Friday, June 10, 2016

Boomers Are Stuck In A Circular Unfunded Liability. It Is A Vicious Circle That Is Built Into The System
5* - Essay gives the simple math of how baby boomers today are getting farther & farther away from their retirement goal .. "I will try to illustrate through a simple example .. Assume you are nearing retirement and trying to calculate how much you need to save for your golden years .. Assume also that due to advances in medical technology, you really have no idea what your lifespan will be. It could be 5, 10, or 50 years .. Assume you need $50,000 year for living expenses and that there is no inflation (just to make things simple). How much will you need? If you did this exercise in 1980, you needed $250k ($50,000/.2) .. If you did this exercise in 2000, you needed $1.0MM ($50,000/.05) .. If you did this exercise in 2015, you needed $2.5MM ($50,000/.02) .. The more time goes by, the more you need. The more you need, the higher the price of the assets you are buying and hence the lower the expected return. And hence the more you need. If you are unfunded, your 'hole' just gets bigger and bigger…You are in a trap you may never get out of. No wonder you don’t feel great about your situation."
LINK HERE to the essay

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