National Debt

[inquisitive]

I'm pretty shocked by the responses in the thread below on the national debt. Maybe I am more financially illiterate than I thought, but it seems to me that the national debt does affect us and early retirement significantly.

Well over $200 billion is spent in our taxpayer dollars/year to finance the debt. As the debt increases, more and more money, as a percentage of the federal budget, goes to pay the debt. Tax rates, before deductions/credits, ranges in the 30-50% and higher range for most Americans (not easily seen because 7.65% is taken off as a payroll tax before the employee sees it, and another 7.65% is taken off the employer side, which is actually a de facto tax on the employee, plus state income taxes, not to mention other taxes). This problem becomes worse year after year, in that government spending on public goods and services must continue to decrease. There is no shortage of problems that these funds could go to instead.

I do not see a "collapse" of the economy as someone speculated, because this is a long-term problem that is going to manifest in gradually worsening conditions over a very long period of time.

Also this signifies an inability of the congress to be financially prudent in that the only reason the debt increases is because spending is more than revenue. During the government shutdown, federal employees were laid off for 2 weeks, but after a resolution occurred, all these employees were paid for 2 weeks of not doing anything. I admit it was a nice vacation for them, but this was a significant amount of money that is coming out of taxpayer dollars, and extending the time until retirement for everyone.

We also do have significant power to change the situation. There is no shortage of highly qualified candidates who run for office, but mediocre candidates are consistently elected, which is the fault of the American people who voted these candidates in. Also there is poor voter turnout at the local, state, and federal levels, and so today's mediocre candidates at the local level become the state mediocre candidates and finally reach the federal level in 20 yrs and ppl wonder how it happened. Third party candidates have historically gotten fewer than 1% of the national vote in presidential elections, and it is obvious that the democratic and republican candidates are not 40-50x as qualified.

 

[Senator]

The money can be printed. We have printed trillions, and it has not hurt. We can print trillions more. Raising the minimum wage to $15 an hour would put a significant amount in the SS trust find.

If inflation was tame, and the minimum wage was $15, there would be plenty of money to go around in SS. It would be OK if some prices rose, but did not affect the CPI.

 

[Gumby]

The moderators closed the last thread on this topic for a reason. Starting a new thread to continue the same discussion is likely to lead to the same result.

 

[inquisitive]

The last thread started well but was buffetted by a plethora of off-topic posts. That has not happened yet here but it is possible it may.

 

[inquisitive]

The money can be printed. We have printed trillions, and it has not hurt. We can print trillions more. Raising the minimum wage to $15 an hour would put a significant amount in the SS trust find.

If inflation was tame, and the minimum wage was $15, there would be plenty of money to go around in SS. It would be OK if some prices rose, but did not affect the CPI.

This has happened in many countries, including developed and/or stable countries and economies, with catastrophic results. Zimbabwe was a great developing economy until they increased their printing. Look at Germany. Besides this, printing trillions more devaluates OUR individual savings and financial status, thus prolonging the time to retirement.

 

[REWahoo]

That has not happened yet here but it is [-]possible it may[/-] only a matter of time.

FIFY

 

[Senator]

This has happened in many countries, including developed and/or stable countries and economies, with catastrophic results. Zimbabwe was a great developing economy until they increased their printing. Look at Germany. Besides this, printing trillions more devaluates OUR individual savings and financial status, thus prolonging the time to retirement.

I agree with you. The rest of the developed nations are printing it as fast, or faster, than we are. So, in the end, it has no effect.

If everyone prints money to the tune of 10%+, maybe it's the same as not printing money.

 

[M Paquette]

The potential failure modes herein are one of the failure modes that make planning for a retirement portfolio success rate over 80% a bit futile. The details and rationale are given in William J. Bernstein's "The Retirement Calculator From Hell, Part III", where he talks about interpreting those percentages from retirement calculators:

A wide variety of web-based services are now available, such as Financial Engines, ClearFuture, and mPower, that will calculate the flip side of the above, estimating the success probability of the investment phase of your retirement plan.


