Dreaming of retirement?

Saturday, 18 September 2021 — Albert Park

[3 min read]

Here’s a question for you…how much money do you think you’ll need to retire comfortably?

What’s the sum that will allow you to enjoy your golden years without having to worry about money? What’s the magic number you think should do it?

Is it $450,000…

…a million…

…$2.3 million…

…or will it take a miracle to retire?

This was one of the questions that investment banking company Natixis asked in their 2021 Natixis Global Retirement Index Survey.

To participate, people had to have at least US$100,000 in investable assets. And, on average, these investors had saved around 16.6% of their annual income for retirement.

A whopping 40% of investors clicked the last answer. A miracle. When it comes to age, the younger you were, the less hope you had. 30% of baby boomers, 45% of Gen X, and 46% of millennials picked the last answer.

What’s more, 59% said they had already accepted the fact that they would have to work longer than what they had anticipated to retire.

‘What shocks me is that these are the people doing pretty much all the right things and even that isn’t enough to feel secure’, said David Goodsell from Natixis Center for Investor Insight.

What are their worries? High public debt and high government spending to recover from the pandemic, low-for-long interest rates, and the big one — inflation.

All very valid concerns.

Inflation in particular acts as a tax on your money.

For me, it really puts it into perspective when you measure the effects of inflation in a measure other than fiat currency.

Sort of like that movie In Time, where instead of using the US dollar as a currency, they use time. Everyone in the movie walks around with a timer inserted in their arm that tells them exactly how much time they have left to live, which is also how much ‘money’ they have. Whenever they work, they clock up time. Whenever they spend, they lose time.

Hearing that your bus fare has suddenly spiked from one to two hours of your life is certainly more painful than hearing the fare has increased from $1 to $2.

We’ve seen inflation in asset prices in the last couple of decades. For example, in 1970, the median household had to work about 4.5 years to buy an average house in Sydney. By 2020, they had to work almost triple (12.2) years to buy the same house, with much of the spike happening between 2000 and 2010.

For the last few years, inflation has been flooding into assets while salaries have stayed put. But things have become even more uncertain since the pandemic, and we’re starting to see inflation flowing into the real economy.

We’ve recently seen increases in beef prices, shipping rates, cars, and materials like timber. This week, we saw prices for aluminium hit US$3,000 a tonne for the first time in 13 years. It’s now up 47% since the beginning of the year.

And producers are already starting to pass on those costs to consumers, that is, prices are starting to hit our pockets.

It’s even more concerning when interest rates remain lower than the inflation rate. My savings rate, for example, pays me about 1.3%. Which is way lower than the current inflation rate of 3.8%. I’m losing money every month.

If working and saving won’t get you to retirement, it’s no surprise that people are flocking into speculative assets and things like Bitcoin [BTC]. While bitcoin is VERY volatile, it’s still up 62% for the year.

Central banks are hoping this is all transitory.

We did see a spike of inflation in 2008 when there was also a lot of stimulus from central banks. Dialling down stimulus now could be disastrous because, well, most of the wealth is now concentrated in property and the stock market.

But in my mind, this isn’t transitory.

There are several trends at play here. On one hand, you have robotisation and automation, and you have high public debt. These are all deflationary.

On the other hand, you have central banks flooding the economy with money, in even more quantities than in 2008, which is inflationary…with even more stimulus to come.

At the same time, you also have a reversal of globalisation. This week, we saw another step in that direction with the AUKUS alliance, which also places another strain on our relationship with China. All this is inflationary.

So much for transitory…

The best thing to do here is to look at real assets, to invest in real things.

Best,

Selva Freigedo,
For The Rum Rebellion