While you may think these numbers are surprising, Paul Ballew, Nationwide Mutual’s senior VP of customer insights and analytics says that if we included the cost of health care and/or long term care in the Center’s Index, that number could jump up to as a whooping 70%.  Remember, never forget about retirement planning, your future is too important not to!  Use a trustworthy retirement calculator to ensure that you can not only retire on time but have enough money to last throughout retirement.

This Purpose Prize program is the nation’s only venture in assuring the continuation of social innovators who are in the second half of life.  Over its six years it has provided $17 million in prize money to the 60 year old+ groundbreakers from all over the United States.   The five  2009 $100,000 winners include:

• A 68 year old doctor and special education teacher couple who treat victims of terrorism around the world

• A 73 year old engineer who creates “green” bricks out of fly ash, the residue of coal-fired power plants

• A 61 year old telecommunication executive from Rutherford County, N.C. who delivered broadband to his home county and produced an online ordering system that allows local farmers to sell produce directly to Charlotte restaurants

• A 69 year old psychiatrist who recruit mental health professionals to provide counseling to military veterans, active-duty service men and women, and their families

• And last but not least a 66 year old computer executive who generated a nationwide substance abuse recovery program based on Native American beliefs and traditions.

To see the other winners of the Purpose Prize or to learn more about the program please visit encore.org.  NewRetirement wants to congratulate this year’s winners for their hard work, determination, creativity, and noble action in making the world a safer, cleaner, more productive, and better place.  They should serve as role models to us all.  Please provide us with  some other 60+ people you know who are seeking to tackle social problems facing their community, country, or world.

“It’s more than the total national debt for the first 200 years of the republic [cumulative], more than the economy of India, almost as much as Canada’s, and more than $4,700 for every person n the United States.”

And that’s just for one year!!!!!  Just watch what will happen during the next decade!!!!

At the federal level, we have amassed at least $55 trillion of national debt and unfunded obligations for Social Security and Medicare.  That’s $184,000 for every man, woman and child in the country.

This does not include international balance of payment deficits nor state, county and municipality debts nor unfunded future obligations.  It does not include company indebtedness that we pay for with reduced stock returns and higher product costs.  Nor does it include personal debts such as home mortgages, home equity loans, reverse mortgages, student loans, auto loans and credit card debts.  Whether it’s been greedy companies buying other companies, individuals on a consumerism binge, importing more than we export, government overspending or employers/government promising far more employee future benefits than they can pay, the debt obligations are horrific.

Now we see that the credit markets are in dire trouble, so the government is anticipating a $700 billion bailout after already paying about $300 billion to salvage Bear Sterns, Fannie Mae, Freddy Mac, AIG, Lehman Bros., Merrill Lynch, and Washington Mutual.  This is supposed to cover unsupportable home loans including ARMs and option ARMs which were destined to be disastrous from the beginning.

This is only the beginning.  The AIG $85 billion credit default swap infusion was a drop in the bucket compared with some estimate as $58 trillion of unregulated credit default swaps in the rest of the finance industry.  There are other derivatives that will start showing their ugly heads.  Consider Exchange Traded Notes, ETNs, the cousin of Exchange Traded Funds, ETFs.  These notes don’t even have to own the securities implied by their description.  Or how about the high-risk part of the tranches of Collateralized Debt Obligations held by many seeking higher returns?  Or those who bought factored loans?

It’s certain that pension trusts now are much below the amounts required to sustain future payments.  Furthermore, the pension trusts’ projections have depended on ever-hopeful forecasts of returns from future glorious stock market returns as well as bonds that won’t lose value.  Because of Accounting Board Standards, this means that states, government and industry are going to have to start pumping lots of cash into pension trusts—and many industries like the auto producers just aren’t going to be able to do this—and will come begging to the government.

Then there is the as-yet-unquantified number of people that will be added to the government payrolls to investigate and administer as-yet-undefined procedures.  All we can say for sure is that this can be more costly than the mandated Medicare overhead that outweighs the costs of the actual medical treatments and can take years to get payments to doctors.  Further, we know that the average person in government is compensated about 50% more than the average person in private industry, in part due to lavish government COLA pensions and extensive health insurance benefits.   So government will grow by leaps and bounds.   As those of us who spent a lot of time working in the defense industry know, surveillance cost are high both for the government and the companies that have to respond to the mandates, data and reviews imposed by the government.

