Changing Realities: Retirement Planning in the New Economy
Why Old Retirement Plans Won't Work
This article is a companion to Retirement Savings 101. That article provides a retirement plan, and explains why we need to plan differently after 2007. This article looks at the deeper reasons why these changes are long-lasting.
You might also want to read No Economic Recovery Coming: Welcome to the Fifth World.
The American Economy is Driving All of Us Towards Poverty
We can look at the basic facts on an individual level, and also on a national level.
For individuals and families
The cost of living continue to increase. Most importantly:
- Water, food, and shelter all cost more. In fact, pure water and healthy food are becoming hard to find.
- Free, public education is of lower quality. College and quality education for ourselves is getting further and further out of reach.
- The price of fossil fuels goes up, and it drives up the prices of: heating and cooling; transportation; and all food and essentials that must be delivered to us using fuel.
- Medicine has focused on preventing death. So we live longer, but we are not healthier.
- Medical care, therefore, is becoming less effective while costing more. We are dependent on medical care for many more years than before. And the costs of medical errors are radically increasing.
- Add profiteering and asset protection on the part of medical insurance companies, and costs are even higher.
- Jobs that provide an income to keep a family out of poverty are now rare. Only the top people in a few professions and the most successful entrepreneurs and those who inherit wealth have enough money so that, if they are careful, they will avoid poverty.
For the Nation
Debt has become a way of life, individually and collectively. The government is paralyzed. There is no way to raise enough taxes to lower the debt without crippling the economy. The government must simultaneously take more money from it's citizens while providing fewer services. Meanwhile, profitable corporations and wealthy individuals make sure that they live relatively tax-free lives.
This is not a partisan issue. The national debt has grown worse every since the 1960s, under both Republican and Democratic administrations. Both sides have tried to tackle the issue, and only held back the avalanche briefly. The Tea Party, which claims to have solutions, is actually a front for a big business agenda that will just make things worse than they are.
A nation can remain in debt for decades and centuries. A family can't. Once a family has no more income-producing members - when parents get old and children move out - debt turns into poverty and insolvency.
It's Been Getting Worse for Forty Years
Let's not pretend that these problems are new. Ever since the OPEC oil crisis of 1973 and the failure of US business to compete with Japanese (and now Korean and Chinese) quality, the US has been slipping into more economic troubles. Our endless wars - Vietnam, Iraq, Afghanistan, Iraq again, have put the Federal government in hopeless debt.
At the same time, rich and powerful individuals have biased the laws and created loopholes in the laws so that they pay fewer and fewer taxes.
Democratic regulation didn't work because of loopholes inserted by the rich. Republican deregulation was a disaster because it was designed for the rich by the rich.
The rich used their power to get richer. Now, we're done. The rich got richer, and the poor got poorer. People who think they are middle class are fooling themselves, unless they have a million dollars in the bank. A family with less than a million in savings is heading for the poor house.
The Underlying Problems Are Not Being Addressed
There are deeper issues beyond the fleecing of our nation by the rich.
All the way back to the Revolutionary War, the problem of the Federal government going into debt to pay for war has been with us.
And all the way through the 1800s to the Great Depression, cyclic depressions were a problem every 20 years or so.
In the 1800s, we had new frontiers to grow into. The expanding population (at the expense of Native Americans) prevented economic disaster. Once we crossed the country, we were saved twice more: First by the California Gold Rush (around 1850) and then by three Alaska Gold Rushes around 1900.
Before we could get into trouble again, World War I gave the economy a boost.
The Great Depression Wasn't So Great
There is a big myth that the Great Depression was a special one-time event. Not so. It was actually just the worse in a series of about 6 depressions since the late 1700s. We got out of the earlier ones by the stimulus of growth, the stimulus of wars, or the using up of natural resources.
The Great Depression was the next one in line. Only we had no frontier to grow into, and no new natural resources to exploit. In fact, a big part of the Great Depression was our first ecological disaster, the Dust Bowl.
The Cycle of War, Debt, and Depression
From 1776 through the Korean War, wars stimulated the American economy at a terrible cost in blood. Between the wars, over-production caused prices to drop and the economy to languish. A languishing economy couldn't pay off the war debt.
The United States has always been in this trap, this cycle of war and debt, peace and economic depression, and it still is. We got through it for a couple of hundred years by burning up our natural resources.
But in the mid-1900s, three things changed, and now we're trapped.
The Changes That Doomed the American Economy
The propaganda around the Great Depression was so severe that the Federal Government pressured itself into regulating the economy with the Federal Reserve. The new science of economics, plus a growing Federal bureaucracy, made this possible. But it was doomed to failure. Newer science - systems theory - shows that any effort to regulate a flow system is like damming up a river. A dam can prevent small floods, but only by guaranteeing a big flood later on, when the dam breaks.
