In 1965 foreign ownership of USA stocks totaled about 2%, in 1990 it had risen to 10% and by 2015 to 26%. That the foreign ownership is so high surprised me. Holdings in retirement accounts (defined benefit accounts, IRAs etc.) was under 10% in 1965, rose to over 30% in 1990 and to about 40% in 2015. The holdings in retirement accounts doesn’t really surprise me.

The combination of these factors (and a few others) has decreased the holding of USA stocks that are taxable in the USA from 84% in 1965 to 24% in 2015. From the report

As with much economic data it isn’t an easy matter to determine what values to use in order to get figures such as “foreign ownership.” Still this is very interesting data, and as the report suggests further research in this area would be useful.

Related: There is No Such Thing as “True Unemployment Rate” – The 20 Most Valuable Companies in the World – February 2016 (top 10 all based in the USA) – Why China’s Economic Data is Questionable – Data provides an imperfect proxy for reality (we often forget the proxy nature of data)

BenefitsCheckUp asks a series of questions to help identify benefits that could save you money and cover the costs of everyday expenses in areas such as:

• Medications
• Food
• Utilities
• Legal
• Health care
• Housing
• Taxes
• Transportation
• Employment Training

While the National Council on Aging is focused on benefits for older people the service actually finds many sources that are not dependent on age.

If you complete the overall questionnaire it is fairly long (about 30 questions) but still can be completed in 10 minutes. Also you can target your request (say to health care) and have a shorter questionnaire. They will provide links and contact information to various programs you may qualify for based on your answers.

Related: Disability Insurance is Very Important – Personal Finance, Minimal Budgeting – Truly Free Credit Report – Manage Your Borrowing and Avoid Debt Negotiators

From their report:

The define middle income as income between $25,000 and $100,000 with less than $1 million in investable assets and boomers as those born between 1946 and 1964.

Nearly 70% of retirees retired earlier than they planned to. Many did so due to health issues. Only 3% retired so they could travel more.

48% of middle income boomer retirees wish they could work. For those wishing to, but unable to work: 73% cannot due to health, 17% can’t find a job and 10% must care for a loved one.

It seems to me, both employees and employers need to be more willing to adapt. Workers seem to be more willing, even though they claim they are not: this is mainly a revealed versus stated preference, they claim they won’t accept lower pay but as all those that do show, they really are willing to do so, they just prefer not to. This report is based on survey data which always has issue; nevertheless there are interesting results to consider.

61% of middle income boomers who ware working say they do so because they want to work, not because they have to work.

Only 12% of working middle income boomer retirees work full time all year. 60% work part-time. 7% are seasonal while 16% are freelance and 4% are other. Of those identifying as non-retired 75% work full time while 17% are part-time.

49% plan to work into their 70’s or until their health fails.

51% are more satisfied with their post-retirement work than their pre-retirement work. 27% are equally satisfied with their jobs.

As I have stated in previous posts I think a phased approach to retirement is the most sensible thing for society and for us as individuals. Employers need to provide workable options with part time work. The continued health care mess in the USA makes this more of a challenge than it should be. With USA health care being closely tied to employment and it costing twice as much as other rich countries (for no better results) it complicates finding workable solutions to employment. The tiny steps taken in the Affordable Care Act are not even 10% of magnitude of changes needed for the USA health care system.

Related: Providing ways for those in their 60’s and 70’s (part time schedules etc.) – Companies Keeping Older Workers as Economy Slows (2009) – Keeping Older Workers Employed (2007) – Retirement, Working Longer to Make Ends Meet

One thing people in rich countries forget is how many of them are in the 1% globally. The 1% isn’t just Bill Gates and Warren Buffett. 1% of the world’s population is about 72 million people (about 47 million adults). Owning $1 million in assets puts you in the top .7% of wealthy adults (Global Wealth Report 2013’ by Credit Suisse). That report has a cutoff of US $798,000 to make the global 1%. They sensibly only count adults in the population so wealth of $798,000 puts you in the top 1% for all adults.

