I can’t be the only one who can see it. It’s right there. It’s a truly “inconvenient truth” not so well hidden in plain sight. You will not be wealthy in 20 years! No, it has nothing to do with you per se. And again it has everything to do with you. Here are the top 3 reasons why you won’t be wealthy in 2038.
1) You didn’t plan.
That seems too simple, right? I mean don’t we all plan. Well, not actually. Only 30% of all Americans have a long term financial plan. What does that mean? Well it does not necessarily mean that the other 70% of Americans are failing financially. In fact, there is no measured link between socioeconomic status and having some type of financial plan.
What is a financial plan? Quite simply, it is a methodical plan designed to manage debt, build an emergency nest egg, increase short term cash flow and save enough for retirement. If you are one of the few who can say that you are actively considering and addressing these needs then congratulations! However, if you are not planning then you are planning to fail. You need to contact a financial advisor (like Right Track Financial) and begin building your plan ASAP!
2) You didn’t plan for inflation while you were saving.
Every year life gets a little more expensive. To be clear the cost of living rises at an average of 2.5% to 3.5% every year. With the exception of 2009 there has not been an instance of negative inflation since 1955. We are currently averaging 2.5% inflation as of May.
Inflation is disaster in waiting for those who fail to account for it. This is especially true for those who are depending on a pension that does not take the cost of living into account each year. If you retire at the age of 60 with an annual retirement income of $70,000, that same income will only have the buying power of $43,000 when you are 80. I can’t imagine that you want to see your quality of life go down throughout your retirement.
3) You never considered that taxes would actually rise during your golden years.
Some may disagree but it is my humble opinion that this is inevitable. It doesn’t matter who is in office. We have legislated our way into a corner. Medicaid, Medicare, Social Security and the affordable care act account for roughly 50% of our federal budget. These are mandatory expenses that are protected by legislation. Keep in mind that approximately ⅓ of the budget is financed. This means that in reality roughly ¾ of every dollar raised through taxes is required to pay for these services.
I know what your thinking. Let’s just get rid of them. That’s not going to happen either. As our population ages the constituencies of politicians dependent on these programs is growing. I do not foresee a future where politicians run on the grounds of getting rid of social security or the like.
Even more, the systems themselves are failing to meet the burden placed on them by an aging population. Some estimate that Social Security will lapse and fail by 2033. So what’s the answer? You may be tempted to say “Just budget more towards the programs.” That’s a great idea but from where will we get these funds?
The portion not budgeted towards mandatory expenses is known as discretionary funding. Discretionary funding makes up those federal programs that are helpful but we don’t really need. I’m talking about things like NATIONAL DEFENSE, THE FBI, PARKS AND WILDLIFE, DEPARTMENT OF EDUCATION, etc,.
Hopefully at this point you have sensed the sarcasm in the prior paragraph. Can we really cut into these programs in order to fund failing services? Can we afford to disband the services all together? The simple answer is no. I believe the more likely answer is that we will see a major tax increase in the next decade. I’m praying for a 5% increase but I’m planning for 15%-20%.
So what can you do? Contact a good financial planning firm such as Right Track Financial. Ask them about their methodologies. Make sure that they can help you build a plan to beat taxes and outpace inflation. Make the sacrifice now. Don’t wait until it’s too late to capture the power of time and your peak income earning ability to save appropriately for the future.