Book: The Coming Generational Storm
The Coming Generational Storm:
What You Need to Know about America's Economic Future
This book deals with the very sticky subjects of Social Security, Medicare, and Medicaid as cast against the backdrop of America and the financial burden on future generations. Some will scream in pain with that introduction. However, the book is very much worth the read not only for its detailed description of the problems, but also providing the rare service of suggesting solutions. The writers also go as far as explaining how the solutions can really work if we are willing to make small changes now instead of waiting for the pain of an unchanged future.
As mentioned, the first half of the book details the current Social Security, Medicare, and Medicaid systems. The systems are explained in detail along with the fact that they are all based on paying benefits today from funds collected tomorrow. By definition, these plans are bankrupt and only going deeper in debt each day. This debt is not isolated to the programs as the debt is tied to the financial stability of the United States. Each day, these social welfare programs drive the United States closer and closer to financial collapse.
The second half of the book provides suggested solutions for overhauling each system using a combination of solutions already suggested, so no new 'magic bullet' here. This includes the privatization of Social Security, the implementation of a national sales tax, and so much more. One truly needs to read this book in order to understand the solutions presented.
There are some points which I would like to emphasize:
First, it is frequently suggested that any plans to save or restructure the US economy will involve increasing taxes. This means that the workers of today will retire to a future that holds higher taxes. Considering the current migration to tax deferred plans - such as 401Ks - you see that we have traded today's taxation for tomorrow's taxation. The sales pitch is that most will earn less when they retire and therefore be in a lower tax bracket. That is a lofty assumption. As a counter, it is suggested that a person purchases inflation-protected assets, such as TIPS, in a tax free account such as a Roth IRA. This would allow you to hedge both inflation and increasing taxes.
Second, the book discussed various asset classes. Not stocks, bonds, cash, etc. Instead, they discuss financial assets (401Ks, Roth IRAs, etc), household assets (housing, appliances, etc), and personal assets (health, education, etc). The first class of assets, financial assets, you have already heard much about.
The second class, household assets, you have only heard part of the story. We all know about investing in real estate. The writers state that the true value of a house goes beyond its direct financial value. This value includes its ability to provide shelter and house services related to survival. An easy example of this is that most homeowner possess a washer and dryer because these household investments are cheaper than the alternative - going to a laundromat. The same philosophy holds partially true for vehicles - most people need to make the investment in order to go to work to earn. In the long term, a house will lead to a decrease in living expenses, and therefore, a decrease in the amount of income needed to survive.
The third category is often overlooked until the end - personal assets. We routinely hear about the greater earning potential of those who possess advanced degrees. It is generally accepted that higher education is key to financial success. On the other hand, we frequently overlook the value of our health until we have lost it. Indeed, most of the costs in retirement come from the high medical expenses made in an attempt to keep us alive. Some of the greatest expenses in this area often come in the final days of our lives.
The final section of this book focuses on some investment strategies that should assist one trying to sail safely through the coming financial storm. Here are some categories and examples:
Core fixed income - inflation-protected securities
- I Series savings bonds
Internation bond fund and foreign certificates of deposit
- T. Rowe Price International Bond Fund (RPIBX)
- American Century International Bond (BEGBX)
Precious metals funds
- Fidelty Select Gold (FSAGX)
- American Century Global Gold (BGEIX)
- Vanguard Precious Metals (VGPMX)
Energy funds
- Index-specific energy funds
- Vanguard Energy Index fund
International equity funds - focus on China
- Vanguard Total International Stock Fund (VGTSX)
These examples were meant to be that - examples, a place to start your research. I highly recommend this book. While it can be a difficult read for those who do not love lively financial discussions, I do believe people need to read this book in order to understand the true scale of the problems ahead - AND what we can AND MUST do now.
What You Need to Know about America's Economic Future
This book deals with the very sticky subjects of Social Security, Medicare, and Medicaid as cast against the backdrop of America and the financial burden on future generations. Some will scream in pain with that introduction. However, the book is very much worth the read not only for its detailed description of the problems, but also providing the rare service of suggesting solutions. The writers also go as far as explaining how the solutions can really work if we are willing to make small changes now instead of waiting for the pain of an unchanged future.
As mentioned, the first half of the book details the current Social Security, Medicare, and Medicaid systems. The systems are explained in detail along with the fact that they are all based on paying benefits today from funds collected tomorrow. By definition, these plans are bankrupt and only going deeper in debt each day. This debt is not isolated to the programs as the debt is tied to the financial stability of the United States. Each day, these social welfare programs drive the United States closer and closer to financial collapse.
The second half of the book provides suggested solutions for overhauling each system using a combination of solutions already suggested, so no new 'magic bullet' here. This includes the privatization of Social Security, the implementation of a national sales tax, and so much more. One truly needs to read this book in order to understand the solutions presented.
There are some points which I would like to emphasize:
First, it is frequently suggested that any plans to save or restructure the US economy will involve increasing taxes. This means that the workers of today will retire to a future that holds higher taxes. Considering the current migration to tax deferred plans - such as 401Ks - you see that we have traded today's taxation for tomorrow's taxation. The sales pitch is that most will earn less when they retire and therefore be in a lower tax bracket. That is a lofty assumption. As a counter, it is suggested that a person purchases inflation-protected assets, such as TIPS, in a tax free account such as a Roth IRA. This would allow you to hedge both inflation and increasing taxes.
Second, the book discussed various asset classes. Not stocks, bonds, cash, etc. Instead, they discuss financial assets (401Ks, Roth IRAs, etc), household assets (housing, appliances, etc), and personal assets (health, education, etc). The first class of assets, financial assets, you have already heard much about.
The second class, household assets, you have only heard part of the story. We all know about investing in real estate. The writers state that the true value of a house goes beyond its direct financial value. This value includes its ability to provide shelter and house services related to survival. An easy example of this is that most homeowner possess a washer and dryer because these household investments are cheaper than the alternative - going to a laundromat. The same philosophy holds partially true for vehicles - most people need to make the investment in order to go to work to earn. In the long term, a house will lead to a decrease in living expenses, and therefore, a decrease in the amount of income needed to survive.
The third category is often overlooked until the end - personal assets. We routinely hear about the greater earning potential of those who possess advanced degrees. It is generally accepted that higher education is key to financial success. On the other hand, we frequently overlook the value of our health until we have lost it. Indeed, most of the costs in retirement come from the high medical expenses made in an attempt to keep us alive. Some of the greatest expenses in this area often come in the final days of our lives.
The final section of this book focuses on some investment strategies that should assist one trying to sail safely through the coming financial storm. Here are some categories and examples:
Core fixed income - inflation-protected securities
- I Series savings bonds
Internation bond fund and foreign certificates of deposit
- T. Rowe Price International Bond Fund (RPIBX)
- American Century International Bond (BEGBX)
Precious metals funds
- Fidelty Select Gold (FSAGX)
- American Century Global Gold (BGEIX)
- Vanguard Precious Metals (VGPMX)
Energy funds
- Index-specific energy funds
- Vanguard Energy Index fund
International equity funds - focus on China
- Vanguard Total International Stock Fund (VGTSX)
These examples were meant to be that - examples, a place to start your research. I highly recommend this book. While it can be a difficult read for those who do not love lively financial discussions, I do believe people need to read this book in order to understand the true scale of the problems ahead - AND what we can AND MUST do now.
posted by Nate at 1:57 AM
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