By far, we are the largest generation in America to come of age, join the workforce, raise families, and starting within the next few years, to retire. By definition, anyone born between 1946 and 1964 (aged 42 to 60 in 2006) is a "Baby Boomer". Our births peaked in 1957. Numbering 75 million, we count among us some of the most famous and influential people in the world: Bill Clinton (1946), George W. Bush (1946), Al Gore (1948), Donald Trump (1946), Rush Limbaugh (1951), and Bill Gates (1955). Arguably, we have collectively spent more hours in the workplace and earned more money than any other generation in history.
As the generation "born to be fleeced", we have spent the last 20 to 30 years saving for our retirement - but it won't be there for us! The government and the bankers trained us well. Taught that a piece of paper (the Federal Reserve Note) was "money" and the stock market was the road to riches, we considered gold a barbarous relic. Silver has been absent from our coinage since 1965. We are invested up to our necks in paper! Our savings have been forced out by low interest rates. Easy credit encouraged us to over-mortgage our homes and to run up un-payable credit card debt.
The trap has been set!
Our parents, now in retirement or beyond, never had to make many decisions regarding their "golden years". They knew they would receive income from Social Security and from their Defined Benefit Pension plans. Both of these income sources were funded largely through our efforts in the workplace. We entered the workforce in such large numbers that Social Security became over-funded. Our earnings, invested in stocks, contributed mightily to fat corporate balance sheets to fund our parents' retirement. Life was good!
Like lambs being led to the slaughter, we blindly followed the same path. We dutifully put in our 40 quarters of work to be fully vested in Social Security. Some curve balls were thrown our way. The Employee Retirement Income Security Act of 1974 (ERISA) changed the way our corporate pensions were funded, and they became Defined Contribution Plans. In the early 1980's we were given a new way to save - the Individual Retirement Account (IRA). Since, then, there has been a veritable alphabet soup of plans for us: Roth IRA, 401(k), Keogh, ESOP, 403(b), SEP, SIMPLE, and many more.
The sheer dollar amount of our savings thrown at these various funds, nearly all of which were invested in stocks, caused a massive bull market in the Dow and especially, in the NASDAQ. Starting in the early 1980's, a groundswell of liquidity swept the major indices higher and higher. Economists and analysts looked on with amazement. Alan Greenspan spoke of "irrational exuberance". The Baby Boomers were defying normal business cycles and corrections!
Not so fast - collectively, we "crashed" in 2000, only to rise again! But the money continues to pour in from our retirement plans. The damage has been papered over by the Fed and the government, as the Dow levitates, going nowhere in particular. The market is crashing, invisibly, as the value of the dollar plummets. The bear is there, waiting. He awaits the first wave of us to turn 70-1/2 years old. That's when he will return to maul us. Innumerable pundits have called for this massive market to crash, but it hasn't yet. It may not, until oh, say 2010 to 2020. That's right, when the oldest among us begin to make mandatory withdrawals. Then again, it could happen tomorrow.
Rocky Future For The Woodstock Generation
You knew it was going to happen. All that money in the Social Security fund proved too tempting for the politicians. There is never enough money for the politicians, and here was our nest egg, just waiting for the foxes to get at it! For a long while, nobody said anything. By the time President Bush made his State of The Union address in early 2005, he felt compelled to deal with the issue. That, in itself, indicated that things had gone beyond redemption.
In April of 2005, in a speech given at the University of West Virginia, President Bush was a man on a mission to "save" Social Security by partially privatizing it. Incredibly, his idea was to divert even more Social Security funds to the stock market! His address contained the following quote:
A lot of people in America think there is a trust - that we take your money in payroll taxes and then we hold it for you, and then when you retire, we give it back to you….but that's not the way it works. There is no trust fund - just IOUs.
Say again? Aha, the foxes had done the dirty deed! Paying out only what was necessary for current beneficiaries, the politicians had helped themselves to the Baby Booty. Where it all went, nobody knows. One thing for sure, it won't be coming back anytime soon. Our generation did not have as many children as did our parents'. Social Security, a Depression-era program, had started with16 workers contributing for every beneficiary. As of 2005, that has been reduced to 3 workers for each beneficiary - on the eve of the greatest mass retirement in American history!
