Retirement advice

I have a good friend up in Kalispell, he and I got into the insurance business at the same time with the same company. We have traded advice over the years, compared notes on muscle cars and Corvettes, and we know some great places to get ribs.

Today he emailed me, asking for advice on his planned retirement next June. I have expanded here what I told him:

Wow, advice. I'm honored that you would ask me. Hmm, this is a tough time to retire, isn't it? I can only speak to what I read and what my gut tells me. Your retirement is probably pretty closely tied to the performance of the economy, I would think. This means the future performance of the stock market, the dollar vs. other currencies, real estate, and tax and debt policy are all on the table.

You have your company pension, your 401k, plus other investments, and residuals (?) from your business. If I recall, you've been doing some real estate development, and maybe you also took some cash from your home sale. And your wife has her retirement as well, and maybe some other stuff. Then there is S.S., such as it is.

Hypothetically, if you converted all of your retirement assets into monthly payments, what percentage of your current lifestyle will that cover? 80%? 125%? If most of your assets are performing at the inflation rate, that means that you will break even for the future. If the cost of living increases, you will come up short at some point. The question is, when does that point arrive? Your hypothetical monthly income would have to account for the cost of living 20 years from now.

Doom and gloom time. I have grave doubts about the financial condition of the country, and that will filter down to our finances. At this point I am predicting (assuming no change in government practices) that we are going to have a small bear market recovery, and then an even greater crash than the one we just experienced. This will suck trillions of dollars out of the stock market, business will close making their stock worth zero, banks will fold, and we will be faced with what has up to this point been a third-world problem - hyperinflation.

What happens when a loaf of bread costs $1000? Ugh. Those of us who are lucky enough to still have a job will be in a tough situation. But retired people will be worse off, and there might not even be jobs for them to re-enter the workforce. With government bankrupt, government bonds will be worth nothing (including the bonds that are in the Social Security Trust Fund), and no one will buy new debt. Certainly not the Chinese.

Government services will begin to fail; first things like road maintenance and national parks. Then visible public services like fire and police. The military will be cut, perhaps some branches even discontinued. After that, welfare is gone. Finally, Social Security. Our society, bought and paid for on credit (both personal and governmental), will collapse. And frankly, the rest of the world, which depends on our economic prosperity, will follow us down.

And the thing is, it will happen quickly. This collapse has been in the works for decades with all the wealth transfer programs, government meddling in the economy, the progressive income tax system, and many other things. Capitalism can bear up under a great amount of this kind of stuff, but it will ultimately shut down. And I think that the stimulus, government health care, and this insane keynesian monetary policy will be the straws that break the camel's back.

There is the possibility that we as a society will be transported back to the 1900s, the wild, wild west. Justice will come at the end of a gun. People will scrape out a living from what they can grow and what they can barter for. Cities will be desolate as services fail and people either die or get out. Rural areas will be overrun. There will be lawlessness, disease.

I know I'm painting a bleak picture, but this scenario is not all that unlikely. It may never happen at all. But let's say only half of it happens. That still will be bad news. Even here, I have no idea how to plan for it. There just isn't a financial plan or investment strategy that will make an ounce of difference.

If I were a militia-type, I guess I would hunker down and stockpile food and weapons. And maybe that isn't such a bad idea to some degree. But I don't think there is any scenario (in my opinion) where retirement is something I would consider.

I hear Costa Rica is nice.