Are we are being set up for perhaps the biggest crash of the middle class since the Great Depression? With the stock market over-performing, people have earned high double-digit returns, and we should be celebrating big time, correct?
But if we take the emotion out of this and look at dollars and cents, we are fighting an enemy that is undefeated against man: time!
We are saving today’s dollars to one day stop working and pay tomorrow’s prices while facing the uncertainty of the future. Here’s the scary part: a Google search for the term “retirement crisis” turns up many studies that show we have a colossal problem heading our way.
It’s a simple math equation. We want to stop working at, let’s say, 65. Then we have to factor in our life expectancy, which we have to calculate for the worst-case scenario. Unfortunately, the worst case is actually living too long! Let’s say we live until we are 90. That means the money we saved from our entire working career has to last 20 to 25 years! All the while our money is depreciating due to inflation.
We also have several unknowns, like out-of-pocket medical expenses or catastrophic illnesses, as well as unknown future tax rates. Most individuals are deferring their taxes while using a 401(k) plan, which means they have to pay the taxes when they start drawing that money.
Financial experts say we need to save eight to 10 times our salaries for retirement. But considering all the variables I mentioned, even if individuals can save eight to 10 times their salary, they would likely run out of money eight to 10 years into retirement, if not sooner, depending upon market volatility!