The forecast gets gloomier when it comes to our health care. The first generation to stand in line for polio shots in the 1950's, we will now have to fund our own health care, as well. With the rise in medical costs, Medicare is on a faster track to bankruptcy than Social Security. President Bush was gracious enough to drive another nail into its coffin, with his Prescription Drug Benefit.
Welcome To "The Working Retirement"
The Baby Boomers have been given the shaft! Corporate scandals on Wall Street - Enron, Worldcom, Global Crossing, Delphi, Refco - have left thousands of us with no pensions at all. Bankrupt corporations such as United and (soon) GM and Ford, will leave thousands more out in the cold. Our "safety net", the Pension Benefit Guarantee Corporation (PBGC) is already underwater to the tune of $23 billion! There is nobody to bail it out except us, with our tax dollars!
The scenario is not pretty. Another great danger to our savings is the US debt and aging fiat currency (Federal Reserve Notes). It's hard to believe that the Fed governors don't know that the jig is up, as they are jumping ship like scared rats and very few want to take their jobs. Reportedly other central banks are beefing up their gold reserves - China, Russia, South Korea, Argentina - and many more are refusing to sell their gold. The Big Money knows something is going on, as the price of the yellow metal is shooting UP!
As a generation, what can we do? Most of us have been lulled into complacency by our recent prosperity. Many others are aware, but are in denial. The days when we avoid opening our mutual fund statements will be coming back. But some of us are actively planning for a fulfilling retirement. We are not afraid of work, and we are not talking about a job at Wal-Mart or McDonald's! Nobody's crystal ball works very well these days. We simply cannot determine exactly what will happen, or when. History has a way of calling our bluff. What we can do is to keep an eye to our own affairs. The danger signs are there. The odds are very likely that tough times indeed lie ahead. With this in mind, there is much we can do to soften the blow, and perhaps survive to prosper:
CASH: Don't keep large sums of it in any bank, credit union, or money market fund. FDIC insurance is a farce when it comes to a currency crisis. The paltry amount of interest you earn just isn't worth the risk. Keeping it under your mattress or buried in the yard in mason jars doesn't work, either. Besides loss of purchasing power, you risk loss from theft. That said, it probably isn't a bad idea to keep some cash on hand, but it should be just a small amount. Keep the bulk of your liquid funds in physical precious metals.
HOME: Make an effort to own your home free and clear. If you have a large mortgage, either make accelerated payments or move into something less expensive. Frankly, I'd rather live in a mobile home that I own outright on my own land, than in a big house with a bigger monthly payment. Also, consider moving away from larger cities and the suburbs that surround them. When times get tough, government-dependent populations will riot, loot, burn, rob, and even kill. You don't need to be in their path. Never underestimate a desperate person.
INCOME: It would be folly to depend on Social Security or any pension or IRA invested in securities, no matter how well funded it appears today. Consider yourself fortunate if you get a few years' income from it. Likewise, don't depend on any government - federal, state, or municipal - for anything. Welfare and Medicaid will either be unavailable, or will come with strings attached that you want no part of.
WORK: Think about working as long as you remain healthy, and have a good-paying job. Retiring at age 55 is for dreamers. Even age 60, today, is too young to collect Social Security (if there's any to get). If you don't like your job, quit and start a home-based business. You don't need to work full time. But take the cash while the taking is good.
FOOD: By all means, consider joining a food co-op. Better yet, think about starting your own garden. I'm not talking about a few tomato or pepper plants, but a substantial amount of your food needs. With the cost of energy and transportation rising into the indefinite future, many foods will no longer be available on the supermarket shelves. Besides, this is a good way to supplement your income.
ENERGY: Start to think about alternate energy sources. There isn't a whole lot that individuals can do, but heating with wood and installing a simple solar hot water system could save you a bundle. Purchase at least one small car, even used, that gets great gas mileage.
DEBT: Reduce it. Pay it off. If this is not possible for you (and for many it won't be), consider bankruptcy to regain your freedom. And don't feel guilty about it; nobody should be enslaved by high interest rates. Forget about your credit rating - why would you need more credit?
OK, so we as a generation have been defrauded. But every other generation has known hard times, years before we came along. The specific actions to be taken depend on each individual. Those listed above are just a small sample of what can be done to improve difficult situations. Tough times are ahead for everyone, not just the Baby Boomers, and there are precious few years to prepare for them. However, if we don't sit down and evaluate our own circumstances, we will have nobody to blame but ourselves.
January 19, 2006