Your Retirement Won’t Be Like Your Father’s Retirement
Everyone dreams differently about retirement, but for most people the general goals are similar. You’re finally freed from commuting, workplace drama, and stress about deadlines. Your time is your own, and you can do what you want. You can sleep in every morning, enjoy a leisurely breakfast, work in the garden when you want to, and travel the world. And ideally you’ve saved up enough money that you’ll be able to do all of that and not have to worry about how you’re funding your retirement.
That’s been the basic template and goal of most would-be retirees for decades, but for an increasing number of Americans it’s becoming a dream they won’t ever be able to achieve. We’ve seen our grandparents and parents retire, and soon it will be our turn. But the comfortable retirement they’ve been able to enjoy has been partially due to the fact that previous generations borrowed against the future.
The actions of governments to provide benefits to citizens over the past 50 years, as well as to boost economic growth and stock markets, resulted in high levels of borrowing and debt issuance. Now the bills for all that spending are coming due, and the current generations will be the ones to pay them. That means that your retirement is likely to be far different from your parents’ retirement.
1. Higher Prices
Inflation may be considered a fact of life, but there’s nothing about it that’s endemic to the economy. Inflation is always and everywhere a monetary phenomenon, the printing of more and more money in excess of the quantity demanded, the result of which is rising prices.
Since 1971, when President Nixon finally severed the last relationship between the US dollar and gold, prices have risen even faster than in the past, as the Federal Reserve has created more money than ever. No longer bound by gold redeemability, the Fed has no limits on the amount of money it can create out of thin air. As we’ve seen over the past several months, the Fed has used that power to create trillions of dollars of new money.
The fact is that those retiring today will see higher prices on just about everything over the course of their lifetimes. Even at a “low” inflation rate of 2%, prices will increase nearly 50% over a 20-year period. At 4% inflation, prices will more than double. And a 6% inflation rate will more than triple prices. If you don’t have enough money saved up before you retire, you’re going to suffer a very expensive retirement.
2. More Volatility
The past two decades have seen financial volatility on a level that’s almost unprecedented. The 1980s and 1990s saw the “Great Moderation,” in which everyone thought Alan Greenspan had finally tamed markets. Stock markets averaged nearly 17% gains from 1982 to 2000, fattening the retirement accounts of many an American. But since that time we’ve seen the dotcom bubble, the Great Recession, numerous dips and swings since 2018, and now it looks like we’re on the cusp of another major stock market crash.
Retirees, especially those with assets tied up in stocks, need to be prepared for greater volatility in the future. Stocks aren’t a sure bet anymore, and neither are bonds. Portfolio diversification is more important than ever, meaning that investing in gold and other alternative assets will play an increasingly important role in maintaining wealth.
3. Healthcare Costs
Healthcare costs, too, could skyrocket out of control. We’ve already seen double-digit increases in recent years and, as uncertainty begins to creep into the Obamacare system, those with health insurance could see their costs climbing even more.
Since retirees are among the biggest consumers of healthcare in this country, that means they’re going to have to come to grips with the fact that their healthcare costs could increase significantly over the course of their retirement. Will you be able to afford doubling, tripling, or quadrupling healthcare costs over the course of your retirement?
4. Financial Uncertainty
It isn’t just financial markets that are volatile and uncertain these days. The entire fabric of the social safety net seems to be unraveling. Previous generations used to rely on pensions, which have all but disappeared. And those pension plans that remain in existence are often woefully underfunded, leaving those planning to depend on them at risk of entering retirement with no income to rely on.
Social Security is once again at risk of running out of money, and within the next decade the system’s financial position could deteriorate so significantly that recipients won’t be able to expect more than 75-80% of their benefits. Those who had hoped to rely on Social Security for a fair share of their retirement income could find themselves very disappointed.
How to Prepare
The writing is on the wall, and it’s time for investors to take notice. With so much uncertainty about the future, investors need to make sure that they have more than enough savings available to last them through retirement. That requires diligent saving and investment, but more importantly the right choice of assets.
If you could go back to the beginning of 2001 and choose between two assets, and were told that one would average 10% annualized growth over the next two decades while the other would earn less than 5%, which would you choose? If you chose the one gaining 10%, good for you. But hardly any investors did. Most stuck with the asset earning less than 5%.
The 10% asset was gold, which has seen a phenomenal growth streak this century. The sub-5% asset was the stock market, which has been rocked by crashes and, even near record highs earlier this year was nowhere close to matching the performance of the ‘80s and ‘90s.
Gold’s ability to make gains during bear markets was always known, but was perhaps underappreciated. The last 20 years have demonstrated, however, that gold has the ability to perform well during times of financial turmoil. And with even more turmoil likely coming, will you trust your assets in stock markets, or will you make an investment in gold to safeguard your assets?