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Solving The Financial Challenges
Middle Income Families Face Today!
Conventional Wisdom From Our Grand Parents, Parents and Friends
Most of us grew up hearing go to college, get a good job, buy a house, pay it off as soon as possible, save a little each month an you will be set for life. It was good advice for past generations. However, the world has changed dramatically in the past 50 years.
“Today's worker earns
far more than did his counterpart
from 70 or 50 or even
30 years back. He saves less. The old rules don't work.”
Rob Bennett "Passion Saving"
It’s A Different Middle America
In previous generations Middle American families had only one income earner who supported the whole family. Today, it takes at least two wager earners per family, just to survive, and put food on the table. And, with both parents working, there are the added expenses of a second car and childcare.
In years past, Middle American families lived in the same home for entire lives and their home was paid off before their retirement. Today, people are buying a new home every 5 to 7 years and will likely have a mortgage payment even in their retirement years.
Our Grand Parents and Great Grand Parents were married to the same person for all of their adult lives. According to the Census Bureau in 2008 the divorce rate is still around 50%. The National Fatherhood Initiative Marriage Survey (NFIMS) found that fewer than 40 percent of first marriages "seem to be reasonably successful after 20 years." Now families have only one parent in the home! What kind of financial problems does that cause? How about their ability to save for retirement?
Our Grand Parents and Great Grand Parents were lucky if the lived to age 65, so they only had a few years in retirement. Today, the average life expectancy is already over age 84. Consider, future generations of retirees, are going to live to beyond age 90. During their 25 years or more of retirement, how is inflation going to impact their standard of living? If people are struggling to survive at age 65, what is it going to be like at age 75 and beyond with inflation eroding their incomes?
And, with people living longer and the advances in medicine isn’t there the increased need and expenses of long term care?
Most of Middle America worked for one company during their entire lives and their company provided them with a solid pension income. Today, the average person will work for six or more companies and never have a vested company pension. Won’t their retirement income depend solely on what they are able to save themselves during their working years?
“Since 1985, the number of DB plans (Defined
Benefit Pension plans) insured by
the U.S. Pension Benefit Guaranty Corporation (PBGC) has declined from 114,500
to less than 32,000, a 72 percent drop.”
George F. McClure, www.todaysengineer.org, March 2005
And, didn’t most companies pay for a complete benefit package for each employee. Today, with the high costs of health care and other benefits most companies have been forced to reduce their employee benefits and their employees now have to share a major portion of the costs of health care.
Prior to the fifties, there was no such thing as credit cards. Our Grand Parents and Great Grand Parents had to save for everything they wanted. And, they were great savers. As late as 1975, as a nation, the US were among the best savers in the world, saving over 9% of our incomes annually. Today, credit card debt is out of control and is keeping most people from forming the saving habit. Consequently, today we are some of the worst savers in the world saving only a little over 1% of our incomes.
“As recently as 1994,
the savings rate was nearly 5
percent. Go back 25 years and
double-digit savings rates were the norm. The annual rate for 2004 was 1.8 percent;
the last time the annual rate was lower was 1934.”
The Commerce Department reported that in 2005 the savings rate fell into negative territory at minus 0.5 percent, meaning Americans not only spent all of their after-tax income but also had to borrow money or plunder their savings. This is the first time the savings ratio has gone negative for an entire year since 1932 and 1933, when the US was struggling to cope with the Great Depression.
Changes In Social Security Income
Our Grand Parents and Great Grand Parents could count on social security as being a major part of their retirement income. Consider, our Grand Parents and Great Grand Parents received two Social Security retirement incomes (husband and wife) based on one wage earner per family. So, if the wage earner received a Social Security Income of 25% of their working income and the spouse received 25%, then their total Social Security Income was 50% of their previous working household income.
Today, both spouses are working and they get Social Security Income based only on their individual incomes. So, ultimately Social Security is only replacing 25% of their total household income. And, to make matters worse, now Social Security Retirement Income is subject to income taxes. Which reduces their retirement household income even more. Plus, the retirement age for collecting full Social Security has been extended, further reducing the retirement income we can expect from Social Security. And, that doesn’t even take into account all the problems Social Security faces as the Baby Boomers enter retirement!
“There are currently as many as
22 million U.S. families that lack a
checking or savings account and who are often forced to cash checks through
such services as check cashers, which charge high fees."
*Many ways to boost U.S. personal savings,
By Dar Haddix, UPI Deputy Business Editor 4/1/2005
We Must Change The Traditional Financial Advice
Is there any question that many things have dramatically changed in Middle America since our Grand Parents and Great Grand Parents generations? Most people probably won’t have a Company Paid Pension Plan. Social Security, if it is there at all, probably won’t play a major role in our retirement income. We’ll likely to still have a mortgage payment, a car payment and credit card payments during our retirement years. And, we can expect to be retired for 25 years or longer, with inflation constantly nipping at our heals!
If we want to have a secure financial future, it’s now totally up to us. And, unfortunately it’s NOT going to happen following the traditional advice our Grand Parents and Great Grand Parents have given us. We need to start making ‘ALL’ of our money work for us, instead of us just working for our money, if we want to have a secure financial future.
We need to start by getting the message out to everyone, PAY YOURSELF FIRST! Saving as little as $20 a week now, can make a big difference at retirement time.
Example: If a person age 25, saves $20 a week, based on only a 5% return, they will have over $91,732 at retirement. Time and compounding of interest is what makes money grow. Retirement specialists recommend that people save at least 10% of their income, if they would like to have financial freedom during their retirement.
Now the question you may be asking: “Where do I find the 10% of my income to save each week?”
Let me assure you that money is there for savings, and we are going to help you find it? And, in most cases you can find all of it without dramatically changing your current life style.
Let’s start off by asking a couple of questions… Did you spend $20 last week that you could have saved? How about the week before that? Is what you spent that money on last week and the week before that, more important than financial security for your family or your financial security during your retirement years?
How about if you could ‘Find the Money’ so that you could be saving $100, $200 or more every week, without taking additional money out of your pockets and dramatically changing your life style? How much better off would you be?
Yours in success,
Jeremy and Lew Nason
“The Nine Out Of Ten Guys”