Numbers… numbers. They can be boring but sometimes we have to take a hard look at what these tell us. I am far from being a qualified economist; but I do see on a day to day basis what inflation has done to our economic value power, especially when we live In a society which thrives in self denial regarding this silent killer. And it is a killer… it kills aspirations, hopes and possibilities. We cannot ignore this issue. It is our children’s future we are talking about.
A few entries ago there were some numbers thrown about in the blog, mostly comparing the value of money some years ago, at a time in which I was starting to work, to the value of the same money now. Throughout the years we have been drilled with the ever present definition of the US
Considering that (real) cost of living has gone up by an estimated 300% (or, three times original cost factor) in these past 35 years, we can estimate real inflation to have been hovering at a compounded rate of approximately 8 – 9% per year. Compared to other inflation rates around the world these numbers are lame; compared to what we have been told during this period, these numbers are impacting and revealing. As a simple point of comparison in an area which really matters to daily living, during the same time period the basic hourly wage has gone up from $4.75 to $8.25; a growth factor of about 74%.
Is it any wonder our families are split, sometimes each parent working two full time jobs or a full time plus a part time, just to be able to have some of what earlier generations could have with just one full time salary? Years ago, a successful presidential candidate used a basic slogan to get to the voters: “It’s the economy, Dummy!” (not sure who the dummy was, there were/are several qualified candidates). I humbly propose to anyone (notice I am not saying “dummy”) out there running for office today –or in the immediate future- that this is still the problem. Perhaps more importantly: those of us who vote these folks into their offices, should have this issue upfront and foremost. If we keep voting the same into office over and again, then we do certainly qualify for the grand title.
Two years ago, due to health issues, I was forced to take early social security. I think that in the same entry as mentioned above, there was a reference to social security vis a vis private investment. There are some points to ponder:
1- SS is a mandatory holding from any paycheck. The employee pays 50% of the cost and the employer the other 50%. Self-employed pay 100%. This is equal to 15% of the taxable income received.
2- Based on the above, an individual who earns a yearly income of 40,000USD (we are going lineal and simple here folks…) would then pay $6,000 per year. That represents, in a work life span of 35 years, $210,000 paid in. This individual would receive, starting at age 65, approximately 1,100 dollars per month, for an estimated 20 years = $264,000. Yes, I know; we do not have exact moments of life and death. These are just numbers based on averages and not exact or 100% accurate.
3- Still, after contributing for a period of 35 years, these tax payments would net this individual about an 8% net return, total. A pure savings account with a compounding annual yield of 2.0%, will provide about $310,000 at the end of the same contributing period.
The following is not an “infomercial”, but is based on what I do know about. An indexed life policy, for example, with a dedicated premium of $6,000 (same as the SS contributions) at an average 7% per year, starting at about age 40, will bring a total accumulated value of approximately $550-570,000 at age 65 (that’s 25, not 35 years) and if the person were to die along the way his family would receive, free of tax, $200,000 plus whatever values were accumulated in the policy. This is just one method of accumulating funds which happens to be insured; others are pure accumulation and/or investment vehicles and the yield may be higher.
Does this mean we should can SS? No, definitely not. Many retirees would be totally destitute if it were not for this monthly check. Sad, but very true. It means that the powers that be must look at mix and match alternatives. Future generations should be allowed to invest in a private vehicle up to 50% of the SS tax. The catch is that this would not be a voluntary issue; this 50% private plan contribution would be as mandatory as the other half, but would be constrained by the same SS parameters as far as the withdrawal of the accumulated moneys goes.
The companies would have to pay a guaranteed minimum interest and be openly answerable to the government as well as to the individual contributing the funds. This person, if not satisfied with results, would be able to roll the available funds into another account at another company X number of times within a 10 year span. We have the 401.K’s at this time; this plan would be a little like one of these but a primary and not a surplus choice. The overall effect should be an increase in the benefits received by the individuals at future retirement, with all the down line “ripple” effects this would bring.
All the above may be somewhat simplistic in its exposition. It is an extremely complex and outdated structure but, sometimes, the most complex structures will require a simplistic approach in order to accomplish a workable fix.
Bored already? Yeah… I understand; so am I but… this is a reality check into our children’s (and their children’s) future. By the time they get around to voting and to begin to be able to put funds aside for their retirement, these issues should have been attended to already. That means US… you and me.
Oh, and by the way… Remember the 10 cent store (Woolworth)? Well, now we have the Dollar store… ‘nuff Said??
Be Well… Be Back!!
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