Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

What We’ve Come to: About Half of Retired People in the U.S. Die with Less Than $10,000 in Financial Assets

Thursday, August 16th, 2012
By for Profit Confidential

For the first time in its history, this generation of workers will be the first to pay more into Social Security than what they will be paid out during their retirement years.

Retirees in the 1960s received seven times more than what they paid into Social Security, with the assumption that women lived until 81 and men until 78. (Source: Associated Press, Aug. 7, 2012.)

According to the Urban Institute, a Washington independent think tank, even in 1985 retirees received more than they paid in, but just barely, as budget deficits from the 1960s to today completely wiped out that 7-to-1 ratio.

In 2011, a married working couple (with the assumption that the wife lives until 85 and the husband until 82) has paid $598,000 into Social Security, but will only be paid out $556,000 during their retirement years.

In the 1960s, there were 4.9 workers paying into Social Security for each retiree, so budget deficits were not an issue. Today, there are only 2.8 workers for each retiree and that ratio is set to drop to 1.9 workers by 2035, which makes the budget deficit in Social Security a growing problem.

The Congressional Budget Office believes social security will run dry by 2033 as budget deficits completely overwhelm it. However, with the municipal crisis and budget deficits reaching such levels that pension plans are being cut back dramatically today, forget 2033; the crisis is now, when we have budget deficits overwhelming the system.

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The Urban Institute concludes that the budget deficit will only widen in the future, which means either benefits will have to be reduced, so retirees get even less than what they paid in taxes, or taxes will have to rise.

Since the financial crisis began, private pensions, retirement savings and home values reduced the money retirees were banking on. This means that since the financial crisis began, more and more retirees have had to fall back on Social Security to make ends meet or close their personal budget deficits. The problem is due to budget deficits; retirees get less from Social Security than they did in the past.

In all, 25% of married couple retirees and 50% of single retirees rely on Social Security for 90% of their income.

As a result of this mess stemming from the financial crisis, 46% of Americans in 2012 will die with less than $10,000 in financial assets. (Source: CBS, Aug. 8, 2012.)

What this distressing picture means, dear reader, is that the financial crisis has taken away a lot of wealth from the average retiree, placing them in their own budget deficit troubles. Their only hope is Social Security, but its budget deficits are so bad that the average retiree for the first time in the history of Social Security is getting less than what they paid in!

As a result, retirees are working more and cannot afford to retire at 65 like previous generations. This also implies that, since retirees are worse off, they can’t contribute to consumer spending like they did in the past. Those multiple vacations are a thing of the past. The splurging on restaurants and nights at the theater is a thing of the past, as retirees have their own budget deficits to deal with.

Retirees will continue to make up a larger portion of the population here in the U.S. than working people, as baby boomers retire. Now that Social Security doesn’t have the purchasing power it did in the past thanks to budget deficits, the current retiree is left with a lower standard of living, leaving the U.S. economy on a lower growth path for years to come.

Where the Market Stands; Where it’s Headed:

Over the last 14 days, the Dow Jones Industrial Average has gained a paltry 89 points. If we look back further, the stock market trades today at the same level it did five months ago. What’s happened?

The stock market is discounting the global economic slowdown. It realizes S&P 500 companies will suffer greatly as the economies of Europe and China deteriorate. But, at the same time, it is supported by the fact the Federal Reserve has stated it will provide more liquidity if the U.S. economic situation gets worse.

In other words, the stock market rally that started in March 2009 is losing steam. The market is very fragile.

What He Said:

“’Home sales down 8.4%, could be the bottom,’ read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them, and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in Profit Confidential, January 31, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for the worst of times ahead.

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  • dschnitz

    Why die with over $10,000 in assets. I don't feel like giving the government a nice parting gift. My daughters sure won't end up with much by the time our thieving politicians are done taking their more than fair share of my money. I plan to enjoy it while I can!

  • James

    In the USA, the workers desperately want Socialism, they just dont want to pay for it. Pensions, healthcare, decent free schools, security etc. all come at a price. The current taxpayers will not pay for this, and when they retire, they will all cry for it, but the then current taxpayers wont pay for it. What happened to all the hippies, well they became capitalists, dog eat dog etc. now they are becoming socialists again.

  • Jakester

    No one wants to die and leave bank vaults full of retirement money for the leeches of the government, banking and legal system to suck dry. Most people that die never figure out to take their money or any other objects of worth with them by the time of their demise. Hmmmm….who cares if someone dies poor? Oh — the leeches I just spoke of… and journalists making a hamburger off writing about it. LOL

  • Jakester

    …oh — and the people who do figure it out about how to take their wealth with them — by choice make sure there's nothing left but, a debt to pay off just to make sure nothing was left of value. That's why funeral insurance only pays for the funeral. LOL

  • Phil

    In God We Trust, let US do just so.

  • lori

    how will this affect the soc sec my kids and I receive for their dad passing away. I cant live comfortably without him, and he being gone now our soc security helps us make ends meet. My kids deserve that

  • baobabs

    Well… don't give it to the government. Write a Personal Will and leave it to your family.

  • baobabs

    Sell Hawaii to China to repay the national debt, and sell Alaska to Russia in exchange for their oil & gas. The remainder of USA can then sit back – debts paid and energy supplies sorted…

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles