Ticking Off Tomorrow's Grannies

Where did we leave off yesterday? Ah, right. The government’s got savers by las pelotas.

“The Spanish word in that context is cojones, not pelotas,” two sabelotodos emailed us. Oy… both word choices work, confirmed with confidence, by my fiancee. She’s a native Colombian and knows her way around Spanish slang.

In any case, you get the point. The consumer price index for June was released this morning. It increased by 0 .5% in June. That puts year-over-year inflation at 1.8%.

Energy prices lurched 3.4%. Gasoline pounced 6.3 percent. Both along with food aren’t counted in what’s called the Core CPI. Economists want an accurate picture of the price level. Food and energy prices move around a lot, so they’re thrown out. Because someone living without buying food or gas paints an accurate picture, right?

John Williams at shadowstats.com puts year-over-year inflation at 9.38%, up from 8.99%.If you’re a saver, you’ve had another salvo fired at you: 0.39% of your purchasing power — poof. For every $1,000 you spent one year ago, you’ll need $93.80 extra to buy the same thing today. Don’t like it? Too bad.

What’s the little guy to do? He’s on the sidelines, not in the stock market. And he’s getting pummeled. It’s ironic. Typically, seniors are off-limits in Washington. It’s just good politics. But today’s saver is tomorrow’s sweet old grandmother. And there are a whole lot of ticked-off grannies in the future.

People may be able to get by today with high debt and falling purchasing power. But there’s a savings gap of $14 trillion. That’s the extra cash American savers would need to have the current standard of retirement living. The National Institute on Retirement Security writes that the gap shrinks to $6.8 trillion when looking at savers’ net worth.

Aggregate savings gap among working households that do not meet retirement savings targets for their age

Most of savers’ net worth is home equity, which, we’ve seen can be fleeting. Stuff happens too. CNN Money includes stock market setbacks and adult children living at home longer than expected. That’s on top of lower returns from interest rates, the loss of job, the cost of a kid’s college or caring for an elder family member. God forbid you have an unexpected medical expense.

Those surprises have set people back by an average of $117,000. That’s people near retirement age. One-third of those near retirement have nothing saved, and another third have less than one year’s income saved. And it doesn’t seem like college is getting cheaper, jobs are cropping up or interest rates will actually be allowed to rise.

That’s scary when you see that 45% of current working households have no retirement account assets. How does that play out? Our guess is not well.


Peter Coyne
for The Daily Reckoning

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