$100,000 puts you in the top 9% of wealthiest people on earth. Even $10,000 in net wealth puts you in the top 30% of wealthiest people. So while you think about how unfair it is that the system is rigged to support the top .01% of wealthy people also remember it is rigged to support more than 50% of the people reading this blog (the global 1%).

I do agree we should move away from electing corrupt politicians (which is the vast majority of them in DC today) and allowing them to continue perverting the economic system to favor those giving them lots of cash. Those perversions go far beyond the most obnoxious favoring of too-big-to-fail banking executives and in many ways extend to policies the USA forces on vassal states (UK, Canada, Australia, France, Germany, Japan…) (such as those favoring the copyright cartel, etc.).

Those actions to favor the very richest by the USA government (including significantly in the foreign policy – largely economic policy – those large donor demand for their cash) benefit the global 1% that are located in the USA. This corruption sadly overlays some very good economic foundations in the USA that allowed it to build on the advantages after World War II and become the economic power it is. The corrupt political system aids the richest but also damages the USA economy. Likely it damages other economies more and so even this ends up benefiting the 38% of the global .7% that live in the USA. But we would be better off if the corrupt political practices could be reduced and the economy could power economic gains to the entire economy not siphon off so many of those benefits to those coopting the political process.

The USA is home to 38% of top .7% globally (over $1,000,000 in net assets).

Oxfam published a report on these problems that has some very good information: Political capture and economic inequality

The chart shows the correlation between kids and parents income and income inequality for each country listed. The more income inequality the more rigid the economic system is. Those countries with huge amounts of income inequality create economic systems to insure those that have rich parents are rich themselves.

At the least trust fund baby country cultures you have Scandinavian countries. The USA has been moving to an increasingly trust fund baby focus over the last few decades with the expected increase in kids incomes being more related to their parents income than any other factor. In the USA now nearly 50% of someone’s income can be “explained” by their parents income. That is the math showing how income is correlated to factors (such as college education, degree type…) shows that 50% of the kids income can be calculated just using the parent’s income.

That is obviously a very anti-capitalist system. It is the essentially a nobility based system of kids inheriting their place in society instead of earning it. I have written numerous times about this corruption of the word capitalism by the talking heads and politicians in the USA being used to justify corruption. For example, in these posts: We Need to be More Capitalist and Less Cronyist, Anti-Market Policies from Our Talking Head and Political Class and Not Understanding Capitalism.

The corrupt political system adopting economic policy that favors those giving cash to politicians is very bad for our economy and society. We can change this by not electing corrupt politicians but we don’t seem even remotely interested in doing so. Until that changes the corruption system will continue to damage our society, country and world.

If we are lucky we will reduce the level of corruption in the the political parties in the USA and other rich countries. The level of corruption is likely to remain very high though. The rules are being made by those with cash to pay corrupt parties and only minor adjustments around the edges are able to blunt the full force of corruption. It would be wonderful if this corruption could be largely eliminated (such as petty corruption has largely, though there is still far too much, has been USA – bribes to get business license, bribes to avoid sanctions for unhealthy food preparation conditions, etc.).

The current system largely favors the very wealthy and powerful that get special favors only available to them. One way to participate is in those companies that benefit from the current corrupt systems (cable TV, ISPs, too-big-to-fail-banks, copyright cartel industries, health care…). The biggest exception I think is too-big-to-fail banks. In the other industries the executives take large portions of shareholders profits, because then can, but they have some limits where shareholders will finally throw them out.

So the executives many times their fair share of the economic benefits due to the corruption in Washington DC but there is a large amount left for shareholders. In the too-big-to-fail banks the executives treat shareholders like their customers – fools to be fleeced at every opportunity. So they have hugely profitable businesses supported by bought and paid for politicians and bureaucrats but they then take so much of the profits that owning those companies seems unwise to me.

