Friday, August 12, 2005

Get Real: (On) Social Security and the Housing Bubble

The Social Security debacle continues.

Now, the SSA is considering privatizing and loading your retirement accounts with insured CDS.

Insured CDS?

C'mon, get real -- no one can retire with such a low yield investment.

Banks issue CDs and banks are for wimps -- they don't protect against inflation.

Or taxes.

CDs provide a high level of liquidity, but you're taxed on interest gained even when you aren't withdrawing any money.

The crux of the issue is that Americans currently find saving anathema.

Here's why.

The Housing Boom, plain and simple.

Rock bottom interest rates, along with an aging Baby Boomer generation looking for 2nd homes, has sent real estate prices to the moon.

Did you know that nearly half of all home purchases are for second & vacation homes?

"My home is returning me 30% -- what do I need the stock market for? " is what you'll find most people saying nowadays.

Well, guess what happens when they sell?

That's right -- they have to move into an equally expensive piece of property.

Nevertheless, Americans are overlooking this reality and thus dangerously keeping our national savings rate at a pitiful 0%.

If every American had the discipline or wherewithal to max their yearly IRA contributions, we wouldn't have this problem.

The only people who will retire "comfortably" are those who are proactive enough to supplement their pension, 401K and real estate holdings with mutual funds, IRAs, and annuities.

The future of Social Security and the pension system is anything but secure.

And transforming your home into an ATM machine is not the answer.

With the mortgage rate gradually climbing and the Fed aggressively bumping up short term rates well into 2006, I'd be worried.

It goes without saying, higher rates make financing new home purchases tougher.

So look at the third leg of the 3 legged stool of retirement (SSA, Pension, & Savings) closely.

It may be your last hope.

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