Let’s just make the terribly oversimplifying assumption that the average person’s share of this country’s debt and unfunded obligations is $250,000 per person or $1 million for a family of four.   Considering all of the above, this is probably a huge understatement.  If we don’t do anything to retire any of the debt and obligations, and only pay interest at say only 4%, that’s an interest burden we bear a cost of $10,000 per person per year.  If, in addition to paying the interest, we set about to retire those debts and obligations in 30 years, we would each have to contribute $14,500 each year.   So a family of 4 would have to make annual payments of $40,000 each year just for interest or almost $58,000 a year if we don’t want to leave any of this problem to our grandchildren.

Some think that we can pay for this by relegating the payments to the top 5% of our population.  If that’s so, every family of 4 supported in that top 5% would have to pay $800,000 just for the interest and $1,160,000 to pay for interest and principal.  That’s PER YEAR for 30 years.  So even without any additions to social programs, there is no way that those who make under $250,000 a year will not see higher taxes.  This is a problem that is going to be solved ONLY if people start saving money and everyone pays something in higher taxes.

We are clearly talking about the end of the consuming generation of reckless spenders.  These include people at all levels that have their own image of being able to live like the Jones.  Low income people just can’t enjoy the benefits of higher income people, and higher income people just can’t afford to live like royalty.

The end of consumerism has a huge impact on the economy as we know it now.   When we become savers, we have to stop spending as much.  If we would start a full fledged recovery program right now with the objective of having individual finances get back to where savings rates were a little over two decades ago, and if we wanted to recover the lost savings during those two decades in the next 20 years, our national savings rate would have to exceed 20% per year–plus we’d still have to pay at least the interest on all of the debt we and our government have incurred.  Consumer spending constitutes 70% of our gross domestic product so that if we use 20% of our income to pay off the national obligations, our economy will contract sharply.

There has only been one time in our modern history when people had a national savings rate of 20% in this country.  That was during World War II when almost everything was rationed from gasoline to sugar, there were no new cars, store shelves were empty, all able people worked at a job, and it was patriotic for everyone to save war bonds—even school children.  There’s more on this in my book, Getting Started in a Financially Secure Retirement published by John Wiley & Sons, 2007.

The only people who may come out of this situation with some semblance of the American Dream are those who have already saved and those who will start saving and stop spending NOW!  That’s true if we don’t have something like the revolt against imperial Russia where real estate ownership disappeared, homes were shared by many families assigned by the government, and savings were taken away and consumed largely by the government.

Those that will save, and those who already have saved, will be asking, “Where shall we put our money?”  I certainly don’t see the financial market future any better than anyone else, so I can only tell you what I am doing.  I effectively divide my investments into three parts.  The first part assumes that I want to be able to live through the Great Depression II.  The second part assumes that it will take people a number of years to wake up to the problems, so this part is very conventional mix of stock and bond funds.  The third part assumes that we will have hyper inflation.  Only the Great Depression II and hyper inflation provide environments to solve the huge debt problem:  the former by defaulting on loans and the latter by so cheapening the value of the payments that debt payments are a small part of a huge income denominated in almost worthless money.

The largest part of my own investments is conventional, but the amount I have in the hyper inflation portion and Great Depression II are sufficient to get me by, especially if the conventional part ends up having some value and not wiped out entirely.  Those who would do similar splits would end up with the sizes of the three parts dependent on the extent of their savings, age, employment security, expectations for the future and probably lots of other factors.

Understand that I don’t pretend that I am wise about what to do in either of these extremes.  Still, my own choices for a hyperinflation scenario include candidates like leveraged real estate, stocks, I Bonds, TIPS and inflation-adjusted immediate annuities.  I have been thinking about this for years and so built up my supply of I Bonds when you could buy large amounts at interest rates of over 3% plus inflation.  I know that others more venturesome than I am would now add commodities as well as metals such as gold and platinum.  Very wealthy people often gain inflation protection by saving valuable art and rare collectibles.  Art and collectibles are beyond my financial capability, just as some of my choices are beyond the capability of other people.  For example, a young person probably doesn’t have the resources to buy an immediate annuity and should never buy one in the first place.