But for many other industries you can participate in the benefits provided by the corrupt political parties in the USA by owning stock in those businesses they provide favors to for piles of cash. You don’t make the .01% global rich list by working hard and a normal job and saving 15% of your income. But you can make the 1% global rich list by doing that with a median income job in the USA (and most other rich countries). It might not be glamorous and you might be jealous of those that are better at exploiting the corruption to get ahead, but you still are better off than 99 our of 100 people economically. That is hardly something worth pity.

Now if your parents are poor you are going to have a much harder time getting to the point where you get a job where you earn a median USA income. It would be better if the USA improved a great deal, but even so, there are very few (if any) places you are better off being born (economically) than the USA. Of course, being born rich in a country like the USA where we elect politicians to create trust fund baby economic policies is even more lucky than just being born in the USA.

Related: Cash for Votes subreddit – Economic Fault: Income Inequality – How Economic Inequality Harms Societies – The Aim of Modern Day Political Parties in the USA is To Scare Donors Into Giving Cash – Rich Americans Sue to Keep Evidence of Their Tax Evasion From the Justice Department

Based on the Federal Reserve’s 2013 Survey of Consumer Finances the Center updated the NRRI results (the entire article is a very good read).

from the NRRI report.

The lower the risk number in the chart the better, so things have not been going well since the 1990s for those in the USA saving for retirement.

As the report discusses their are significant issues with retirement planning that defy easy prediction; this makes things even more challenging for those saving for retirement. The report discusses the difficulty placed on retirees by the Fed’s extremely low interest rate policy (a policy that provides billions each year to too-big-too-fail banks – hardly the reward that should be provided for bringing the world to economic calamity but never-the-less that transfer of wealth from retirees to too-big-to-fail banks is the policy the Fed has chosen).

That exacerbates the problems of too little savings during the working career for those in the USA. The continued evidence is that those in the USA continue to spend too much today and save too little. Also you have to expect the Fed and politicians will continue to make policy that favors their friends at too-big-fail banks and hedge funds and the like. You can’t expect them to behave differently than they have been the last 50 years. That means the likely actions by the government to take from median income people to aid the richest 1% (such as bailing out the bankers with super low interest rate policies and continue to subsidize losses and privatize their winning bets) will continue. You need to have extra savings to support those policies. Of course we could change to do things differently but there is no realistic evidence of any move to do so. Retirement planning needs to be based on evidence, not hopes about how things should be.

Related: How Much of Current Income to Save for Retirement – Save What You Can, Increase Savings as You Can Do So – Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually – Retirement Planning: Looking at Assets (2012) – How Much Will I Need to Save for Retirement? (2009)

The correct decision depends on your personal financial situation and your life expectancy. The social security payment increases are based on life expectancy for the entire population but if your life expectancy is significantly different that can change what option makes sense for you. If you live a short time you won’t make up for missing payments (the time while you delayed taking payments) with the increased monthly payment amount.

The “normal social security retirement age” is set in law and depends on when you were born. If you were born prior to 1938 it is 65 and if you are born after 1959 it is 67 (in between those dates it slowly increases. Those born in 1959 will reach the normal social security retirement age of 67 in 2026.

The social security retirement age has fallen far behind demographic trends – which is why social security deductions are so large today (it used to be social security payments for the vast majority of people did not last long at all – they died fairly quickly, that is no longer the case). The way to cope with this is either delay the retirement ago or increase the deductions. The USA has primarily increased the deductions, with a tiny adjustment of the retirement age (increasing it only 2 years over several decades). We would be better off if they moved back the normal retirement age at least another 3 to 5 years (for the payment portion – given the broken health care system in the USA retaining medicare ages as they are is wise).

In the case of early retirement, a benefit is reduced 5/9 of one percent for each month (6.7% annually) before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month (5% annually).

For delaying your payments after you have reached normal social security retirement age increases payments by 8% annually (there were lower amounts earlier but for people deciding today that is the figure to use).

Lets take a quick look at a simple example:

Social security increases the monthly payment each year by the calculated inflation rate – I am going to ignore that in the example (to make my life easier).

