80 is the new 65: The Fairytale of Retirement

Have you heard? A new survey came out that shows 25% of middle class Americans say they plan to delay retirement until at least 80. Given the average lifespan of a human is 78 years, that’s basically saying a good chunk of Americans are sure they are going to have work every day until they die.

The Wells Fargo retirement survey also shows that on average, Americans have only saved 7% of the retirement money they hoped to put aside. Yikes. One-third of those surveyed in their 60s had saved less than $25k for retirement.

Of course the study is by Wells Fargo, a bank, designed to scare you into investing your money (with them) so you’ll have enough saved for retirement. But the facts are striking — with the disappearing middle class and lack of salaries keeping up with inflation, it’s tough for most Americans to imagine a real retirement for many years to come.

I’m hoping to not be a statistic, but everyday I watch my stock portfolio lose a few hundred here, a few thousand there. I’ve pulled out of most of my “risky” stocks and set myself up for a long-term, value investing course with a little diversified risk in ETF form, focused on MCD, SBUX, IHI, JNJ, AAPL, CVX and XLF, with high-dividend ETFs and commodities in my IRA for tax benefits (such as GLD, SLV, and SPY). Still, one has to wonder if the economy will ever return to its former growth levels. The government and big banks (same difference) wants you to believe they will, with all the propaganda about long-term investing and growth to ensure they remain in control, but it’s not really clear if there will be a time when the world has just changes so fundamentally that the growth of the past is no more.

In order to keep pace with inflation your portfolio, on average, has to eek out a 3.43% gain each year. That’s to break even. In theory, you’re supposed to earn interest on top of that to grow your networth. 5%-10% average growth on your portfolio is great.

As of today, the annualized return of the S&P 500 Index (and its predecessor index) is about 9.26%, the 5-year annualized return is about -2.92%, the 10-year annualized return is about -1.75%, and 15-year annualized return is about 6.19%, the 20-year annualized return is about 8.22%, and the 25-year annualized return is about 9.61%. The current 5-year annualized return of -2.92% is the worst it has been since 1941, during World War II, when the annualized 5-year return was about -7.51%. The current 10-year annualized return of about -1.75% is the worst it has ever been based on the data I have back through 1926.

While it’s surely sexier to invest in individual stocks, it’s probably best to just throw in the towel and invest in the general markets. That said, is judging the time between 1926 and 2011 really long enough to say that things can’t change? That’s not even 100 years of data. Our markets are built for growth (capitalism can’t work without constant, infinite growth of business) but can all businesses continue to grow when the majority of people living in the country don’t have money to spend, and aren’t being paid wages that keep up with inflation?

Perhaps this will all sort itself out in the long term, but I certainly don’t trust so blindly to believe what happened from 1926 to 2011 will be able to continue on as if the world hasn’t changed.