Baby Boomers Pension Report

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					The Baby Boomer Pension Crunch
And What to Do About It
by Istvan Horvath
your digital pension guide

Published by © DigitalPensionCom

This report contains excerpts and data from my ebook Digital Pension Blueprint, the ultimate guide to how to complement your pension, and it is primarily aimed at Baby Boomers. In case you are not part of this generation, you certainly know somebody who would be very interested in reading this unique analysis, so please, pass it on to as many boomers as you can.

The Baby Boomers
A Baby Boomer is a person born between 1946 and 1964 in Australia, the United Kingdom, Canada and the United States, although the phenomenon has been observed in other countries, too. The "baby boom" meant an unusual spike in the birth rates after the Second World War. Regardless of what they call it or how they define it in different countries, the commonly observed demographic event was that after the low birth rates during the Great Depression and WWII there was a sudden outburst of love and optimism in the future which resulted in more children than usual being born – that was the BOOM.

As of 2008 everybody between the ages of 44 and 62 can be considered a Baby Boomer, which means the first Baby Boomers will retire in 2011.

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Some characteristics of the Baby Boomers: this generation is significant due to its size. In the United States alone their number is over 76 million. They spend a lot of money: according to 2004 data, the UK baby boomers bought 80% of all the top of the range cars, 80% of cruises and 50% of skincare products.

On the other hand, Baby Boomers often experience high anxiety about aging and death, and live in denial of these realities of life, and as a generation, they have tended to avoid discussions about and planning for their demise, and have avoided much long term planning. Even for their retirement. Another less discussed common trait of this generation is that they had less children than their parents and grandparents…

Why does it matter how many children the Baby Boomers have?
Let's demonstrate this with a very simple example. Take one single couple, a husband and wife. To replace themselves, i.e. to make sure that the population will not die out when they pass away, they need to have at least two children. Actually, statistically, as a society, we need 2.1 children to survive as a species. (The 0.1 means that – unfortunately – some persons might die before they reach the age of procreation; accidents happens, etc.)

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Now, compare this to the fertility rate in Canada, where I live – 1.6. The fertility rate is, basically, the number of children that the average woman will have in her lifetime. You might have seen news reports about the "aging population"… this is what they are referring to. There are less young people than elderly ones. And the trend is just getting worse!

I know, nobody can have 1.6 children. It is a statistical number. Think of it like this: You have 2 kids, your brother has 1 kid. The two families have an average of 1.5, which is pretty close to the statistics.

Why is this important? Let's say you have 2 kids. Your neighbour on the right has none and your neighbour on the left has 1. Here we go: 6 parents with a total of 3 kids. Oh, we said your brother has 1. That makes 8 adults and 4 kids. But remember cousin Joe? He has none and has been married four times… none of his wives have children. Add 5 more future retirees: 13 – and only 4 kids. And your buddy Jim doesn't have children either. 14:4 is the ratio of individuals in your generation and your children's generation.

When all of you retire… those 4 kids will have to work harder and harder to secure your pension.

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Pension Systems
Now let's take a look at the pension systems around the world that were set up as a social security net to prevent the elderly from living an undignified life in poverty when they are not able to work anymore.

In most of the Western countries the social security type government or state run pension systems were set up when the population was growing and the active members outnumbered the pensioners. As the ratio above explained, in the past 3-4 active workers used to secure the pension of one single retired old person, in other words the ratio was 1:4.

This was possible because the population pyramid (see Fig.1) had a healthy, "Christmas tree"-like shape, as you can see below.

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F ig . 1. H ist o r i ca ll y, i n t h e p r e- m o d er n so c iet ie s , t h e p o p u l at i o n p yr am id w as o f "r ap id g ro w t h "; a slo w g ro w in g o r st ag n at in g p o p u l at io n w il l h av e a co l u m n a r sh ap e, w h il e t h e "n e g at iv e g ro w t h " e x em p lif i es e x ac t l y t h e p ro b l em s d i sc u s s ed i n t h is r ep o r t . T h e b a r s o n t h e l ef t at t h e b o t t o m o f t h e p yra m i d re p r e s en t t h e p ro p o rt io n o f t h e p o p u l at i o n t h a t is m al e, 0- 4 ye ar s o ld an d t h e b ar s o n t h e r ig h t s h o w t h e p ro p o rt io n o f t h e p o p u la t io n t h at is f em al e , 0- 4 ye a rs o ld . E ac h b a r ab o v e t h e b a se rep r e se n t s t h e n e xt f iv e- ye a r g ro u p in t h e p o p u l at i o n .