Every manipulation of money markets, every economic stimulus package, has given us a temporary respite from a small depression, and has built us up towards a total collapse of our economy.
War Got Too Expensive
With the advent of modern warfare, war simply became prohibitively expensive. A mild expense with no economic benefit pulls a stagnant economy out of trouble. A major expense makes things worse. World War II, the Korean War, and the Vietnam War all reduced unemployment, but they created debts the US can never recover from. And all the wars after Vietnam haven't even helped the economy, they've just driven it down further, while increasing the debt.
Nothing More to Exploit
We exploited the land. We exploited the mineral resources. Now, we've run out of things to exploit. We tried becoming a colonial power, ruling all the Americas by creating banana republics with puppet governments, but it was just too clumsy and inexpensive.
It's Not Going to Get Better
Now,we're in a hole. Peace is stagnant. War is unaffordable. We have no way to improve the economy.
We had one ace in the whole: American ingenuity. We were technological leaders. We could invent our way out of any box. The arms race. The space race. The war on cancer. Always a new invention.
Not any more.
- The United States once had the tallest buildings and the fastest trains. No more.
- Arguably, we still have the world's greatest medical, business, and technological schools. But we are training the world here, and then not letting the graduates immigrate and become citizens. Microsoft moved it's most advanced think-tank to China. They didn't do it to save money. They did it because Bill Gates begged Congress to let the brightest Chinese software developers at places like Stanford and MIT stay in the US and become citizens, but Congress wouldn't do it. So they had to go back to China, and Microsoft hired them there.
Innovation will go to the Far East, but China will probably falter in 100 years or so due to ecological destruction and corruption. Then the lead will move on to Australia and New Zealand, the newest global leaders in ingenuity.
We've Lost Our Competitive Edge
The Economic Forecast: Storms Ahead
The economy is broken and can't be fixed. Even if the government had the political will to fight corporate greed, there simply is no affordable solution. We are too divided, too broke, and becoming too stupid to make anything work.
Sorry for the bad news.
Now, for the worse news.
The US is like a car breaking down on the highway. Think of the 2007 crash - triggered by real estate speculation - as a blown tire. We got a few dents and bumps, and got rolling again. But the car has many more problems. States like California have been on the edge of bankruptcy for years. The safety net of Social Security, Medicare, and Medicaid is torn to shreds. College education has become a for-profit business ripping off Federal loan programs.
With all these weaknesses, we are headed for a cascade failure.
A cascade failure is what happened beginning with the stock market crash in October 1929, and moving through the Dust Bowl into the Great Depression. It's like a falling house of cards. One economic or ecological crisis triggers another and another. And, like a car spinning out of control on the highway, the economy gets totaled, and can't get rolling again.
National Debt Creates Personal Debt
Life is no longer affordable. Education and retirement - anything outside our work years - has always needed government support, and those supports are crumbling. Even our work years needed the supports of livable minimum wages and regulations to at least slow down corporate greed, and those are gone now, too.
The Federal government is leaking money straight into the pockets of wealthy corporations. And the Federal government, ultimately, has only one source of revenue left - taxing the poor.
Isn't it ironic that the agenda of the Tea Party, which claims that the Federal Government is the problem, is to tax the poor more, regulate the rich less, and make the whole problem worse?
When we can barely afford housing, food and water; when we can't afford schooling and the quality of education is dropping; when health care is making us sicker and costing too much, life simply becomes impossible. It is a one-way trip towards bankruptcy.
And that is the simple truth for 90% of American households today.
And no one is grasping the size of the Federal debt, or the other impossible parts of the problem. And even if we grasped it, we don't have the political will - the freedom from control by corporate greed - to do anything about it as a nation. And even if we had the unity and the political will, it's too late. The economic avalanche is halfway down the mountain, and it won't stop until it hits bottom.
That's the truth of the economy for the rest of your life and my life, no matter what the evening news says about economic indicators.
The Solution: Financial Independence
When collective efforts won't work, it's time for individual effort. We can't fix the country.
We can accept that we are in a mess, and then make our own lives work. People can survive avalanches. Here's how:
Step 1: Be honest that everything is crashing down around you. I hope this article helped you do that.
Step 2: Create a great future for yourself, not based on economics, but based on really understanding who you are.
Step 3: Create a career plan that is true for you.
Step 4: Save for Retirement.
The links in the steps above should get you thinking, planning, and moving ahead.
This is big stuff that requires a team effort. I don't have all the answers - not even close. So your comments - whether you agree, or think that I'm a doomsday fatalist - are most welcome. Let's talk!
And, by the way, although I do believe our situation is as bad as I say here, I still live in joy and peace. If you want to know how, read The Four Secrets of Happiness!
Don't let reality get you down - your future is in your hands.