Categories
Retirement

Baby Boomer Retirement Trends

Nearly 80 million baby boomers are gradually retiring, and some have begun to cash in on their benefits. Furthermore, individuals born between 1946 and 1964 (“Baby Boomers”) are retiring at record rates, causing problems for social security. As a result, baby boomer retirement trends appear to be forming in the near future. And the big question is: Do you have enough money saved to retire?

Baby Boomer Retirement Trends: Retiring All at Once

Nearly half of baby boomers will pay in more than they receive from Social Security in the next few years. This, according to a recent report from the Center on Budget and Policy Priorities. Furthermore, analysis suggests that new baby boomer retirement trends are resulting as more beneficiaries are collecting social security than are paying into the system. On average, today’s retirees have an average income of about $50,000 a year, or $2,500 more a year. While baby boomers are likely to have higher incomes and lower poverty rates than their parents, they can also expect lower replacement rates.

As the baby boomer generation reaches retirement age, concerns about retirement planning will grow exponentially. In addition, there will therefore need to be good strategies to deal with them. In fact, learning about the baby boomer retirement trends can be critical to a retirement plan. To take pressure off the system, the younger generation should now work to develop their own retirement plan. This is a better option than saying goodbye to Social Security. Clearly understanding the baby boomer retirement trends is key.

Simultaneous Retirement

One issue that almost no one is talking about right now is the surge of baby boomers retiring soon. This large number of soon-to-be retirees who will be receiving benefits may create unusual baby boomer retirement trends.

“Over 64 million people, or more than 1 in every 6 U.S. residents, collected Social Security benefits in June 2020. While older Americans make up about 4 in 5 beneficiaries, another one-fifth of beneficiaries received Social Security Disability Insurance (SSDI). In addition, some recipients were young survivors of deceased workers.” – Center on Budget and Policy Priorities

Clearly, baby boomers have been the largest generation paying into the social security system for some time. However, now the rolls of baby boomers will shift as the baby boomer retirement trends unfold. As a result, baby boomers will depend upon government benefits and payouts. In addition, many boomers will pay reduced taxes and will not contribute to a pension or 401(k).

In particular, some retirement experts project that social benefits will be replaced by universal basic income. Furthermore, this could happen by the end of the twentieth century. As the number of baby boomers increases as retirees, the number of early retirement incomes for unmarried women is rising. For high-birth cohorts, a large proportion of these values have fallen to 40% for high-birth cohorts. In contrast, the values have fallen less than 1% for non-marital men.Baby Boomer Retirees

The Dark Cloud Over Social Security

However, there are a growing number of people who have doubts about social security. In fact, 42% of millennials believe they will receive retirement income from Social Security. In addition, about half of Generation Xers, who are now 31-46 years old believe this as well. Many believe that baby boomers and social security benefits may only benefit boomers. Just over a third of working millennials have an employer with a subsidized pension plan. However, more than a third do not have a plan. The share of young adults in the US with a full-time job is lower than in previous generations of the same age.

The retirement age for social security was increased, and about half of it has been raised gradually. If changes are not made to social security, the retirement age for Social Security may rise to 66 in 2026. Similarly, those who rely on Social Security are more likely to raise their retirement age to 65 or older.

When to Claim Social Security Benefits   

Boomers want to maximize their monthly Social Security payout by waiting until they claim as late as possible, but the truth is that after years of paying into the system, they are waking up to the fact that they will end up receiving benefits, and they want to know more about how it works. Many baby boomers face a rude awakening, as many expect too much from Social Security. Boomers will be 62 this year, and the number of years they will be eligible for benefits from the current 65-year retirement age will increase.

There are even more grumbles among younger baby boomers, who are studying strategies for when it would be in their best interest to claim their benefits. As baby boomers retire in greater numbers and federal program funding becomes less secure, dependence on Social Security will increase, according to a new report from the Center for Retirement Research at the University of California, San Francisco. But, as more baby boomers become eligible for benefits, the strategy for how benefits are claimed will rise and fall, according to the Institute for Social Policy’s (ISPR) report, “Benefit Eligibility and Benefit Maximization.”

The decline in the replacement rate of social security is partly due to the projected decline in the number of pensioners over the next 30 years. Another factor is the decrease in the retirement age at which benefits are claimed. Furthermore, the decline in benefits is driven by a projected decline in benefits.

