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Retirement Reality Check

Changing lifestyles driven by recession and social issues require a new and more sober approach to retirement.

The Retirement Fantasy - What Your Advisor Never Told You

By Jeffrey Diercks

The truth of the matter is most of us will never truly be able to retire. Oh, we may leave our current job or vocation, but in this new global economy, true retirement the way your parents retired is just a fantasy for most of us. The average American will need to continue to work well into their reclining years.

As an investment advisor, I know first hand how hard it is to tell a client what they don't want to hear. If it's any consolation, this news didn't start out as a lie. It has just become very hard to perpetuate in the current time period of which we live and work.

Here is why:

1. The historical rates of return your advisor used in your planning (example 8%-10%) are only true if your investment horizon is 50-100 years. However for most people, 20-30 years is a more normal period for active investment. Much of your returns over that period depend not on the length of your holding period, but the calendar period you were invested. For example for the period, January 1989-September 2009, the S&P has returned approximately 8.5%, including dividends, through both a wild bull and depressing bear markets. For the 20 years, 1962-1982, the S&P 500 returned approximately 4.5% annually after dividends, well below the inflation rate of the period. So, as with everything in life, timing is everything!

2. Social Security is a program that is doomed to fail. With the growing aged population here in the U.S., spiraling medical costs and a slower influx of new workers to fund Social Security, something will have to give with this program. According to the Heritage Foundation, the Social Security Trust fund ran a deficit of $4.3 Billion in September 2009 alone and that was on top of a $5.7 billion deficit in August. This is bad news for retirees and taxpayers. One of two things must happen here, benefits must be cut or taxes must be raised (or some combination of both). Under almost any scenarios, those approaching retirement will pay in more and receive less (possibly nothing). This will leave most retirees with a big hole to fill in their retirement planning.

3. Asset appreciation is fleeting. For most of us, the American Dream is to buy a house, live in it until we are content to move on and then sell it for a large profit. As retirement approaches, we may even downsize to a smaller place and pocket the extra funds to support our lifestyle. According to the economist Harry Dent's Age Wave Theory (, U.S. and European populations are peaking, based on his findings that a human consumer's spending habits peak by age 50. The implications of this are that, excluding the affects of immigration, retirees can expect there to be spikes in unemployment and decreases in housing demand and therefore prices. If you throw in the housing glut that remains from the financial crisis, it is unlikely we will see significant price appreciation for many years to come. This same Age Wave Theory will also likely affect the demand for equities and other financial products, but to a lesser extent.

4. Medical costs will continue to spiral or be rationed. Medical costs in 2009 rose by 7.4% (the seventh straight year of 7%+ increases) according to the Milliman Medical Index Report ( We have already seen the spiraling costs of medical care front and center in discussions about President Obama's Health Care Reform Package. Of course, the President claims that care will not be rationed, but the evidence is clear that it will be when we look at the systems in Canada and Europe. If you are denied medical care, private pay will be your only route to such care, therefore putting a further strain on your retirement savings. Additionally, long-term care insurance will continue to escalate in cost.

5. Finally, people are living longer, requiring greater savings for retirement. In the 1950s life expectancy in developing countries was just 50 years for men and 53 for women. Today, the average life expectancy is now 77.7 years according to the Centers for Disease Control and Prevention (CDC). This added life expectancy puts a greater strain on savings, the social security entitlement system and increases the demand and cost for aged services.

So enough with the doom and gloom, is there a solution? The simple answer is the solutions are numerous and most involve sacrifice. Solutions like earning more on your investment assets, forgoing emergency room visits except in real emergencies, better diet, more exercise, higher taxes, substantially lower benefits, and so on, and so on.

Of course the real question is do we Americans have the fortitude to accept these solutions and make the necessary life changes? If we don't we stand to endanger our way of life and the lifestyles of our children with unsustainable public deficits and out of control entitlement programs.

An author, registered investment advisor and Personal Financial Specialist, Jeff Diercks has helped investors grow and protect their portfolios in both up and down markets for over a decade. Mr. Diercks is regularly featured in the mainstream media as a specialist in ETF investing and trend following investment strategies. You can check out his website at and blog at

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