Currency devaluation?

[StephenM]

Hi I am Stephen M. My wife and I have been in retirement for 13 years. Our current combined retirement assets amount to $2,109155 ($1,174,020 deferred and the balance taxable). We have been living off recent SS and Pension income coupled with withdrawals averaging 2%. I have been very concerned about national debt ($16T?), and, naturally, deficits. I am particularly concerned about massive devaluation of our currency and would appreciate views on this subject.

[REWahoo]

Stephen, other than being concerned, what are your views on the subject?

[UtahSkier]

I'll jump in!

The trend has been to effectively print money to fulfill the needs of the US treasury's deficit. With the Federal Reserve's coordination, this printed money is flowing into assets; real estate and equities.

Given that US deficits are projected to continue for the next 10 years, I expect this asset inflation to continue.

Equities at this level can be perceived as risky, but bonds clearly are. And cash is not a safe haven.

So yes, the dollar's buying power is depreciating. But it seems that a balanced portfolio is probably keeping constant buying power... and is possibly increasing in buying power.

I suspect an Asset allocation of 60-40 is necessary to ride this out.

With your portfolio, SS and pension income, you seem to have a well diversified income stream and should endure whatever does happen better than most.

[MichaelB]

StephenM, welcome aboard. Why not keep this thread and forum as a place no introduce yourself and post your currency question at the "Fire and money" forum here FIRE and Money - Early Retirement & Financial Independence Community

[timeasterday]

I don't see any massive devaluation yet, and there's not much I can do about it except diversify my investments according to plan which includes a healthy portion of international equities. If it happens, I would expect a nice manufacturing boom in the US as our exports become cheaper to the rest of the world. But since my retirement plan involves moving overseas, I do worry a little about having an unfavorable exchange rate. But again, not much I can do about it.

[GrayHare]

Since currency devaluation is the politically-easiest way deficits can be overcome, it will probably continue for many years. As the dollar devalues, your pre-tax retirement account's nomimal value increases, but that's a phantom increase since the account's real value might remain steady. The problem is that upon RMDs you pay tax on that phantom increase. Post-tax dollars, such as those in Roth form, avoid the tax on phantom increases.

[scrinch]

I worry about devaluation of the dollar due to the large and growing debt also. A friend I was talking to about this recently asked a good question about devaluation....devaluation relative to what? What currencies and/or economies don't have their own problems if the dollar goes into a nosedive? The euro? The yuan? All the big currencies are tied in to the dollar as major trading partners so that if the US buying power drops drastically, so do their economies. So what international investment is a good hedge against the downfall of largest import market in the world?

[StephenM]

Thanks
Specifically I am concerned that holders of this debt might easily feel insecure and cease future buying of it resulting in eventual pandemonium in the markets.

[jon-nyc]

The dollar index devalued significantly from 02 to 08 but has been stable since then. (in fact its higher now than before the crisis)

DXY00 | Commodity Futures Price Chart for U.S. Dollar Index Cash

Devaluation and inflation are not large concerns of mine. Having said that, most of my fixed income allocation is in TIPS.

[jon-nyc]

And welcome!

[obgyn65]

Welcome to the forum. Like you, I am very concerned about the $ in the long term. This is why I am keeping significant amounts of money in the EU.

Quote:

Originally Posted by StephenM Hi I am Stephen M. My wife and I have been in retirement for 13 years. Our current combined retirement assets amount to $2,109155 ($1,174,020 deferred and the balance taxable). We have been living off recent SS and Pension income coupled with withdrawals averaging 2%. I have been very concerned about national debt ($16T?), and, naturally, deficits. I am particularly concerned about massive devaluation of our currency and would appreciate views on this subject.