The Age That You Will Retire

How old will you be when you retire? This is one of the questions that you want to answer so that you can gauge your progress toward retirement. Ultimately, it will help you determine how much savings you should have at 40. In addition, you can set goals for how much money you need when you reach the milestones of 50 and 60 years old.

Calculate Your Retirement Age

First, if you live in the United States and were born after 1960, you may be eligible to retire at age 67. Second, if you were born earlier than 1960, then the age requirement is 66. These are the ages where you may be eligible for Social Security Benefits. Consequently, you can look at the United States Social Security Benefits Website for additional details. They also offer a retirement calculator and benefits planner there.

If you want to narrow down how much money you will need for retirement, there are four primary factors needed.

  • Current Age
  • Retirement Age
  • Monthly Cost of Living (Estimate)
  • Life Expectancy

First, if you take your current age and subtract your retirement age, then that gives you how many years you will have to save for retirement. For example, if you plan to retire at 67, and you are 40 years old, then you have 27 years to save (67-40 = 27).how to save $5000 in 6 months

Next, how long will you live? Men and women live to be different ages. According to the World Bank, Americans live to be an average age of 78. So if you subtract 67 from 78, then you will need savings that will last for 11 years of retirement.

Finally, calculate how much money you will need annually (70-80% of normal salary) and multiply it by 11 years. This gives you the pot of money you will need to retire. So, using data from earlier examples, if you make $3000/month (12 x 3000 = $36000/year), we’ll multiply it by 80% to be on the safe side. Then, 36000 X .80 = $28,800/yr. You can survive on $28,800/yr.

Then, let’s find out how much money you need for all of your retirement. Note, this is an estimate. Many people live to be much older than 78, so you may consider adding a few years to your calculation to build a cushion.

Total Dollars Needed for Retirement (from example above):

$28,800/year X 11 years = $316,800

How much money you need to save each year to reach your retirement goal:

$316,800/27 = $11,733 each year (or $977/month)

Note, this doesn’t account for compounding interest on investments, which usually help you greatly when it comes to saving for retirement.

 

Investing 101: It’s Never Too Late To Start Investing

Take Control of Personal Finances and Dollar-Cost Averaging

Learning about investing doesn’t have to be complicated. If you are one of the baby boomers who are worried about the baby boomer retirement trends, you can still invest now. Once you establish your goals and how much money that you want to invest each month, you can then determine what kind of investments you wish to make. However, every adult should learn to budget, save money and pay off debt first. If you have a family, it is critical that you begin planning your financial future.

Many investors use “dollar-cost averaging” as a part of their investment strategy. Dollar-cost averaging is simply dividing up the amount of money you have to invest over a longer time frame. This investment methodology means that you invest the same amount of money each week or month, no matter if the market goes higher or lower. Dollar-cost averaging takes the emotion out of buying stocks.

What is Your Level of Risk?

Active Versus Passive Investing; Aggressive Versus Conservative Investing

First, the major categories of investment include active management or passive management. For example, a portfolio manager can determine what investments are in your fund and make decision for you using passive management; however, active management means that you reserve more control of your investments and perhaps you even use online services to trade individual stocks on a daily basis.Long term financial goals

Second, you must determine if you are an aggressive or a conservative investor. Many baby boomers continue to work and invest while collecting social security before the baby boomer retirement trends unfold. Aggressive investing is utilized by those who want to take more risk and capture greater returns. This type of investing is considered acceptable for younger investors and for savvy investors who want to dedicate a small portion of their portfolio to higher risk. Conservative investing is a lower risk style of investing. Returns tend to be lower than the aggressive style, but come with lower risk. This style is best for those that desire lower risk and those who are getting closer to retirement age.

Baby Boomers Retirement Trends Wrap Up

Clearly issues with the baby boomer retirement trends will continue to be challenging. However, the outlook for younger generations is not as good, considering inflation and the concern with the social security program’s ability to provide benefits. As a result, younger people should make an effort to plan their retirement using savings, investments and creating other income streams that will provide money needed in retirement.

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.

