|
|
||
 |
|
|
|
|
||
|
|
||
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
|
||
|
Essays & Articles |
|
|
|
|
|
|
|
|
|
|
by Gary North, Ph.D.
In this report, you will be given a 10-minute exercise to identify yourself as either a sheep or a shepherd. If you are a sheep, you will eventually be sheared -- or worse. I suggest that you become a shepherd. Soon. Sheep dearly want to believe that they are shepherds. But when given an opportunity to find out for sure, a sheep always decides to avoid the test. Self-delusion seems preferable. Self-delusion coupled with complete trust in others to care for them are marks of sheep. Can you hear the power shears? On which end of the shears are you: handle or blades? I will show you how to find out. Do you really want to find out? I hope so. If you discover today that you don't really want to find out, think of a hundred million other American voters who have not read anything like this report, and who don't see what is coming. They expect others to take care of them -- namely, you. Get your wallet ready. But first. . . . Inescapable Expenses In every society, families in their most productive years bear the greatest economic burden, which is as it should be. They are raising children, yet they are also caring for their aged parents. This fact is true in the modern industrial world, but it is concealed because of the tax-funded welfare system. Instead of educating our own children, we pay local property taxes to have the government educate then, using government-approved textbooks, hiring government-certified teachers, and running things according to U.S. government guidelines. Voters call this system "free education." A mother can educate all of her children, K-12, with a $200 self-taught curriculum, paid once. This fact does not occur to most parents. Then there is the burden of supporting aged parents. This is paid for by employed taxpayers. The tax is not called a tax in the United States. It is called the FICA contribution. It is always rising. Add to this Medicare taxes. There is no escape from the economic burden of supporting children and parents. The illusion that the government can reduce this burden is one of the grand illusions fostered by government in order to gain control over the educational system. In the case of the Netherlands, the government's control over old age medical care is used to persuade voters to accept euthanasia of old people. It's a tax-reduction measure that is sugar coated as a "quality of life" measure. It is only a matter of time before something similar comes to the United States. What the government did not allow Dr. Kevorkian to do as an independent agent, it will allow someday -- and then require -- when the Federal government finds that Medicare's escalating red ink is hampering the government's expansion into other areas of our lives. In short, you will be under the gun -- literally -- when you are no longer inside the heavily taxed class of citizens known as "employees." I realize that hardly any American believes this. When Americans even know about the Netherlands' medical procedure, they dismiss it as a deviation of the Dutch. I was in the Netherlands on a visit in the summer of 1985 when the government first began to authorize "mercy" killings. I could see what is coming to every red-ink-burdened Western nation whose voters do not organize early to head this off. Will voters organize in time? Probably not. There seems to be no imminent threat. Only when a fiscal crisis threatens the solvency of the Federal government will such policies be imposed. These policies will be preceded by rationing. Dying individuals will find that there are no emergency care beds available. Rationing will be imposed, and the rationers will assume -- correctly -- that some old people will die before they get access to a hospital bed. Do not rely on the tender mercies of the State. Whenever you hear the words "government mercy," think "mercy killings." Think "Dutch treat." A Wallet-to-Wallet Talk Americans speak of heart-to-heart talks. That sounds great. But they resist wallet-to-wallet talks with their children. The idea that parents and children should sit down and discuss family money and family responsibility is abhorrent to Americans. We just don't do it. The problem with this cultural trait is that responsibility is deferred. In most cases, it is transferred, mainly to the government. Children don't plan on taking care of their aged parents. They assume that the government will take care of the big expenses, leaving any extra parental assets for the children after the funeral. Parents do much the same. They figure out that they will have the State care for them in comfort, and then their children will receive anything that is left over. There is a looming problem with this strategy. The big medical expenses occur in the final six months of a person's life. This fact is going to bankrupt Medicare. As the number of oldsters grows, the government will have to take measures to stop the fiscal hemorrhaging. It will do so. One way or another, the State will pull the plug. This is why parents and children need to sit down and talk while everyone is still solvent. There had better be agreement on who will pay what before the plug gets pulled. This will not be done. Even people who read this report and who suspect what is coming will not bring themselves to do it. The cultural barriers are just too strong. So, parents must take independent steps to plan for their own retirement and death, structuring things so that there are no horrible surprises for their heirs. The best way to take defensive steps is to hand over parts of the inheritance early, and see if the children can make the money grow. Some children will be better at this than others. These are the ones who should be given the larger share of whatever remains after the death of the second parent. The children should be informed in advance of the general policy. With every check should come strings, like the string on a carrot. How Many Carrots, and How Large? Before you can rationally answer this, you must know what your retirement will be like if there are no unpleasant surprises along the way. This is the "sheep or shepherd" exercise. Do you really want to know which one you are? You should find this exercise familiar. You will think, "Wait a minute. He wrote about this a