Book Excerpt: How You Got Screwed
Chapter 4: How you’re getting screwed by…Retirement Promises
The Point: Most people have an expectation that they’ll be taken care of later in life thanks to government programs like Social Security and Medicare, private or public pensions, or through their own efforts to build up their net worth. In reality, it was never possible for governments and corporations to fulfill the promises they made to you, and those assets you saved may not be worth what you think they will be, when it’s time to cash them in.
There is a predictable pattern to life: We start out as dependent children; grow to be independent adults; and, inevitably, become dependent again as we move into old age. We know this is coming; not a single person in history has avoided it. So it’s important for us to plan for that while we’re in our prime.
Unfortunately, the vast majority of Americans are completely unprepared for the 100 percent certainty of old age. There are many reasons for this:
- Because we live in a debt- and credit-driven society, we have come to think only of our immediate needs and wants. There’s no need to save for the things we want to buy: We just borrow the money and promise to pay for it later. This mindset not only means that we’re hard-wired against saving, it also means we’re probably going to grow old with a pile of debt—all those things we said we’d pay back in the future. We have some assets—notably our home equity—but all that debt keeps our net worth low.
- We’re about to deal with a huge demographic bubble—the aging of the huge Baby Boomer population—which will result in a selling frenzy of the assets they accumulated in better times. Asset prices will crash due to little demand and huge supply of those assets.
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