SHAPING THE FUTURE DEMOGRAPHIC SHIFTS

In the next 3,000 days, from the government’s own websites, we know certain demographic shifts are going to occur that will impact your financial future dramatically. Here is a partial list of events that will change your life.

• Fewer Tax-Paying Workers. From a percentage standpoint, there will be a larger growing number of retirees on government programs than the number of actual tax-paying workers. Alan Greenspan commented that we won’t have the workforce or the productivity to feed, clothe or house the larger retired population.
• More Retirees on More Government Programs, Living Longer. This is happening as you read this book. In 3,000 days, there is going to be a tremendous increase in the number of people living on government programs (Medicare, Medicaid, Social Security, etc.).  These people will surpass the life expectancies the government estimated 20 years ago. The cost of these programs will increase every year, regardless of the number of participants. The government’s own 2010 Census confirms that these events are going to continue to happen at a tremendous cost to a workforce with a declining number of taxpaying workers.
• More Money Flowing Out of 401(k)s than Money flowing in. For the first time in the history of government-qualified retirement plans (401(k)s, IRAs, SEPs, etc.), there will be more money flowing in to these plans via new worker contributions. This is a dilemma. If an ever-growing retirement population is cashing in their retirement funds, will the smaller workforce be able to buy up all of these investments? We may run into the problem of too many retirees selling off funds and not enough new workers to buy them.
• Increasing Government Debt (Not Deficit). In the last 50 years, on a year-to-year basis, the Federal Government has never gone down. Not once! The government continues to spend $1.85 for every dollar they collect in tax revenues. Politicians continue to look the other way, as our nation’s debt explodes. While the government deficit is the amount of overspending by the government on an annual basis, the government debt is the total accumulation of all its past debts. The government is paying over $400 billion annually just on the interest for this debt. Perhaps you can now understand why the government is deeply concerned about interest rates on this debt going up, and rightfully so.
• Seniors Selling off Stocks for More Conservative (Less Risk) Returns. In Greenspan’s report to the Department of Labor, he stated that as people retire, they have a natural tendency to select more conservative, less risky investments. Once again, this may mean more people selling off stocks and mutual funds to purchase certificates of deposit (CDs) and fixed accounts. Between withdrawing money from 401(k) and pension accounts for retirement income, and the selling off of stocks and mutual funds for less risky outcomes, the question remains: Who will buy all these investments being sold? When there are more sellers than buyers for these products, will prices go down or up? Supply and demand will always determine prices.

More Seniors Downsizing their Homes. With the ever-increasing maintenance costs, insurance premiums and property taxes on large homes, it would not be unrealistic for elderly people to sell off these five and six thousand-square foot homes for something they can manage and afford. Homebuilders continue to build a record number of large homes aimed at a smaller proportion of buyers who can afford large homes. Of course, if too many homes are on the market at one time, prices would have to be adjusted downward in order just to sell them.

• Effects of Record Amounts of Personal Debt. Last year alone, there was a credit expansion in the United States of $2,718 billion. Along with high unemployment, the average American has experienced very little growth in personal income and personal saving. You cannot borrow your way to prosperity. A new worker, right out of college, is entering the workforce with about $40,000 of college debt and an unbalanced checkbook, and these are the smart ones. Record numbers of single-parent households offer very little room for financial success. Personal debt slows the buying ability of an economy and the ability to save money for the future (purchasing stocks and mutual funds). The overall unfunded liabilities of the United States Government are about $60 trillion. That is three times the amount of money that is currently printed in the whole world today.
• Increasing Taxation – Decreasing Benefits. Get ready because these two elements are going to happen. No one should be surprised, but, of course, they will be. Members of the government are not denying that is going to happen. They just haven’t figured out yet how and when to say so and still gets elected. The game will always be to blame the other guy, but the game never solves anything.
• More Uncertainty (Risks, Future Taxation, Terror). One thing that will continue to happen, as it has and always will is uncertainty in the investment markets. From an investor’s standpoint, in the investment markets. From an investor’s standpoint, the stock market goes up and down, as it has and always will. That hundred-page prospectus that you’re supposed to read before you buy an investment product should serve as a warning to you. If the stock market were a ride at Disney World, people would be lined up for hours just to get on it for the thrill of it all. Up and down and round and round it goes, and you have no control over it. As Greenspan warned, we may not have the workforce or the productivity to maintain the values of stocks as we now know them. The issue of more money flowing out of 401(k) accounts for retirement incomes than new money going into these accounts should cause some concern. Also, seniors selling off more risky investments for a more conservative approach will have a direct impact on the future.

The government, in its search for more revenue, may find new ways of increasing taxes on investments as a way of sustaining its addictive habit of overspending their revenues and budgets. The government is already calculating how to tax the unborn to pay for and support the undead.

And now there is terror. Someone nine thousand miles away is trying to figure out how to destroy our financial infrastructure through terror. Little do they know that we are succeeding at inflicting the same results on ourselves. These are the nine economic trends and shifts that are certain to impact your financial future. The problem is this: THESE ISSUES CANNOT BE SOLVED SIMPLY BY INVESTING MORE MONEY! You must prepare for this type of future differently than the conventional wisdom that is out there today.

BOO!

We are living in a very historic time, and changes will have to be made. To some, this will sound scary. You see, I could consult you in fear, or I could consult you in the truth, but, in today’s world, fear and truth almost sound the same. Knowing something might be scary; however, not knowing something could be disastrous. What we believe to be true could be a compounding part of the problem. For example, if I were to say….

• We face demands we almost surely will be unable to meet unless action is taken.
• That action is better taken as soon as possible.
• Long-term budget outlook offers a vivid and sobering illustration of the challenges.
• No one should expect productivity growth to be sufficient to bail us out.
• Ensuring fiscal stability would require an overall federal tax burden well above its long- term average.
• We will eventually have no choice but to make significant structural adjustments in the major retirement programs.
• Tax-rate increases of sufficient dimensions to deal with our looming fiscal problems arguably pose significant risks to economics of the challenge are enormous.
• This situation will require difficult choices.

After reading this, you might conclude that I was simply trying to scare you. The reality, though, is that these are statements made by Alan Greenspan in his testimony to use the Department of Labor. Now that’s scary.

WHAT’S IN STORE

The demographic shifts will impact every aspect of your financial life.  Having the knowledge to deal with these changes is the real center point of your financial future and growth. The shifting demographics will impact qualified retirement plans, owning a home, your investments, and your retirement dramatically. To make things worse, the demographic changes will affect the way the government does business with you.  It will impact taxation, the future government programs, the benefits they provide your standard of living and the overall government debt. No investment product will solve these problems.

The demographic shifts will create even greater transfers of your wealth in your everyday life. Understanding this will give you a defining moment that comes with understanding the efficiency of money and how money works in your life. This, in turn, will create an effective method for you to uncover and reduce transfers of your wealth that occur every day unknowingly and unnecessarily.

You should go to the Boston Federal Reserve website and download their cartoon and read what the symbols represent. The title of the Cartoon is “The Road to Rooter”. You might just find it interesting.

 This educational material is provided by the Wealth & Wisdom Institute and Common Sense Economics, LLC.