 

Categories
Economy

Types Of Inflation

We will discuss the three different types of inflation that can occur and how it can affect you personally. We will also review some ways you can fight back against inflation by looking at deflationary assets.

What is inflation?

Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage means that a unit of currency effectively buys less than it did in prior periods.

Investopedia

In order to simplify understanding inflation, we will discuss three types of inflation:

  • Demand-Pull Inflation
  • Cost-Push Inflation and
  • Built-in Inflation

Understanding Inflation

There will be more detail given about the three types of inflation later in the article. For now, we will discuss how inflation can affect you when you buy something. There are many simple ways to understand inflation. But here is one true story that may help you understand how inflation affects you on a personal level.

In the Piggy Bank Coins article entitled, “How Much Was a Dollar Worth in 1960?” we discussed the purchasing power. The purchasing power of a Dollar in 1960 was compared to that of 2020. We shared the story of Mike Maloney’s father who bought a home in the late 1950s at a price that was equivalent to his annual salary.

As an example, Mr. Maloney displays his father’s 1955 tax return. His father was an auto parts store manager in Salem, Oregon during this time. He earned approximately $9,600 per year.

What’s interesting is the average home cost during this time period in comparison with his [Maloney’s Father’s] salary. According to US Census Bureau data, the median price for a single-family home in Oregon ranged between $6,800 in 1950 and $10,500 in 1960. Moreover, his father’s annual salary was almost equal to the median home price during this time. Now, consider the average salary today and the price of homes. In contrast, could you purchase a home with your annual salary? Clearly things have changed and Americans are becoming poorer.

-Piggy Bank Coins article entitled, “How Much Was a Dollar Worth in 1960?”
-“Hidden Secrets of Money: Episode 6” by Mike Maloney of GoldSilver.com

Basically, in 1960 the cost of a simple home was equal to a manager’s salary. We all know that you can’t buy a home today on a manager’s salary! This is the power of inflation.

Currency Inflation

One thing that significantly affects inflation and purchasing power is money printing. When the US Treasury and the Federal Reserve Bank coordinate to print large amounts of money, it causes inflation. Inflation is simply an increase in the money supply. The bigger the money supply, the less the money in your wallet is worth. Moreover, inflation is a hidden tax. As a result, money you have in your bank account loses purchasing power when money is printed by the government.

On March 23, 2020, it was announced that the US Government would be giving out stimulus checks to Americans. In addition, they planned to give money and loans to businesses hurt by the COVID-19 epidemic. Almost overnight, approximately $2 Trillion in loans and grants were printed out of thin air. As a result, the internet went viral in creating money printing memes. One of those memes was the now infamous “money printer go brrrr” meme.

Money Printer “BRRRR” Meme

Consumer Price Index

According to the US Bureau of Labor Statistics, the consumer price index has increased 1.3% in the past 12 months (before seasonal adjustment).

“The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.”

-The US Bureau of Labor Statistics, Definition of Consumer Price Index (CPI)

A consumer price index value of 1.3% seems reasonable for 2019-2020. If inflation or the CPI were only 1% per year, that means that in 100 years one US Dollar would lose about half its purchasing power. For example, $100 in 1920 would only purchase $50 worth of goods in 2020. However, real inflation for items we buy every day is much higher. In addition, we’ll soon see what the real inflation values are, and they are not pretty.

The United States Federal Reserve Bank Aims For 2% Inflation

The Federal Reserve Bank believes that we must have inflation to promote stability and predictability in the economy. Their goal is to have 2% inflation each year.

The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s mandate for maximum employment and price stability. When households and businesses can reasonably expect inflation to remain low and stable, they are able to make sound decisions regarding saving, borrowing, and investment, which contributes to a well-functioning economy. – Federal Reserve Website

The Federal Reserve’s Tools of Inflation: Money Printing and Interest Rates

The Federal Reserve Bank’s most powerful tool for creating inflation is a two-pronged approach. First, they have the power to raise and lower interest rates. Increasing or decreasing interest rates has the effect of accelerating or decelerating the American economy. If they raise interest rates, people tend to borrow less and it becomes more expensive to do business. As a result, there is a chilling effect on the economy; however, if the Federal Reserve lowers interest rates, individuals (and businesses) find it easier to get capital to do business, and the economic machine is powered up, so to speak.