month ago." I did, indeed. Did you do what I recommended? If so, you can skip the rest of this report. This probably is under 5% of my readers. Don't think of this as nagging. Think of it as a helpful reminder. I have located a financial calculator that is easier to use than the one I recommended before. I will now take you through this (painful) exercise with this calculator. It should take no longer than 10 minutes. Do this exercise by yourself. Then, when you understand how this calculator works, and you know the results, sit down with your spouse and go through the exercise again. Another person is more likely to believe the results by personally seeing the entire procedure on-screen. First, enter the dollar amount of your existing retirement portfolio's value: "Starting Balance." Second, enter your "Current age." Third, estimate the rate of return that you honestly think you will earn, minus the expected rate of price inflation. (I use the Median CPI, which is published by the Federal Reserve Bank of Cleveland. This figure rarely goes below 2.5% per year. http://shurl.org/mediancpidata I recommend 3%.) If the rate of return so far has been 6% per annum, enter 3 (6 minus 3) here: "Rate of return before retirement." It is important that you find out what the portfolio's rate of return has been since 2000. This figure is likely to be closer to the rate of return over the next two decades. The rate of return for stocks from 1982 to 2000 was abnormally high. Understand also that if long-term interest rates rise because of inflation, the market value of your bonds will fall. The market value of bonds moves inversely to the movement of the prevailing interest rate for bonds of any maturity date. How much money do you expect to save in your pension fund each year? Think of an average yearly figure. This will be the combined contribution of your employer and you. Fourth, enter this figure here: "Annual contributions." Fifth, enter your expected "Age of retirement." Sixth, enter your expected "Rate of return during retirement." Seventh, enter your estimated "Retirement tax rate." You can now calculate your annual after-tax retirement income generated by your present retirement savings program. Add to this Social Security income. Contact the local branch of Social Security and find out what your monthly retirement income will be if your salary doesn't change. (Warning: Don't count on the system's survival after 2017.) It's time to contact your local Social Security office to find out. This may take longer than 10 minutes. You must pay for your other expenses. Your retirement after-tax portfolio income plus Social Security payments had better generate at least half of whatever salary you are making per year today after taxes. This is a no-frills retirement. Remember also that the purchasing power of your income will almost inevitably depreciate, month by month (inflation). You hope that Social Security will make up the difference. What if it doesn't? You must not reduce your capital by paying for unexpected expenses. If you do, you will steadily impoverish yourself. What did the calculator tell you about your future income and lifestyle? First, are you saving enough money? Second, are you prepared to live on 50% of your present income? Is your spouse ready? Is this the lifestyle you both really want? If not, what are you jointly going to do about it? Are you really, truly ready to take the steps necessary to see to it that you and your spouse are not dependent on Social Security when you retire? You had better invest well -- time and money. You need steady, substantial, automatic raises. You need a high rate of return on your investments. You need a high rate of thrift. Do you have all three? Does your spouse understand this problem? Have you both looked at your economic future, as described by the financial calculator? If you both agree that your present retirement fund is too small, or that its rate of return is too low, or that your employer will not fund more of it, or that you don't have enough time remaining for annual earnings to compound, then you must create a major new income stream for your family. Most Americans refuse to face this. Will you? Most couples have not done this exercise and refuse to do it. They do not see the looming threat: insufficient funds. There is nothing like a little unpleasant reality to motivate people to make changes while there is still time. This is why most people prefer not to think about unpleasant aspects of reality very often. They don't want to make major changes in their lives. Conclusion I am going to give you enough time to complete this exercise. In my next report, I will go into more detail about how to decide what to give to children now and what to keep for yourself. You will find, I suspect, that you are so far behind the curve in terms of your savings program that you can't afford to give them a dime. If this turns out to be the case, then you will have to figure out a way to increase your income. Most people will do anything -- especially nothing -- to keep from facing reality. They do not want to accept any added responsibility for their lives. They expect Uncle Sugar to protect them from themselves. They are going to wind up with a Dutch-treat retirement. I hope this is not you. But if you refuse to go through this exercise, you have identified yourself as one of the sheep being fattened for the shearing -- or worse. The correct response to this threat is not "Baaa, humbug."
Dr. Gary North earned a Ph.D. in history and is one of America's keenest economic analysts and commentators. He supports the Austrian school of economics and is a previous assistant to libertarian congressman Dr. Ron Paul. Visit his website at http://garynorth.com. To subscribe to Gary North's Reality Check go to http://www.dailyreckoning.com/sub/GetReality.cfm If you enjoyed this essay and would like to read more of Gary's writing please visit his website at http://www.garynorth.com or http://www.freebooks.com
Enrich Your Life With A Business Or Finance Magazine
|
|
|
Resource Center Main Page & Index |
|
|
|
Introduction
|
|
||
|
|
||
[Homepage] [Newsletter] [Search] [Support the Academy] [Link to Us] [Contact the Academy] [Citing Articles from Our Website] [Privacy Policy & Disclaimer]
Copyright 1998-99, 2000-01, 2002-03, & 2004-05 by The Radical Academy. All Rights Reserved.