The hard part, of course, is how to interpret this kind of output. Realize that these probabilities are merely an imperfect estimate of the investment risk you are taking. In other words, they assume the continuity of financial and political institutions over the period studied. Consider the implications of the above 97% success rate at a withdrawal of $2,500 per month ($30,000 per year). For this to be a useful estimate of your true chance of not running out of money, the "success rate" of your ambient political, economic, and military environment must be at least 97% over this 40-year period. Do you think that this is likely? Only if you are an historical illiterate (which, I’m afraid, subsumes many finance academics).

He then goes on to enumerate various risks, and probabilities based on the historical record. These risks, which are not considered by the standard retirement calculators, are none the less real risks, posing a real hazard to one's probability of success in retirement.

Let’s examine a small sampling of possible political, economic, and military failure modes:

• The mildest scenario is that of catastrophic inflation, as experienced in Germany and Hungary in the 1920s or, more recently, in much of the developing world.

• Political failures are slightly worse, since these threaten the basic human motivation to work and produce. The state, for whatever reason, can decide to confiscate your assets or, worse, society’s means of production. Anyone who judges this unlikely should turn on CNN during any G-8 or WTO conference.

• Local military action. Probably the lowest-probability item on this list, but something to think about on other continents.

• The Big One: Some deranged prime minister or colonel in central Russia, Pyongyang, or South Asia could let loose the four horsemen upon the planet.

So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) Ignore for a minute the uncertainties of the less-developed world and think only about the winners: Germany—in this century alone, three episodes of military and/or economic disaster, the first two associated with mass starvation. Japan—wartime devastation even worse than Germany’s. England—near brushes with disaster in 1812-1814 and in both world wars. And even the United States—repeated banking failures, civil war, and the near-bankruptcy of the Treasury in the 19th century. The near collapse of the capitalist economy in the 1930s. And oh yes, I almost forgot—the entire globe barely missed mass incineration in October 1962.



History’s best-case scenario was the Roman Empire, which survived more or less intact for about seven centuries (if you ignore the odd sackings of the capital after 200 A.D.).



A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.

The impact of this on the retiree in withdrawal phase is considerable. A retiree who has settled on a 3% withdrawal rate as being safe and reasonable may be able to raise the withdrawal rate to as much as 4%. Then again, if he's concerned about sequence of return risks, 3% might still be prudent.

Therefore, we can reasonably conclude that by considering and integrating the risks of global calamities, that a 3-4% Safe Withdrawal Rate for an extended retirement is probably a good range to target.

 

[timo2]

Also this signifies an inability of the congress to be financially prudent in that the only reason the debt increases is because spending is more than revenue. During the government shutdown, federal employees were laid off for 2 weeks, but after a resolution occurred, all these employees were paid for 2 weeks of not doing anything. I admit it was a nice vacation for them, but this was a significant amount of money that is coming out of taxpayer dollars, and extending the time until retirement for everyone.

We also do have significant power to change the situation. There is no shortage of highly qualified candidates who run for office, but mediocre candidates are consistently elected, which is the fault of the American people who voted these candidates in. Also there is poor voter turnout at the local, state, and federal levels, and so today's mediocre candidates at the local level become the state mediocre candidates and finally reach the federal level in 20 yrs and ppl wonder how it happened. Third party candidates have historically gotten fewer than 1% of the national vote in presidential elections, and it is obvious that the democratic and republican candidates are not 40-50x as qualified.

You are going to pick on federal employees as the problem with the budget? Really?? Civilian federal salaries are about 7% of the federal budget. Do you have a political agenda here, I don't know if you do or not, just asking. Because there are many many more budget items that are bigger!

The poor voter turnout is from politicians saying how bad government is, and proving it, like the current 113th congress, known far and wide as the worst congress ever.

I hope this is enough to shut this thread down.

 

[M Paquette]

Folks, folks, folks... Oh, dear.