Herrington: Affording to Retire

Chris Herrington, Contributing Writer

     Gillian Tett, US managing editor and an assistant editor of the Financial Times, seems to think that our worries in America are both financial and sociological; that is, the equations are important but not to be simplistically separated from the human element of the need for people to have faith in the system. In fact, there seems to be a terrific amount of capital that has become bound up in the system, what with rebates, tax loop holes, bail outs, mass firings, subsidies, automation, corporate buys outs, privatizing while going public, VC investing, lowering payouts, tightening belts, and shrinking foot prints if not off shoring those headquarters altogether.

     If we look at corporate profit sharing, high end CEO salary explosions, corporate lawyering adventures, the attack on the ease with which the common man can bring a law suit against a corporation, and the need to see corporations as people too, we could see an advancement in abstraction and mobility within the upper class and of the class itself as a signal that the party is just getting started. At a certain point, it will no longer pay to actually have a corporation at all. If investors, those who used to work for corporations and have now become venture capitalists, are to succeed in their program, then they must lower costs below the cost of employment. Raw materials must be turned directly into goods that will sell, and the cost must be less than 45%, that is we must be investing at a return rate of 120% or better.

     The common guy is making 1.8% to 4% on his common investments. Let’s look at that rate by comparison. I’ll go and look at a calculator on-line. If I saw this as inflation, then a $10,000 cost in 1970 would be a $55,513.40 cost in 2010, over 40 years, there was a 455% inflation rise in cost. If that money had been put in the stock market, which went from just below $900 to above $10,000….we can see that the wealth for some investors grew on average over 1000%., or over double what the common guy made, so that inflation was flat for wages or lowered slightly.

     But, at these newly improved rates, the value of such an investment would become $20,480,000. That is at today’s rates, the common guy will invest $10,000 and be happy to make it grow into $55,000, and the uncommon guy, investing as an upper scale elite investor, would not be pleased with less than over 20 million dollars over the same 40 years. Now, perhaps this is pie-in-the-eye in that the elite investor is really dreaming big. Meanwhile, the common investor believes that he is really playing it safe. These are totally different mind sets. The guy on the bottom end is not thinking in such large amounts, and he has a poverty mindset. The guy who thinks he is going to make a mint has a wealthy mindset. The common guy is totally blown away by a $1000 loss. The guy on top, to make a comparable loss, would have to be hit by a $368,920 loss. This is a huge difference.

     Those who are hooked into the “I am a big investor” mentality, are thinking way outside the common investor’s box. The common investor is thinking so small by comparison, that he is presently failing to even begin to catch up. What can we say for this guy that will wake him up? Nothing! And what can we do to help the heavy duty industrial investor understand the common guy? Nothing! These two mindsets are only intersectable at a point of compassion for each other.

     The common guy sees the big investor as being dominated by his greed, and the big investor sees the common guy as being dominated by his ignorance of just how volatile and demanding the economy is. Both think the other guy is blind.

     The real issue is that as people become more and more wealthy, they can and are out-buying the poor. Prices have been rising at a steady pace, but as the rich become wealthier, ycan afford to accumulate more, and what there is to accumulate in terms of land and resources is shrinking, and the common guy will get out-bid, period. It is inevitable that the rich will own more and more of everything there is. The average income for families in the top 1% is almost $2,000,000, for the top 20% it’s $250,000. These numbers are staggering. These are the averages for these ranges. The elite on average make more in one year than the majority of Americans will make in a lifetime.

     Now, that should be some incentive for that vast majority to get up off the couch and get to work, right? If I had made 40 times as much as a public school teacher my last year, I would have made $2,168,000, over 1302 hours of work that would have meant that I had made $1,665 an hour.

     Now, it is easy for me to complain about the job I do in terms of my demanding a higher salary, but I only met the needs of about 120 kids. Baseball players see seating of 70,000 per game for 120 games, plus air time on TV. I didn’t do that. Good profession, but not insightful if I were trying to build cash flow.

     It will, by my calculations, require about $10,000 to $15,000 a month to run the average house hold in America in the next 40 years. That’s not a wild guess. With ongoing savings, that is about, on average, $108,000 per year. That means that I will need $4,320,000 to make it through this life right now. I have, right now, depending on what day of the stockmarket, about 25% of that. I will eventually go broke if I do not learn how to become a hybrid investor. At this rate, I will need an additional $3,000 a month to grow at 5%. Above what I make right now in retirement, and getting a rate that does not exist, I will have to put away an additional check the size of my retirement check in order to keep from going broke later. This is one big reason why I retired, to work fulltime on learning how to do just that.

     If you do not yet feel the need to get in gear about this, find YouTube videos about and by Gillian Tett. She will straighten the complacency right out of you.


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