This Ain't Your Father's Retirement

This Ain't Your Father's Retirement
By Peter "Coach Pete" D'Arruda

"Earth provides enough to satisfy every man's need, but not every man's greed." - Mahatma Gandhi

I was a "honeymoon baby." That is, I was a souvenir of my parent's honeymoon. I was born exactly nine months to the day from when it started. My arrival was a mixed blessing at best. My father, a full time student working on his Master's degree and a Ph.D. in Physics, and my mother, also a college student, needed an addition to the family like they needed a hole in the head.

To say that I grew up in a family of modest means is an understatement. But we never went hungry. One of my earliest memories is that of a large metal can on the kitchen counter stenciled with the words, "peanut butter," in bold, government-style letters. Sitting next to it was a plain box marked "cheese" in the same stark lettering. I would learn later that it was something called "government surplus," a precursor to food stamps. It was free, but you had to be poor to qualify for it.

Wants versus needs

Things got a little better as I grew older, but not much. There was little money in the house. What there was went to pay for necessities like nourishment and shelter. Those were needs. As I remember it, there was never a problem in our home making a distinction between needs and wants. Needs, I came to conclude, are absolute and gnawingly apparent. Wants are arbitrary and usually frivolous.

It troubles me that today's society, especially in wealthy countries like the United States, is defined by its craving for instancy. Baby boomers started the push button era sometime in the 1950s and soon, consumers were hooked on instant coffee, instant tea, frozen TV dinners and so many labor-saving devices that kitchens couldn't contain them all. Now, we are addicts, and we have passed the habit on to our kids. The line of distinction between wants and needs always seems to blur when there is plenty, but usually comes back into sharp focus during hard times.

According to a survey conducted by the Pew Research Center's Social and Demographic Trends project, Americans are rethinking what they can and cannot live without. It used to be that most folks saw such things as microwave ovens, home air conditioning and TVs as luxuries; now, more people see them as necessities. Do you have a cell phone? Could you part with it? Half of those polled said they viewed cell phones and personal computers as necessities. Food is a necessity. You can't eat a computer. Would you go hungry to keep your cell phone? That is the true test, I suppose.

Economic recession has a way of teaching us priorities. Since the era of abundance in the 1990s, the television, the most sacrosanct of all luxury items, is now considered a necessity for only 52 percent of those surveyed -- down from 64 percent. The media bombards us daily with things that are attractive and appealing. Advertising moguls are paid millions to find new ways of making us want the things they dangle before us. Credit cards make them easy to purchase. It is no wonder that some think there is a giant conspiracy out there, the purpose of which is to prevent anyone from saving anything! I know my mother would see it that way. "It's a game," she used to say. "And it goes like this: You have money in your pocket, and everyone around you is trying to get it out."

Those words still come back to me every time I leave a Best Buy store with some new gadget that I felt sure I could not live another day without. I get that little tingle of conscience they call "buyer's remorse."

 

Debt versus savings

These days, America is addicted to credit the way drug addicts are hooked on narcotics. The actual number is hard to nail down, but one source recently stated that the United States owes more than $2.5 trillion in consumer debt. Even if it's off a billion or two, that's a lot! How much is a trillion?

·         Our standard nine-digit calculator can't display it. It's a one followed by 12 zeros.

·         A trillion one-dollar bills, laid end to end, would reach the sun.

·         A trillion dollars amounts to $3,333 for each of America's 300 million people.

David Schwartz, a children's book author, says in his book, "How Much Is a Million?,"

·         "One million seconds comes out to be about 11½ days."

·          "A billion seconds is 32 years."

·         "And a trillion seconds is 32,000 years."

With that in mind, here are a couple of staggering statistics. As of this writing, the United States federal deficit stands at $1.7 trillion. The national debt stands at over $15 trillion. The debt is incurred when the government spends more than it takes in. It is the debt that creates the operating deficit that resets annually. These deficits are paid for by the government selling interest-bearing Treasury securities.

This is where you gulp and swallow hard. If the federal government were ever to default on its promise to pay periodic interest payments or to repay the debt at maturity, the economy would spin into chaos and collapse. It is the interest on the national debt that gives the shivers to those who track this and understand what it means.

That's why the question is often asked, "Will Medicare and Social Security be around when I retire?" The answer is yes, if you retire before 2024. The answer is maybe if you retire after that. According to the trustees who report on those programs annually, Medicare's trust fund will run dry by 2024, and the Social Security will dry up in 2033. We say maybe those programs will still be here because steps will probably be taken to preserve Medicare and Social Security.But it remains to be seen what form those measures will take, and how the face of Medicare and Social Security will change as a result.

Sparse savings

According to the Employee Benefit Research Institute, about 60 percent of American workers say their household savings and investments total less than $25,000. According to the book, "The Narcissism Epidemic," published in 2009, average credit card debt in the United States exceeds $11,000 -- triple what it was in 1990. That's just credit card debt, and doesn't include what we owe on our houses, boats, cars, etc.

How much are Americans saving for retirement? Not nearly enough. The average American worker spends 94 percent of disposable income. The EBRI's report breaks down by age group the retirement savings of America as follows:

·         Under 35: $6,306

·         35 - 44: $22,460

·         45 - 54: $43,797

·         55 - 64: $69,127

·         65 - 75: $56,212

It's all a matter of priorities. I do not recall ever going out to eat as a kid. Even after our belts were a little looser and we no longer ate government cheese, my father and mother were both too conscious of laying a foundation for our family's future to waste money on something as frivolous as ordering from a menu. To this day, regardless of my financial situation, my eyes still go to the right side of the menu first, where the prices are listed. I can't help it. It is a habit I learned from my frugal parents, who knew the value of a dime, and even more so the value of a dollar. Any surplus was to be used as a foundation for our future, not wasted.

Today, when I see young people eating out in a fancy restaurant, I can't help but wonder if they have taken care of the necessities of life first. If not, then they are eating on borrowed money that will eventually have to be paid back by someone. I don't mean to sound like the curmudgeon who resents seeing others experience joy. It just makes me wonder if we are perhaps headed in the wrong direction as a people -- a pampered society, not one of industry and thrift.

Could it be that retracing our steps back to those taken by an earlier generation might be the best way to move forward to the rich lives we all envision for ourselves?

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Peter J. "Coach Pete" D'Arruda has 21 Years experience in the financial arena. Author of 4 books. Co-author of 3 books. Investment Advisor. Registered Financial Consultant (RFC). Certified Financial Educator (CFEd). Host of nationally syndicated FINANCIAL SAFARI Radio & TV shows. Numerous guest appearances on CNBC, BNN, & Fox Business Channels. Quoted in Wall Street Journal, Smart Money, Kipplinger, AARP Magazine, and many others.