The Great Depression II portfolio is much more difficult.  My choices here would include money markets, CDs, EE Bonds, treasuries and debt-free real estate.  I know that my parents would add another category.  My parents were struggling young adults during the great depression and gave us children strong encouragement to learn at least one musical instrument so we could earn something even if we lost our regular jobs.  I played the piano, flute and trumpet—not knowing what I might need.  I learned something about diversification even then.

Perhaps the best protection during the Great Depression II outcome would be strong and varied work skills.  Even non working spouses and older children should learn some work skills that could bring income if necessary.  Think Rosie the riveter during World War II as opposed to soccer mom.  Learning to be frugal combined with doing as many home, car and clothes repairs yourself is important in a depression environment as could be supplementing your food supply with a home garden.  You might want to store some vegetable seeds for next year.

The nation’s debt problems are so large that the sky will fall on the majority.  I firmly believe that to survive, people will have to save—lots.  They will also have to invest it well.  We can’t tell which direction the economy will turn, but we know it has to make drastic changes.  Hence, in addition to having good work skills and savings lots, it’s important to be well diversified and include some things that might help in the Great Depression II or hyper inflation.

Of course, we could also have both Great Depression II combined with hyperinflation, sort of stag-flation cubed.  Don’t wait to start your own defensive actions.  Do them now!  The reductions in future benefits will be small if the economy would turn around quickly (which I doubt), but the benefits from taking action now will be huge otherwise.

How Much Money You Can Get for a Reverse Mortgage Will Increase and Qualifying for a Reverse Mortgage Will Get Easier with the FHA Modernization Bill

The FHA Modernization Act is designed to improve the Federal Housing Authority’s ability to help Americans obtain safe and affordable home loans and many see the Act as an answer to some of the woes of the subprime debacle. The Act is a bipartisan measure and has the support of the Bush Administration as well as both consumer and industry groups.

S. 2338, the Federal Housing Authority (FHA) Modernization Act, is good news for borrowers interested in a Reverse Mortgage. The Bill has been passed by the Senate by an overwhelming majority (93 to 1) and many hoped that it would be tacked onto the Economic Stimulus Package and be signed into law this week. However, it was not and is now waiting to be voted on by the House of Representatives. The House version of this Bill differs in many ways, but on HECM Reverse Mortgage issues, the House and Senate versions are identical.

The FHA Modernization Act Will Improve the Terms of Reverse Mortgages

The FHA Modernization Act will change the HECM program (HECM is the most popular type of Reverse Mortgage) in the following ways:

• Offer a Single National Loan Limit: Currently the actual amount you can qualify for with a HECM Reverse Mortgage varies depending on your county. The FHA Modernization Bill sets a single national limit of $417,000.. For most borrowers this means more money is available to them.

• Eliminate of the Authorization Cap: Currently only a set number of Reverse Mortgage loans may be granted. The FHA Modernization Act eliminates this limit, enabling the FHA to authorize as many loans as the market demands.

• HECM Could Be Used for Home Purchase: Currently Reverse Mortgage borrowers must reside in their home for at least one year before they can get a Reverse Mortgage on it. The FHA Modernization Act enables borrowers to actually purchase a home with a Reverse Mortgage — assuming an adequate down payment. This change makes a Reverse Mortgage an appealing loan for retirees who are downsizing and others.

• HECMs Could Be Used on Coops: Currently only single family homes are eligible.

• New Limits Would be Set on Reverse Mortgage Origination Fees: Fees would be limited to 1.5 percent of the maximum claim amount verses the current 2% percent of the maximum claim amount (or FHA lending limit in the county). More information on fees is available here:
  • New Fees:

  https://nrmlaonline.org/nrmla/publications/midMonthReport.aspx?article_id=578

  • Current Fee Structures:

  http://www.newretirement.com/Services/Reverse_Mortgage_Fees.aspx

As a whole, these changes should mean more money and better terms for seniors doing a Reverse Mortgage.

Learn More About FHA Modernization and Contact Congress Now

If you wish to see the FHA Modernization Act become law, consider contacting your Congressperson. You can locate them here: http://www.house.gov/

To learn more about The FHA Modernnization Act, visit here:

http://www.opencongress.org/bill/110-s2338/show