When the well-known pension systems were established (Social Security in the USA; the Canadian Pension Plan in Canada; National Insurance in the UK; the Gesetzliche Rentenversicherung in Germany) the ratio of active workers and retirees was 3:1 or 4:1. Meaning, 3 or 4 active employees' contributions paid for one person's pension.

These kinds of pension systems all operate on the same principle: pay as you go – meaning that the presently active members pay a portion of their income (e.g. 6.2% in the US, 4.95% in Canada, 20% in Germany – doubled by the same

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ratio paid by the employer) into the pension fund, and the pension administration pays out the pensions from it, right away. These contributions are usually so-called “withhold taxes”- they are withdrawn from your paycheck even before you get the cash in your hand.

Now, if the healthy ratio is disappearing because of the shrinking number of future active workers, societies basically have three choices:

1. increased retirement ages; 2. poorer pensioners; 3. bigger worker contributions.

So, would you like to work until you drop? Or do you want to live in poverty and on charity? Or, do you want to cripple the few active working generations to pay for your faults?

Of course, there is another option but we don't like to talk about it – we let the pension systems collapse. Which is exactly what will happen. If the amount of withhold taxes is not at least equal to the amount of pensions to be paid out next month… the system just goes bankrupt. Period.

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Retirement Planning – what you missed…
No matter whom you consult, government sources or financial gurus, they will all tell you that you should have a 3 legged retirement plan: • state/government pension • private pension plan • savings We’ve already talked about the first one. We know it will not work for you.

As for the private pension plans, in the active working era of your parents many big corporations set up private pension plans with what is called defined benefits: the workers know years ahead what the amount of their pension will be. When all the manufacturing and industrial production was done in Western countries, this was a very good solution. It was at that time that the simplistic advice for your career was devised: get a good job at a good company, work hard and you will end up with a nice pension.

It is a well-known fact that huge American companies like General Motors, Ford, and Bethlehem Steel started their own pension plans in the fifties and in the sixties when the "dependency ratio" was something like one pensioner to 1011 workers. The dependency ratio in a company works in a very similar way as the actives to pensioners ratio – just on a

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smaller scale. Which makes it even more dangerous because a company can go bankrupt. In 1962 GM had 464,000 U.S. employees and was paying benefits to 40,000 retirees and their spouses; that's a dependency ratio of one pensioner to 11.6 employees. On the other hand, in 2005 it had 141,000 workers and paid benefits to 453,000 retirees, for a dependency ratio of 3.2 pensioners to 1 employee. (Bethlehem Steel went bankrupt in 2001 with a record-setting dependency ratio of 7.5 pensioners for every worker.) So much for private pensions…

So, what about your savings? When you were young everybody advised you to start saving early and take advantage of the miracle of compound interest when investing. Perhaps you did and in that case you don't really need to worry, so just pass this on to your friends and family members. But before you stop reading, make sure that your investments worked well for you and will make you enough money to provide approx. 70-80% of your present day income till the end of your life, so that you are able to maintain your lifestyle. Despite these commonly known facts, household savings are now at an all time low; in most of the developed countries this is a negative number, which actually means we spend more than we earn.

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The rule of 72
If you didn't start a saving plan in your early years, you might be in trouble. Consider this example of twin sisters. One started to save and invested $100 every month from the age of 18. She did this until she turned 26 and then stopped adding new money to her account. The money was invested and working for her until the retirement age of 65. The other sister started to save the same monthly amount ($100) at the age of 26 and continued to do so until she retired at the same age of 65, investing it with the same rate of return (ROI). Do you want to take a guess who had more money at 65?

If you guessed the second sister… you were wrong! The first sister, probably knew something about the rule of 72. I doubt you’ve ever heard about it because I am sure your bank, your banker and your financial advisor have never mentioned it. It is a "magic" number that will tell you exactly how well your investments work.

More exactly, it works in two ways: 1. the rule of 72 will tell you how many years you need to double your invested money… or, 2. it tells you what interest rate you need to double your money in X number of years.

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For example, if your investments are earning 6% per year – you need 12 years (72:6=12) to double your money. In other words: if you inherited $100,000 at age 18 and you invested it with a rate of return (ROI) of 6% you will have four doubling periods until you retire at 66 – and you will have $400,000 to retire on (see: 18+12+12+12+12=66).

