I came across this Forbes article, Titled, “Solving the longevity wealth crisis” by Robert Johnson. I just want to highlight some of the points in the article that resonated with me and give some Property Boss’s some ideas of how they can solve this crisis.
First point it made was that people are living longer. People don’t have enough retirement nest egg and people should not rely on the government. So the article states the oldest age at which 50% of babies born in 2007 are predicted to still be alive in the United States is age 104, according to the human mortality database, the university of California, Berkeley and Germany’s max Planck Institute of demographic research. The article goes on to say, unfortunately, the vast majority of those with a longer lifespan, are woefully unprepared financially to enjoy these additional years and to lead a “Happy Retirement Life.”
Again, they are woefully unprepared financially. Financial advances have simply not kept pace with the medical and the social advances. Advances in the medical and the social sectors keeps people living longer. However, the financial advances have not kept pace to assist those who do. So as a result, this creates a dramatic longevity, wealth crisis. The size of the longevity wealth gap is dramatic. Shocking even. Mercer estimates the retirement income gap to be approximately 1.5 times the annual Gross Domestic Product (GDP) of countries it studied. The gap is expected to grow by 5% each year and by 2050 will amount to 400 trillion for the eight largest economies in their report.
Let me explain to you a little about the GDP. The GDP in general measures a countries measurement of its national income and output. So, the United States of America’s GDP measures of national income and output of our country’s economy.
The Gross Domestic product is equal to the total monetary or market value for all finished goods (goods ready to be sold) and services produced within a country in a stipulated period. The current yearly GDP for United States is around $19 billion. And so if we take the current 19 billion and we multiply that 1.5 times, we get a whole heck of a lot. You hear me? It’s, about 28.5 billion dollar wealth gap. People that live longer are not financially stable nor secure. The article further states, in the United States, the decline of the defined benefit pension plan (your company contributes to you only) in favor of a defined contribution plan (you pay into the plan also) such as your 401k has put more of the responsibility on the individual to accumulate funds for their own retirement and future well-being.
No longer will corporations or the government, for that matter, take on the responsibility to help you accumulate wealth for your own retirement and future well-being. It is squarely your responsibility. You have to navigate the increasingly complex financial waters to ensure your own long-term financial wellness is in tact. Therefore, you must prepare for potentially living longer, well above the average lifespan. In essence, we must take responsibility to self-insure a good retirement and future nest egg. Contrary to popular literature on the topic, the article does say that we do possess some magic bullets, which works overtime. One of the magic bullets it refers to is compounding interest in the stock market.
I would agree because I’m not against the stock market. The stock market is one investing tool you can use. I believe in, diversifying your wealth building arsenal. However, since I’m Miss Property Boss, I want to stress another tool that you can use. Real Estate. It involves investing in residential housing and property ownership, as a means to decrease the wealth gap crisis that will be in your life, your family’s life, or a loved one you know.
Since we are living longer and others as well, we know as a smart and successful property owner, there will be a continual need for housing and assistive care. One strategy as a Property Boss is that you can start helping in relieving the aging population of their housing burdens by purchasing their homes from them. If they want to downsize, they will become your sellers. When you own smaller units, they can in turn become your renters. This is a win-win. This could become the market you look for buying your properties. Additionally, you can provide assistance and help place the aging population into smaller housing. These smaller housing units are the houses you own. Then lastly, you can provide an assisted living care service. You will be the operator and owner of your own assisted living care home. So again, as a Property Boss, your focus to decrease the wealth gap we know is coming, you can purchase housing to answer the problem of the crisis, that people are living longer.
Secondly, most don’t have enough retirement savings, vacation savings, or college fund saving. As a savvy, successful Property Boss, you can predict your own financial future. If it looks bleak, then it’s time to make some changes. We might not can change other people’s financial future. We might not can change people in our family’s financial picture because we can’t do anything about it. But if you have the information and you know a wealth gap crisis is coming down the pike, then you can look at your own financial picture and see whether or not you are on the right track. Are you even on a track at all? How do we kind of get ourselves on the track of closing this wealth gap even in our own lives?
My response to that question is …. take action immediately. Now is the time you take ownership and action of what you do in your own life. You have to get crystal clear on what you need for retirement or for your future plans. Some questions you may ask yourself to help in this process are, how much do you think you need to support yourself when your family? What is the monthly income you need to pay all your expenses and then live the lifestyle you want?
There are several free calculators online punch in some different scenarios and it will give you some figures. For instance, I went to an online calculator called www.Smartasset.com. I just clicked through and answered the questions. Here is an example of what the calculator spit out for me. It asked for where you live to figure out taxes you will pay in retirement, I entered a location. It asked for a current annual income. Annual income150 is the amount of money you make in a year pre-taxed. This excludes social security benefits and your spouse’s income. I used $150,000. It asks what age you will elect your social security benefits. I know, at the rate we are going here in the US, I will not have a social security benefit. In any case, I entered age 66.
Then it asks for, how much do you save monthly. I used $2,000 and that was 16% of my $150,000 annual income number. The next question asks you to estimate your annual retirement expenses. I was like, what are my annual retirement expenses? I had to think about what I wanted to do in retirement. Have you just closed your eyes and thought about what you wanted to be, do, or have when you are nearing retirement? I chose around $80,000, because I want a lifestyle where I live comfortably. I want to be bi-coastal, like a snow bird. I move and live somewhere nice and warm when the cold weather sets in. I want to have the freedom to travel when I want and where I want. It then asks for the year of your birth.
Next question asked about the amount in a retirement accounts like a 401k. I put in a number there. It asked for what I have in my Individual Retirement Account (IRA) account. I put some numbers in there as well. I chose that I didn’t have a pension. It asked to add any cash savings or investments that weren’t connected to retirement accounts. I left it zero. Finally, the calculator spit out a response once I put all this information in, it says to have significant savings for a lifestyle and retirement that covers my annual retirement (goal) expenses of $80,000 a year. It recommended I save a minimum of $3,945 a month. The calculator is saying I am short and in fact, that I am short a whopping, half a million dollars. To be exact, $583,959 the report stated. It goes on to say in order to live my desired lifestyle in retirement from age 66 to 95, $1,558,790. This was truly an eye-opening experiment.
You should try it, I used arbitrary numbers. Play around with it and see what you get. This further drive home the point like the Forbes article says about heading for a wealth crisis. I don’t believe the average working class person, who are on track to live longer, are prepared to build up their savings to $1 Million dollars in order to live a $80,000 a year lifestyle of vacation travel, visiting grandchildren, clothes, food, housing, college fund, cars, health care, assistive aids, etc.
I’ll let this Part 1 sink in. Take some time today and do the www.smartasset.com calculator for yourself. It will give you some food for thought. I’ll pick up in Part 2 with some solutions to this bleak realization that you may be headed in the direction of a crisis if you don’t do something about it now.