and the individual stayed fully invested since 1987, and will continue making maximum contributions until age 65 in 2017. No dividend re investments were assumed.
The far right of the chart shows the amount of assets an individual needs to provide today's income, inflation adjusted to 2017, and the average rate of return required over the next 9 years to reach these asset levels from the 12/31/12008 balance.
This chart will be updated weekly using the previous weeks returns through Friday.
Happy tracking,
Tom
Subscribe to:
Comments (Atom)
