https://www.retirementplanningscottsdale.com/2018/10/03/anil-vazirani-explains-the-big-american-retirement-train-wreck Anil Vazirani explains THE BIG AMERICAN RETIREMENT TRAIN WRECK: The Biggest Retirement Train Wreck in History is Now Underway. As a generation of Americans are financially unprepared for retirement. The Train Wreck will turn the nation upside down as millions of aging Americans seek to drain public resources and strain American businesses, and burden the economy, thus dramatically change the landscape of financial security in retirement. Unfortunately, this is not a surprise. The facts, statistics and studies have been available, yet politicians and the public have ignored the music and kicked it down the road for decades. Consider the following: Americans facing retirement are in worse financial shape than the prior generation for the first times since Harry Truman. Their 401k retirement funds will bring in a median income of under $8,000 a year for a household of two. Median incomes including Social Security and Retirement Finds haven’t risen for years compared with the steady rise in the 1950’s. Bleak! More than 40% of households, 55-70, lack sufficient resources to maintain their standard of living in retirement. (Approx. 15 million households) BLEAK…New census data shows as Baby Boomers retire, there are fewer younger workers to support the elderly. Their 401k investments, for example: Households with 401k investments ages 55-69 have around $135,000 in their tax advantaged retirement accounts, that would produce about $600 a month in annuity income for life. I’m going to briefly explain how we got here, the consequences and what you need to do in order to survive and more importantly how to escape the retirement nightmare coming soon. The Great American Retirement Train Wreck: How we got here… First of all, everyone is to blame…the politicians, Uncle Sam and ourselves. Here are the reasons we are in the biggest bleak retirement mess regardless of being the most prosperous nation the world has ever seen. I call it The Seven Deadly Sins of Retirement Failure. Why the majority of Americans are ill prepared for a secure retirement and the seven major plagues that will up end decades of financial security.
- Low Income, Median personal income of Americans 55 through 69 has leveled off since 2000. Only in the last few months has there been an increase in income, thus there has been stagnant income for nearly two decades. Low incomes have robbed millions of a healthy nest egg.
- Paltry Savings, Americans have saved very little for retirement. July 2005 was a savings milestone when Americans saved a meager 2.20%, despite the record setting Bull Market of 7-8% on average growth.
- High Debt Burdens, tempted by a prolonged era of low interest rates and low wages, boomers piled on debt in order to cope with rising costs of health care, living expenses and higher education. Add to this low interest rates thus lower savings.
- Increased Life Expectancy means meek retirement savings must be stretched to a longer life span. It’s called longevity risk, meaning one will outlive their savings, or their savings will outlive them.
- Failed Health Insurance Protection, for the average worker, health insurance premiums have risen nearly 300% in the past few years causing many to dip into savings as well as retirement accounts in order to hold on to some type of coverage. After health care premiums, little is left over.
- Decline of Pension Availability, the big shift from traditional pensions to the 401k enabled many Americans to cut back on contributions and experienced a high exposure to risky stock mutual funds, some of which took severe beatings in 2001 and 2008 which could happen again.
- Financial Illiteracy, poor personal money management skills, such as no budget planning and reckless spending habits (unlike their conservative parents) along with challenges such as blended families, sky rocketing college costs, and at the same time taking time off to care for their aging parents.
No wonder why the seven deadly sins of retirement failure will rock our nation, it’s not speculation, these are facts. Now what will be the results and consequences of the Great American Retirement Train Wreck? Here’s what you can expect…
- Millions will have to work longer, perhaps to their mid-seventies.
- Taxes no doubt will go up, it is inevitable, and there is no way around it especially taxation on success.
- Means testing will be applied in a variety of ways
- The biggest strain on local, state and federal government will happen.
- Full retirement age will be extended several times.
- Millions of retiree’s children will have to help support their aging parents.
In fact, government legislation will be imposed in order to require children of aging parents to contribute to pay for their parents. These are just some of the consequences of the Great Retirement Train Wreck, but here’s the Big Kicker…keep in mind there are less people working in order to support the millions in retirement. Additionally, consider that at the same time technology will replace human workforce due to artificial intelligence and robotics…a double jeopardy scenario. Now, hopefully you can clearly see why I call this the Big Great Retirement Train Wreck. I’ve explained how we got here and the consequences of will occur, but most importantly, now I will explain what one must do in order to not only survive, but completely side step this entire mess. The bottom line, is Aging is now a national societal problem which will surpass all other expenditures including the cost of government, even the military. So if you’re retiring soon or already retired, here’s what to do. I want you to pay close attention, in fact, write these down and make a decision. Is my current financial advisor even aware of these issues? Has he or she addressed these issues? So, let’s put yourself and or your advisors to the test so you don’t become a victim of the Big Great Retirement Train Wreck. So here are the challenges you’ll have to battle with:
- Market Risk- Of course we know the market goes up and down, can you afford to lose money at the same time you’re withdrawing funds? If you pick the wrong time to retire, it can cut your savings by 25%, or even as high as 40%. What is your plan to manage risk and volatility?
- Tax Risk- what good is it to chase returns and performance if taxes take a big bite, what’s your plan for eliminating taxes throughout your retirement?
- Longevity Risk- how can you know 100% for certain that you won’t run out of money no matter what comes your way? Remember if you’re living on your money while the market goes down, and if you’re ill at the same time, there may be no recovery of your retirement savings.
- Inflation Risk- simply put, will your income keep pace with rising prices? The challenge is your monthly income must be predictable and certain, regardless of market volatility and rising prices. What is your plan? Has this been discussed or considered?
- Catastrophic Illness Risk- 70% of all retirees will use convalescent, skilled care, immediate care, intermediate care and custodial care. The cost will wipe out most retiree’s entire life savings. Most people are in denial while most advisors never want to address this issue, nor do they know how to solve it. It is by far the biggest risk you’ll face in retirement, and if both spouses should experience Alzheimers, Dementia or Parkinsons then most people could not survive financially.
- Performance and Risk- in other words, low rates of return may not be able to keep pace with inflation, so how do you fully optimize performance without sacrificing returns? What’s the plan for that?
- Sequence of Return Risk-
- Legal Risk- we live in the most litigious society in the world. Don’t become an easy target for litigation in retirement, this often comes from family members.
- Emotional Risk- behavioral economic science has shown that investors have a breaking point and regardless of the advice from their advisors will pull the money out at the wrong time, and lose substantial precious savings.
Let’s quickly review, when it comes to your Retirement confidence in an uncertain world, where do you stand? Where do you stack up to the nine risks?
- Market Risk
- Tax Risk
- Longevity Risk
- Inflation Risk
- Catastrophic Illness Risk
- Performance Risk
- Sequence of Return Risk
- Legal Risk
- Emotional Risk
I’ll bet you, no financial advisor
has identified these nine risks, nor addressed them with any solutions.
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