Time To Revise Victory Over Debt

I recently received my annual social security statement and I think it's time that I revised my book, "Victory Over Debt" (copies of which are still available for $30.00 - a shameless plug, but I need the money).

I've worked almost continuously since my 16th birthday paying into my social security savings account. According to my statement, if I were to retire at age 66, I would receive about $1388 per month; only $1040 per month if I begin collecting at age 62; and as much as $1837 per month if I'll wait until I'm 70 to retire.

Although the Social Security Administration promises I'll earn about $1388 per month in retirement, consider this: If every baby boomer, 75 million of us, were to be paid only $1,000 per month in social security benefits, that would equal $75 billion per month. This is equal to one Hurricane Katrina or the Iraq War - but it would occur every month!

According to common retirement planning guidelines, we need to invest enough money in extra-social security accounts to pay us the difference between what we're currently earning and what social security would pay. If I'm earning $30K per year on my job now, and my social security pays $16.6K, then my investments in 401K/IRAs need to produce the difference of $13.4K annually. For me at this point, I'd need to invest 80% of my salary to generate this much income. What most of us in the middle class don't realize is that the 401K program wasn't designed for people like us; it was designed for rich CEOs who needed a way to protect their income from taxes. If we earn less than $180K per year, our 401ks and IRAs and social security combined are going to allow us to live the lifestyle we imagined for our retirement.

To make matters worse, my social security statement informed me that by 2017, they would be paying out more in benefits than they collect in taxes. By 2041 the Social Security Trust Fund would be exhausted and benefits would have to be reduced by at least 25%. In other research I learned that currently Social Security is in debt $10 Trillion, and that Medicare is in debt $62 Trillion! People talk about our national debt being over $7 trillion - that number is dwarfed by our entitlement programs.

In 2004, two economists, Kent Smetters and Jagadeesh Gokhale estimated that our government's obligations in entitlement programs to Americans equalled $72 trillion. This is greater than all the stocks on the global market (equals $36 trillion), and all the bonds on the global market (equals $31 trillion).

Another depressing fact is that in 2006, our trade deficit was $243 billion dollars. That means that we consumed $243 billion more than we produced. Want more? Although America enjoys the highest standard of living in the world, it's only because we're the greatest debtor nation in the world. In 2004, 44% of our national Treasury debt was owed to foreigners. I thought America was in trouble because we were loaning money to everyone else - but that's not the case! We're not only exporting jobs, we're exporting debt. And to make matters even worse, our government can't fix the problems because debt is a global problem.

We've entered into a time where the middle class is shrinking in our country. In the past we've had a few rich people at the top, a few poor people at the bottom, and the majority of our citizens in the middle. This is a healthy economy, and it's shaped like a diamond. With the shrinking middle class, we now reseamble an hour-glass. The rich are getting richer, and the poor are getting poorer. The problem is not something that throwing money at poverty is going to fix, according to millionaire Robert Kiyosaki and billionaire Donald Trump. The problem as they see it is that we're financially illiterate. We've not been taught how money works.

Depending on where you fall on the economic scale, you've learned different messages. If you fall in the poor category, you've been taught to rely on the government and entitlement programs. If you're in the middle class, you've been taught to work hard, live below your means, invest in 401ks and other investments in order not to lose, and you'll be able to play golf all you want when you retire. But if you're in the rich class you've been taught one thing - invest to win.

Trickle down economics works to a degree, but rich people have gotten richer because they understand how to invest. The rich invest in assets - things of real and lasting value. When asset prices increase, it makes assets more expensive, thus out of the reach of the poor and middle class. Rich people don't tie most of their money to stocks or bonds because these are subject to more volatility than hard assets like gold or real estate. If we had invested $1,000 into savings 10 years ago, that savings would only be worth $500 now because of inflation. If we'd invested $1,000 into four ounces of gold, it would be worth $2,500 today.

Donald Trump has said, "We could ask the rich to pay for everything, but would it solve the problem?" The answer is "No." We could require the government to raise taxes to pay our debt and fund entitlement programs, but the government is too slow and unwilling to do more than print more money and shove the responsibility for our unmanageable system onto future generations; or we can do what Trump and Kiyosaki suggest, and that's to learn to become rich so that we can take advantage of the tax laws, and determine whether we're going to be counted among the rich or the poor. I'm opting for the rich.

So, it's time to pull up my files from Victory Over Debt, update the information there and see if I can't sell enough to get me out of debt:) And perhaps enough to invest to win. The alternative is not only depressing, it's stupid.