Retirement, For Whom?
… your $200,000 ten years ago
has been halved in terms of purchasing power. However, in terms of
planning purposes, your anticipated retirement amount has been reduced
by 75%. Given these outcomes, who will be able to retire? And for those
already retired, how many will “unretire?”
For Buy and Hold investors, better have a look at the following
post. There are lessons to be learned, even if your broker would prefer
you not know them. When viewing the charts below, remember that Japan
has completed two lost decades with no end yet in sight. We are just
finishing our first decade, but the results have been devastating for
investors, retirees and those planning for retirement.
To put things into perspective, suppose you were nearing retirement
in 2000 and had $200,000 invested in the stock market. Your anticipated
retirement date was 2010 and you expected your investment to compound
forward at 8% per year. Doing the math, you expected to have $426,000
at retirement. Instead you would have ended up with $138,000. To make
matters worse, inflation over this period meant that your purchasing
power in 2000 dollars was even less.
The government-issued CPI index shows purchasing power decreased by
about 22% over this period. Thus, your starting $200,000 in purchasing
now compares with about $108,00. (The CPI index is felt by many to
understate actual inflation. John Williams at Shadowstats.com argues your purchasing power decreased quite a bit more.)
Using the government’s CPI numbers, your $200,000 ten years ago has
been halved in terms of purchasing power. However, in terms of planning
purposes, your anticipated retirement amount has been reduced by 75%.
Given these outcomes, who will be able to retire? And for those already
retired, how many will “unretire?”
If inflation heats up, as many expect, the impact on retirement will be even more severe.
November 25, 2009
As we enter a new decade we are compelled to point out what, in our
opinion, is the “Lost Decade” of the United States. The financial
media, brokerage houses and advisors have done a good job promoting the
opportunity of owning US Equities, and as a result the average investor
continues to wait and hope that their cookie cutter, simplistic
investment strategies will provide for their future.
The reality is that investors have been severely punished for
“buying” and “holding” US equities over the past decade. The following
chart illustrates the “nominal” performance of the Dow Jones from
January 2000 to October 2009.
The next chart illustrates the Dow Jones performance when it is
adjusted for the government’s measure of inflation, the questionable Consumer Price Index (CPI).
Continue reading Retirement, For Whom?