American senior richer than ever, and luckier than ever

Interesting op-ed about how seniors are better off than ever financially in today’s WSJ: “Older Americans Are Better Off Than Ever.”

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Part of the reason is the introduction of IRAs in 1974 and 401(k)s in 1978. The more recent opt in change in those is also good.

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But I hasten to add that those are basically stock market index funds. In 1929 to 1932, the stock market fell 90%. So it is a disaster in deflation (depression). Houses also fell 90%.

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Saving is important. Those programs greatly encouraged people to save. Good thing.

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Social security benefits are much better even after inflation. I oppose social security. IRAs and 401(k) are essentially the same as social security except that the government was supposed to invest the contributions of the workers—a.k.a. savings—but Al Gore’s “lockbox” was non-existent. With the IRAs and 401(k)s, there actually was a lock box. They left the ownership of the savings in the hands of the savers but made it hard to with draw before seniorhood, and that also made it inheritable. Social security is a straight annuity. It cannot be inherited like IRAs and 401(k)s. Annuities are the worst thing to own in high inflation. IRAs and 401(k)s are generally not invested in annuities.

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I would have thought that home equity was a big part of current seniors wealth. They did not mention it. That does not mean it’s not true. Every Baby Boomer senior I know is affluent. and home equity is part of why.

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Medicare is part of it. It is simply more free money. Social security is free money in that the average recipient receives three times the amount they contributed. That two-thirds was stolen from their grandchildren. Ditto in the free health care.

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Another factor was that our generation worked more years than earlier generations. That is also good.

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As I said, back testing tax-exempt pension accounts and homes reveals that they lost 90% at the beginning of the Great Depression. Lesson, you need to be more widely diversified than just stocks and bonds and a home.

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The Great Depression was deflation caused by not printing enough money. At present, we are a million miles from that error. Printing too much money creates inflation. That seems to be more the current danger.

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To HEDGE against inflation, buy a home, a diversified portfolio of well-managed foreign currencies, bullion coins (gold ones must be held outside the US), inventory of raw materials and/or finished goods if you have a goods-producing business.

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To PROFIT from inflation, buy a home and get a mortgage on it.

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In other words, Current seniors did well to respond to the tax-exempt pension accounts, buy a home, and work more years. The rest of it was LUCK: Congress buying votes with overly generous social security, disability, and medical care. Americans need to work, save, and hold a more diversified portfolio of assets than just a home and index fund.

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Owning bonds is financial suicide and even more so for seniors. Bonds made sense in the early 20th century when the Debt/GDP ratio was 17% and many corporations were AAA. Now, only two are and that only relates to default. Owning even those two bonds—Johnson & Johnson and Microsoft—is suicidal in inflation.

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So is excess liquidity. You need enough cash to pay your routine bills, e.g., mortgage, and your rainy day expenses, e.g., new central air condenser. More than that is financially suicidal in inflation.

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My impression is that most seniors today are insanely owning way too many bonds (any is too many) and savings, checking accounts, CDs. Refusing to stop playing with fire until they get burned—and they may get “burned alive” if they have a lot of their net worth in that dollar-denominated stuff.

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Another thing that is good in inflation, albeit I would not know how to arrange it, is to be working in a job that involves exporting or other international sources of income like incoming tourism, foreign embassies or consulate or foreign companies with operations in the U.S.