If your parents go broke, its a personal tragedy. If everyone's parents go broke, its a national crisis. Then again, there is safety in numbers as long as you arent first or last.
Looking at the numbers it is clear that people either dont know what they are doing and/or they arent thinking ahead. What was that parable about the grasshopper and the ant?
I keep waiting for the shoe to drop on health care. Waiting, and waiting and waiting.
And be sure to take the 5% test - odds are you wont like what you find...
The Debt Bubble Threatens to Derail Many Baby Boomers' Retirement Plans
March 8, 2006
Let's start with a shocking revelation: If you borrow money, it eventually has to be repaid.
We all know this, of course. Yet the data suggest many Americans are trying their hardest to ignore this inconvenient fact.
But they can't ignore it forever. Forget the 1990s technology-stock bubble. Forget the recent real-estate mania. To my mind, today's debt bubble will prove far more damaging. It's going to derail many baby boomers' retirement plans -- and it's already hurting the generation that follows.
As a nation, our borrowing is growing as fast as our wealth, we are loading up our kids with college debt, and we are continuing our spendthrift ways into retirement.
Federal Reserve data show that the value of household real estate climbed 71% over the past five years. But mortgage debt grew even faster, up 75%, as folks cashed out part of their home's value when they refinanced or took out second mortgages.
At the same time, car loans and credit-card balances are also rising. Outstanding consumer debt is up 27% over the past five years, well ahead of the 13% cumulative inflation rate.
"It looks like we're doing as well as we've always done," says Alicia Munnell, director of the Center for Retirement Research at Boston College. "But in fact, the world has changed. And it's for four big, real obvious reasons."
First, life expectancy is rising, which means seniors are facing longer, and hence more expensive, retirements. Second, health-care costs continue to escalate, including for retirees covered by Medicare. Third, real interest rates are much lower than they were two decades ago, and that means we are looking at lower investment returns.
Finally, and maybe most important, traditional company pensions are disappearing. Among workers with an employer's retirement plan, 38% were covered by a traditional company pension in 2003, down from 81% in 1981. "The implication is really clear," Prof. Munnell says. "People need to have more saved than they did in the past."
How well are you doing? Take this simple test. Tote up the value of your 401(k), individual retirement accounts and other investments. To that sum, tack on any home equity you hope to free up by trading down to a smaller home at retirement.
Next, subtract all your debts, including auto loans, mortgages and credit-card balances. Got a final number? Now, assume that you will be able to withdraw 5% of this sum each year in retirement. In other words, if you have $300,000, you will be able to withdraw $15,000 a year.
