The Government May Shut Down

Over the next few days, the federal government may shut down non-essential services because of lack of funding.

•         The US Government is $16.7 trillion in debt
•         When you add unfunded retirement benefits, Social Security and Medicare and you have an additional $56.1 trillion in debt.
•         Combined debt of 72.8 trillion, translates into $215,311 per person living in the U.S.
•         Personally, I think that all elected officials and both parties are to blame.
•         Eventually our elected officials will have to make tough decisions to curb spending, grow the economy and encourage grand scale innovation.

Is your household in better shape? How is your retirement savings? Are you counting on the government to bail you out? Our nation is in the early stages of a retirement savings crisis. The sooner you prepare your personal household, the better your outcome.

 In August of 2013, the average American’s credit card debt was $15,263; mortgage debt averaged $147,591; and student loan debt hit $31,646 (Total of $1.18 trillion). Some households have all three! Debt is crushing the average American family.  When you consider soaring private household debt, dangerously high government debt and fading Social Security, the image a future retirement can be freighting.

  Here is a framework to get your financial house in order:

1. Track your current spending and create a budget. It is important to identify problems to create a path forward. Consider software from Quicken, mint.com or excel.
   •       I know it’s not fun to track spending and delay purchases but it is more fun than working until you are 75, living only on Social Security or counting on your kids to take care of you.
   •       Get rid of non-essential spending.
2. Sock away an emergency fund of 3 to 6 months of living expenses.
3. Debt is not your friend. Structure repayments to get rid of credit card debt (very expensive), car loans (depreciating asset) and student loans.
4. Set a goal to save 20% of your gross income (before taxes).
5. Maximize your company 401k if you have a company match.
6. Focus on retirement savings. How far behind are you? Many people will need to work until they are 70. Currently, 1 out 6 elderly Americans are living below the poverty line. 74% of workers expect to work part-time in retirement.
7. You may want to delay Social Security until you are 70 to maximize monthly benefits. Expect changes to the Social Security program over the next 10 years.
8. Your pension benefits may be reduced or eliminated.
9. Set a goal to have your house paid off by retirement.
10. Healthcare in retirement and nursing care surprise many.  Healthcare costs in retirement may average above $250k per person and 1 year of nursing home care is typically over $80k per year.  See the 7.5 dangers to your retirement.

Now is the time to take action! All of the above items require you to save more! If you don’t save, you don’t have anything to invest. If you are currently saving less than 15% of your gross family income, I encourage you to consider eliminating non-essential spending. If you are at 15%, can you stretch it to 20%?

 I am a big fan of “The Millionaire Next Door” by Thomas Stanley. Many people misunderstand how the average millionaire gets to that level.  There are currently over 9 million households with a net worth of over $1MM outside of their primary residence.

 Here are some key statistics about the millionaire next door:

•         90% have a college degree
•         Millionaire households tend to be extremely prudent and deliberate. They make good money but save consistently by living  below their means.
•         Many live in homes that are less than 3x their annual income. Very few $1MM+ homes.
•         Millionaire boomers 65+ had an average income of $198k and average net worth of $5.2MM at age 65.
•         Of the above group, only 21% own a vacation home, only 12% own a boat, only 15% have a country club membership.

There are no quick fixes for retirement. It takes time to save, invest and let compounding work for your retirement. Now is the time to start your journey.

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