Lets say your normal retirement age is 65 and your calculated monthly payment was $1,000. If you start collecting at age 65, after 13 years you have received $156,000. If you delayed for 2 years and started collecting when you were 67 after 11 years of payments (so to the same age of 78) you have received $153,965 (and your monthly payment each month is 16% higher than under the original scenario – so the longer you live the more you make).

So in this example it takes a bit over 13 years to break even for delaying by 2 years (while in reality thing are a bit more complicated this is a decent estimate). The life expectancy of for a man in the USA at age 65 is 19 years and for a woman is 21 years. So on average people will make a great deal more by delaying the start of social security payments, given the current rules (Congress can change the rules so this may change in the future). If someone is sickly and unlikely to live to the standard life expectancy that may mean delaying the start of payments is not a wise move.

One of the great benefits of delaying the payments is that the higher payments until death addresses a big risk in retirement planning – outliving your savings. Since you may have hundreds of more dollars every month for decades that decreases the amount you have to dip into your retirement principle. Since we don’t know how long we will live, a higher monthly annuity payment will provide the most benefit at the time when you face the largest risk for retirement planning, that of outliving your savings. It provides a bit of insurance against outliving your savings – or at least pushes the date at which that happens further into the future.

Can you pass a Social Security test?

Related: How Much of Current Income to Save for Retirement – Top Nations for Retirement Security of Their Citizens (USA is 19th) – Save What You Can, Increase Savings as You Can Do So – 401(k)s are a Great Way to Save for Retirement – Social Security (USA) Disability Insurance – Our Only Hope: Retiring Later

Take this 8 question social security quiz to test out your knowledge.

Macroeconomic Determinants of Retirement Timing

The paper doesn’t really focus much on what I would find interesting about the details of how we are (or mainly, how we are not) adjusting to make partial retirement fit better in our organization (the paper is focused on a different topic). The paper does provide some interesting details about the changes with retirement currently.

Related: Career Flexibility – 67 Is The New 55 – Retirement Delayed, Working Longer

In fact, while the Fed has pumped about $2.8 trillion into the financial system through nearly five years of asset buying.

Bank excess reserves deposited with the New York Fed have mushroomed from less than $2 billion before the financial crisis to $2.17 trillion today. In essence, roughly two-thirds of the money the Fed pumped into the banking system never left the building.

The Fed now pays banks for their deposits. These payment reduce the Fed’s profits (the Fed send profits to the treasury) by paying those profits to banks so they can lavish funds on extremely overpaid executives that when things go wrong explain that they really have no clue what their organization does. It seems very lame to transfer money from taxpayers to too-big-to-fail executives but that is what we are doing.

Quantitative easing is an extraordinary measure, made necessary to bailout the too-big-to-fail institutions and the economies they threatened to destroy if they were not bailed out. It is a huge transfer payment from society to banks. It also end up benefiting anyone taking out huge amounts of new loads at massively reduced rates. And it massively penalizes those with savings that are making loans (so retirees etc. planing on living on the income from their savings). It encourages massively speculation (with super cheap money) and is creating big speculative bubbles globally.

This massive intervention is a very bad policy. The bought and paid for executive and legislative branches that created, supported and continue to nurture the too-big-to-fail eco-system may have made the choice – ruin the economy for a decade (or who knows how long) or bail out those that caused the too-big-to-fail situation (though only massively bought and paid for executive branch could decline to prosecute those that committed such criminally economically catastrophic acts).

The government is saving tens of billions a year (maybe even hundred of billions) due to artificially low interest rates. To the extent the government is paying artificially low rates to foreign holders of debt the USA makes out very well. To the extent they are robbing retirees of market returns it is just a transfer from savers to debtors, the too-big-to-fail banks and the federal government. It is a very bad policy that should have been eliminated as soon as the too-big-to-fail caused threat to the economy was over. Or if it was obvious the bought and paid for leadership was just going to continue to nurture the too-big-to-fail structure in order to get more cash from the too-big-to-fail donors it should have been stopped as enabling critically damaging behavior.

