Save For More Than a Hall Pass

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Among workers who reported, total savings and investments — not including their personal residence or defined benefit plans — are far below what they will need to retire.

The CBO (Congressional Budget Office) upped their growth projections for 2018 to above 3% based on the pro-business tax cuts. But the CBO tempered the upbeat forecast with predictions of higher deficits that will impede growth in 2019 and beyond. The higher deficits will be due to tax revenues that will not keep pace with spending increases, as well as higher debt repayment costs. Interest rates have been expected to rise for years now, so an increase in debt service, which is currently 6% of the budget, is not new information. History has shown that lowering taxes generally increases economic activity and hence usually increases revenues. However, after only one quarter the jury is still out on the economic growth that will be provided by cutting taxes. (By the way, the latest information from the IRS indicates the top 20% of earners pay 87% of the taxes in the U.S. and the bottom 60% of earners don’t pay any federal tax.) The elephant in the room that needs to be addressed is spending. Social security and Medicare account for more than 50% of federal budget spending and that obligation keeps accelerating as the U.S. population ages. In 1900, the life expectancy was 47-years-old. When social security was invented in the 1930’s the retirement age was 65 and life expectancy was 61. Social security was not so much of a long-term obligation as it was a going away party or perhaps a long weekend hall pass if you had good genes. No wonder the government was so generous. But now that we easily live 25 or 30 years in retirement, social security is not sustainable in its current form. And even if social security remains intact, it hardly pays for a fun and vibrant retirement. Twenty-five years is a long time. Compare that to any other 25 year time period in your life and ask yourself if you would be happy if during that period, you only had playing internet BINGO, watching Wheel of Fortune and eating dinner at 4:00 pm to keep you busy each day. If that doesn’t motivate you to save for your retirement, nothing will. See page 90 of the Global Perspectives Book for some more motivation.

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