If youre a Baby Boomer and you want to retire today your number will drop to

If youre a baby boomer and you want to retire today

This preview shows page 43 - 47 out of 263 pages.

If you’re a Baby Boomer and you want to retire today, your number will drop to about $1.6 million, because $50,000 today is still $50,000. Inflation hasn’t yet taken its toll. Of course, you have to already have that $1.6 million and that could be a problem for some of you right now given the fact that the stock market just chopped your IRA and 401(k) in half. If you’re looking for retirement in ten years, inflation will have kicked in somewhat, but not horribly, so the Number is a nice middling $2.3 million. How close are you to that?
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The above chart shows what would happen if you accumulated $3.6 million in your 401(k) between now and 2029, at which point you retire, buy a 5 percent bond, and pay taxes on your withdrawals at a 25 percent overall rate. Assuming a 4 percent inflation rate, you can live the rest of your life on $50,000 a year in 2009 dollars. MAKING MONEY WHEN THE MARKET GOES CRAZY As I’m writing this, my prediction at the end of the summer in 2007, when I told people to get out of the market, is ringing true: By March 2009 the Dow Jones stock market index melted down from 14,500 to below 6,600—a loss of over 50 percent from the high of October 2007. I told my readers to get back in at 6,600 and, as I’m writing this, the market rebounded to 9,500, where it was in 1998 when Bill Clinton was president and just beginning to tell Fannie Mae to push banks to make subprime loans. That means your retirement account has pretty much gone nowhere or worse for eleven years. That’s not good news, because in order to get back up to that average of 8 percent a year starting in 1998 and going forward, the market would have to take off like a rocket. For example, after eleven years of zero return, from 1998 to 2009, in
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order for the market to average 8 percent a year for twenty years (from 1998 to 2018), we’re going to have to see the market go up for the next nine years at an average of 19 percent per year starting in October 2009. That would put the Dow Jones Industrial Average (DJIA) at 45,000 in nine years. Of course, in late 2009 the market is still being hampered by the collapse of a significant part of our financial system, so a sudden bull market that rockets off to 45,000 in the next nine years is probably not in the cards. In fact, it’s so not in the cards it’s almost impossible to imagine. Much more likely is a continuation of the last ten years with the market moving up for a while on some good news and then crunching back to earth on some bad news as we work out the wars and financial problems caused by overspending. The Bulls and the Bears If we define a “bear market” as a market that has not yet reached the previous “bull market” high point, we get a very interesting pattern of bull/bear markets. The bear markets are all in dark gray. The bull markets are light gray. Sometimes we might not know we’re in a long bear market until we can look back on it. But sometimes it’s pretty obvious. Like right now. The bear market that started in October 2007 as the Dow came off the peak
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price of 14,500 follows the longest bull market in history. We partied hard. And now we’re going to pay the price.
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