Schiff Sovereign Late last year, the investment management giant Morningstar published a report concluding that most people can either save money for retirement, or save money for their kidsâ education⊠but NOT both.
They make the economic realities very clear: parents have to choose between their own future, or their childrenâs future.
And one of the reportâs lead authors went on to say that the RIGHT choiceâ the ONLY choiceâ is to choose your retirement over your kids:
âIf you sacrifice your retirement savings to send your child to college, youâre making a huge mistake.â
Thatâs a pretty sad statement. But itâs unfortunately true for most people.
University education is already -very- expensive, and tuition fees are rising much faster than wages and income.
According to Federal Reserve data, university tuition has risen an average of 4.5% per year since 2000 (meaning that university is twice as expensive as it was at the turn of the century).
This âinflation rateâ in tuition is more than TWICE as much as the growth in median household income (which has averaged just 2.2% annual growth since 2000).
This means that, for the past two decades, university education has become more and more out of reach. And itâs no surprise that student debt levels are at a record high as a result.
But on the other side of the coin, retirement is also incredibly expensive. And uncertain.
People are living longer than ever before⊠and they want to ensure that they have enough money to last.
You used to be able to save money for your retirement in easy, low-risk investments like government savings bonds that paid a healthy rate of return.
In 1986, for example, the inflation rate in the United States was just 1.86%. But a 10-year government bond paid as much as 9%.
This was a wonderful investment for retirees who could safely earn a strong return without having to take any significant risk. And this was the case throughout the 1980s and 1990s.
But for most of the last 10-12 years, interest rates have hovered near their lowest levels in 5,000 years of human history.
US government statistics show that the overall rate of inflation in 2019 was 2.3%. Yet a 10-year government bond now only pays 1.7%.
So if youâre a retiree today and you put money into that same âsafeâ government bond investment, youâre guaranteed to lose money when adjusted for inflation.
This is why the CEO of Blackrock (the worldâs largest money management firm), has said that people today have to set aside THREE TIMES AS MUCH money to save for retirement as their parents and grandparents did. Itâs precisely because of these low interest rates.
Social Security is no comfort, either. Weâve discussed this frequently in previous articles: Social Security is massively and terminally underfunded.
And this isnât some wild conspiracy theory.
The Social Securityâs Board of Trustees publishes a report on the financial health of Social Security every single year.
And those trustees include some of the most senior people in the federal government, including the Secretary of the Treasury, Secretary of Labor, Secretary of Health and Human Services, etc.
In the 2019 report they forecast that Social Securityâs primary trust fund will be fully depleted by 2034â just 14 years from now.
And in that same report, the Trustees show that Social Security would need a $50 TRILLION bailout in order to have sufficient funding for its long-term obligations.
That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.
Thatâs an impossible bailout⊠which means Social Security is no longer a tax or political issue; itâs a simple arithmetic problem, and one that cannot be solved.
These same conditions broadly exist across most of the developed world, especially in Europe and Japan where interest rates are actually NEGATIVE and national pension funds are woefully short of cash.
Now, I really donât intend to be gloomy. But itâs important to tell the truth about these important issues:
- It is mathematically impossible for Social Security (and other national pension funds) to honor the promises theyâve been making for the past several decades.