The U.S. will steal 90% of the beer they promised to give you!
I found the perfect song to head this article but there is one picture in there that is not safe for work. Hum… some of the lyrics may not be suitable for the workplace either… actually, a blog about beer and drunken investing and planning for the day you leave work may not be suitable viewing for work in the first place anyway! Don’t blame me for getting fired for reading this! Or divorced. Or drunk. Or depressed. Or anything.
Last week, we had a look at what Mr Beerver needed to do to retire at some point. The picture wasn’t so pretty as he had to get at least a 5% after-tax annual return to get to the point where he could retire and he had no easy way to get that. What we didn’t point out was that the game is somewhat fixed and that as a result, some of our assumptions are worthless.
The most suspect of these assumptions was the actual amount of money you needed to retire on. Social Security’s 14,000$/year payout 45 years from now is not what you hope it will be.
If you could get that amount today, it would translate into 3,846 beers. OK, that’s a lot of beer! This is a pretty good deal!
But at a 5% yearly inflation rate, the same amount 45 years down the road would only buy you 382 beers. “Hey! Where’d my beer go!? Monkey stole all of my beer! AGAIN!”, may be your first reaction.
Wowza! A 5% inflation rate destroys 90% of your purchasing power come retirement. The US having printed lots of extra money can pay off its nominal promise to you at little real cost to itself. Brilliant! Even better is that people brush inflation off as inevitable and fail to see it as the artificial destroyer of wealth that it is.
What? You think 5% inflation is overstating things and is perhaps even alarmist? The official rate is only 1.2% in the US?
Shadowstats says that the real inflation rate is about 5%. Another publication I follow claims that the real number is more like 8% but they’re kinda nutty gold-bugs so I think 5% is a fair number that accurately reflects my own inflation rate.
What’s that? SS is adjusted for inflation, you say? Well, yes, it is but consider this:
SS is an expensive government program.
The inflation rate is an official US government stat which affects US debt repayment rates and payouts of all of its expensive programs.
Isn’t it nice that the government is both player and referee; makes the rules AND keeps score without letting others see the score-sheet? Good thing everyone trusts the government to do the right thing and that there have never ever been any sort of government scandals or financial hanky-panky. Whew! Otherwise I’d be kinda scared.
The US would reap a mind-bogglingly huge benefit from underestimating inflation and thus reducing the pain of its future payments.
But then perhaps I worry for nothing because the official inflation numbers don’t even include beer and gas prices… Perhaps the government simply wishes that those two items never rise in price?
Conspiracy theories aside, I think no one’s arguing that the cost of living is going down so you may as well take a worse-case scenario to put some extra safety in your retirement-beer-guzzling account. Unfortunately, that would mean that you really need a 10% annual return-on-investment to buy the kind of lifestyle you wanted in retirement.
I know some individuals who’ve achieved that kind of return but I’m not aware of ANY pension fund that’s had that sort of luck over a 50-year period! The very BEST fund I know of, the Ontario Teacher’s Pension Plan got a 10.1% return since 1990 but these guys are absolutely phenomenal!
I can’t even boast that on a personal level. I’ve only been getting 6.68% annualized REAL returns since I starting keeping track of my finances some 10 years ago.
Today, Mr Beerver can expect 3.7 million at age 65 which is down considerably from the 120 million I estimated just last week.
Worse yet! Figuring in inflation makes him worth only 370K in adjusted money!? OK, that may be exaggerating because he’ll be getting paid in ever-increasing amounts that are not yet reflected in his actual savings. Unfortunately, it’s also sadly reported in the press that salaries do not in fact keep up with inflation. So this dreary scenario may be closer to the truth than I’d like.
This is especially scary when you consider that it’s in-line with what current retirees have now as shown in last week’s graph.
Guess that would make Mr Beerver’s investing prowess “average” at best.And keep in mind that’s on an 11% annual return rate AFTER tax, commissions and everything else! AND that’s with a super-aggressive one-stock speculative portfolio! That kind of swing in value in retirement will kill you with the stress! Oy…. I think I need a beer now!