The other powerful tool that the Federal Reserve has is to print money. Typically, when they print more money, there is more money in the economy. The velocity of money increases and people tend to have more money. With more money in the system, the economy is stimulated.

Inflation Calculator

The US Dollar Has Declined in Purchasing Power Since 1913; The Stated CPI Does Not Reflect Real Price Increases

In addition, the US Bureau of Labor Statistics provides a handy Inflation Calculator. Using their calculator, you can estimate what purchasing power (based upon inflation) is today compared with years past. For example, $10 in 1960 is equal to $88.71 today. That means that in the 60 years prior to 2020, the dollar has suffered 887% inflation over time.

Since the Federal Reserve Bank was formed in 1913, the dollar has been in steady decline. The dollar’s purchasing power has decreased dramatically since 1913. Using the US Bureau of Labor Statistics CPI calculator, the US Dollar has lost approximately 96% of its purchasing power since 1913. This is an alarming statistic.

How Inflation is Measured by You

Sometimes when we think about inflation, we think of what can be purchased directly with our national currency. For example, we might notice that last week fuel cost only $3/gallon, whereas, this week a gallon of fuel increased to $3.50. This is how consumers most often notice inflation. However, don’t get too caught up in measuring inflation by just using currency.

Three Types of Inflation

As stated earlier in the article, there are three types of inflation: demand-pull inflation, cost-push inflation and built-in inflation. These types of inflation are provided as a generalized example so that you can better understand the types of inflation. However, economists and financial experts have other names for types of inflation. Let’s talk about these three types of inflation.

Demand-Pull Inflation

One of the types of inflation is called Demand-Pull Inflation. This kind of inflation happens demand for goods and services outpace the production capacity. In effect, a gap is created between supply and demand in the economy, which puts stress on the price. As a result, prices go higher following the demand from people or businesses who want a good or service. This leads to price inflation.

Cost-Push Inflation

Another one of the types of inflation is called cost-push inflation. When prices increase in the production process, it forces people to spend more and leads to inflation of money. For example, imagine a bakery that uses sugar to make cookies. If the price of sugar doubled in a short period, it would cause the bake to have to increase the price of the cookies she sold dramatically to maintain profitability. This is one of the most common types of inflation.

Built-In Inflation

Finally, one of the last types of inflation is called built-in inflation. When the price of products or services increases, workers want to increase their wages. For example, if it cost a worker more to drive to work because of high gas prices, and it cost more to buy clothing for work, then a worker will want to earn more money at his job.

How Do You Win Against Inflation?

Seek Shelter in Deflationary Assets Such as Gold, Silver, Bitcoin and Real Estate.

There are some investments and things that you can own that weather inflation better than currency. For example, for hundreds of years, owning gold and silver has been a way to avoid currency inflation. Gold and silver both have a long history of maintaining their value when currencies became inflated.

Bitcoin

Another alternative to gold and silver that many consider inflation-proof is Bitcoin. In the past few years, many have begun to use bitcoin like gold – a store of value. In fact, Bitcoin has many of the positive properties that gold has. It is a store of value, it can be a medium of exchange, it can be a unit of account, there’s a limited supply, it is uniform, acceptable, divisible and portable, etc.

Both Bitcoin and gold have a finite, limited supply. As a result, this means that they cannot be subject to inflation. If there is only so much gold, silver and bitcoin, it is by definition, deflationary. Being deflationary means that as the supply of the commodity dwindles, the value and demand for each increase. This is not true of currencies like the US Dollar.

Real Estate

Even something like real estate can have a deflationary affect when compared to US Dollars. Real estate has a long history of maintaining its value over time as compared to the Dollar. However, choose wisely; many believe that there is currently a bubble in the United States real estate market. Prices for real estate in many cities today are considered to be over-priced and inflated.

Final Thoughts on Inflation

As you can see, inflation is a real phenomenon that can affect your personal finances. There are three types of inflation that can occur. Each of these scenarios can quietly steal money from your savings. As a result, it is important to have a plan to address inflation and a place to invest to fight back against the types of inflation.

Read More:

US Dollar History: How the Dollar Became the World Reserve Currency

How Much Savings You Should Have at 40

Ways to Save Money on a Tight Budget

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Disclaimer: It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.