It has created a wild west investing climate where those that create economic calamity type risks are likely to continue to be rewarded. And average investors have very challenging investing options to consider. I really think the best option for someone that has knowledge, risk tolerance and capital is to jump into the bubble created markets and try to build up cash reserves for the likely very bad future economic conditions. This is tricky, risky and not an option for most everyone. But those that can do it can get huge Fed created bubble returns that if there are smart and lucky enough to pull off the table at the right time can be used to survive the popping of the bubble.

Maybe I will be proved wrong but it seems they are leaning so far into bubble inflation policies that the only way to get competitive returns is to accept the bubble nature of the economic structure and attempt to ride that wave. It is risky but the supposedly “safe” options have been turned dangerous by too-big-to-fail accommodations.

Berkshire’s Munger Says ‘Venal’ Banks May Evade Needed Reform (2009)

Related: The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – Is Adding More Banker and Politician Bailouts the Answer? – Anti-Market Policies from Our Talking Head and Political Class

It seems to me more gradual retirement makes a huge amount of sense (for society, individuals and our economy). That model is available to people, for example those that can work as consultants (and some others) but we would benefit from more options.

Why do we have to start work at 22 (or 18 or 26 or whenever) and then work 40 or so straight years and then retire? Why not gap years (or sabbaticals)? Also why can’t we just go part time if we want.

The broken health care system in the USA really causes problems with options (being so tightly tied to full time work). But I have convinced employers to let me go part-time (while working in orgs that essentially have 0 part time workers). And I am now basically on gap year(s)/sabbatical now. It can be done, but it certainly isn’t encouraged. You have to go against the flow and if you worry about being a conventional hire you may be nervous.

Related: Working Less: Better Lives and Less Unemployment – Why don’t we take five years out of retirement and spread them throughout your working life? – Retiring Overseas is an Appealing Option for Some Retirees – Living in Malaysia as an Expat – 67 Is The New 55

The United States of America ranks 19th worldwide in the retirement security of its citizens, according to a new Natixis Global Retirement Index. The findings suggest that Americans will need to pick up a bigger share of their retirement costs – especially as the number of retirees grows and the government’s ability to
support them fades. The gauges how well retired citizens live in 150 nations, based on measures of health, material well-being, finances and other factors.

Top Countries for Retirees

• 1 – Norway
• 2 – Switzerland
• 3 – Luxembourg
• 6 – Finland
• 9 – Germany
• 10 – France
• 11 – Australia
• 13 – Canada
• 15 – Japan
• 19 – USA
• 20 – United Kingdom

Western European nations – backed by robust health care and retiree social programs – dominate the top of the rankings, taking the first 10 spots, including Sweden, Austria, Netherlands and Denmark. The USA finished ahead of the United Kingdom, but trailed the Czech Republic and Slovakia.

Globally, the number of people aged 65 or older is on track to triple by 2050. By that time, the ratio of the working-age population to those over 65 in the USA is expected to drop from 5-to-1 to 2.8-to-1. The USA actually does much better demographically (not aging as quickly) as other rich countries mainly due to immigration. Slowing immigration going forward would make this problem worse (and does now for countries like Japan that have very restrictive immigration policies).

The economic downturn has taken a major toll on retirement savings. According to a recent report by the U.S. Senate Committee on Health, Education, Labor and Pensions, the country is facing a retirement savings deficit of $6.6 trillion, or nearly $57,000 per household. As a result, 53% of American workers 30 and older are on a path that will leave them unprepared for retirement, up significantly from 38% in 2011.

On another blog I recently wrote about another study looking at the Best Countries to Retirement Too: Ecuador, Panama, Malaysia. The study in the case was looking not at the overall state of retirees that worked in the country (as the study discussed in this post did) but instead where expat retirees find good options (which stretch limited retirement savings along with other benefits to retirees).

See the full press release.

Related: Top Stock Market Capitalization by Country from 1990 to 2010 – Easiest Countries in Which to Operate a Businesses: Singapore, Hong Kong, New Zealand, USA – Largest Nuclear Power Generation Countries from 1985-2010 – Leading countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Countries with the Top Manufacturing Production