So, if you are fifty now, how many "doubling periods" do you have until you retire? If you think of two doubling periods, you need a ROI of 9.6%! This is how to calculate it: if you are 50 years old now and you would like to retire at 65, that's 15 years from now. If you plan to double your investments twice, it means one "doubling period" is 15 : 2=7.5 years. Now, 72 : 7.5 = 9.6. Your money has to earn contantly 9.6% interest all the way during the 15 years. Where can you get that? Also, did anybody ever sit down with you to calculate how much you will need when you retire?

By conservative estimates you will need 75-80% of your present income, unless you want to drastically reduce your lifestyle. And most of us plan to travel and have an active lifestyle… which means a lot of expenses.

To secure a comfortable old age you may need around $0.71.5 million to be able to buy an annuity or to constantly withdraw money from your savings in order to have a decent life. As a wise man told me once, people have only two major

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financial problems. They either die early and their family cannot replace the missing income, or they live too long and run out of money. If you are reading this, it means you were lucky enough to avoid the first problem. And according to the statistics you will live a long time. Very long. Just do a search for the life expectancy in your country. Certainly your life span will last longer than your money! Even if you don't acknowledge it…

W e d o n' t l i k e to t a l k a b o ut t hi s …

Personally, I don't like the doomsday scenarios and fearmongerers… During the Y2K hysteria I used to laugh at all those “end of the world” theories (or sometimes I just got angry). Nevertheless, when it comes to the pension of the baby boomers I cannot help but be pessimistic. Let me summarize the findings in this report:

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the government pension plans will collapse sooner or later because of insufficient funds and distorted demographics the one time generous private pension plans are going bankrupt before our eyes savings are at an all time low, in many countries even negative we will have to work longer, not by choice, but because of poverty we will be poor pensioners because we didn't plan ahead we are going to cripple the economies because the next generations earnings have to be used to sustain the increasing number of pensioners YOU have to do something about your own pension!

Act Now! Create Your Own Digital Pension If you are reading this, it’s very likely that you have a computer and you are connected to the Internet and being able to browse the World Wide Web (WWW). By the way, the WWW was also invented by a fellow Baby Boomer, Tim Berners-Lee, in 1989. Thus, making an effort to harness the power of the Internet and turning it from a leasuire activity into an income generating tool seems to be the next logical step you should take.

This report is based on data from my ebook entitled Digital Pension Blueprint where I show you a series of methods to make money online in your retirement years. If this report made you think about your retirement and you don’t like the idea of dieing poor in a shelter… you should hurry to grab

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your copy of The Digital Pension Blueprint here. Don't hesitate – act now to take your future into your own hands!

Let me finish this short report with two final notes:

1. I could go on and write long scary passages about the market meltdown, the uncertainty of your investments, the pending Great(er) Depression and so on… but you deserve that I keep this to the point and short. I want to treat you as a responsible adult what you are! And this report was born not because I saw an opportunity in this panic created by the burst of the housing bubble and its consequences. I started to work on it way before it happened because the looming pension disaster you just read about is not directly related to the present (October 2008) market volatility. It has been there before. However, the solution I offer in my Digital Pension Manual will work regardless of what happens to the markets. It will work because…

2. … (and this is my second final note) it will give you a blueprint to get you in the online marketing business, the e-commerce business, the internet sales business – whatever you want to call it: how to generate an income from home. Your own Digital Pension. The content list below is supposed to "hypnotize" you into buying my e-book, the Digital Pension Blueprint. But I

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won't insult your intelligence. You probably already know that this kind of lists are done to make you click the order button. I am only asking you the following questions (and please, be honest with yourself):

- Are you worried about your retirement income? - Are you ready to take action? - Do you want to learn how to start making money online? If you answered at least one YES, here is a summary list of what you will learn from the Digital Pension Blueprint:

Why you need a Digital Pension Why Internet Marketing? Your Digital Pension Plan – the three keys to success Key 1: Finding a Profitable Market • Avoiding the biggest single mistake • Finding a starving crowd • Choosing your niche Key 2: Selling the Right Product • Selling other people’s products as an affiliate • Creating your own products to sell

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• Developing a website for selling • Other ways to profit online Key 3: Promoting for Profit • Building your own customer list • 10 Ways to generating traffic and website visitors • Search Engine Optimization Your Action Plan for Success

Don't worry if some of the items sound like Greek to you. My Digital Pension Blueprint will take you step by step through the whole process and will help you to achieve your ultimate goal – to generate income online from home to supplement your pension.

Download your copy of

Digital Pension Blueprint
and discover a whole new world!

Istvan Horvath
Founder of the DigitalPensionCom

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Description: A short report describing the retirement crisis of the aging Baby Boomer generation.