Raising the retirement age is just a bad idea, regardless of how ill-prepared we are on the whole for the financial stresses of retirement
Look, to start, I'm already biased on this issue. Not that I've been objective ever before, but for some reason this time I feel compelled to make full disclosure.
I'm 58 and have worked about 10 days a year for the past four years. Instead of holding gainful employment and perhaps squeezing somewhat else out of a job, I've been following my own trading strategy recommendations that I offer as a gesture to save this nation from civil strife. My "sugar momma" doesn't like it when I refer to myself as being "semi-retired." I just enjoy moving the border closer and closer to my current age. Mentally, I retired about 30 years ago, but in some form of transfigurative migration, I had left my soul behind as I dutifully trudged off to workplaces past.
The big story for much of the year has been related to the European continent and especially toward the perceived need for austerity. Greece, Italy, France and Spain have all been struggling with social issues, including the question of raising their respective retirement ages.
Athens, the very cradle of democracy, a nation that arguably, per capita, has contributed more to mankind throughout civilization's history, is sadly in great turmoil. Or as they say in Greece, "deep feta," but with an indecipherable ancient alphabet.
The economic and financial engines in Greece are a mess, but certainly not the only mess in the world. Protesters tossing Molotov cocktails, police firing tear gas, all while in the shadow of the great wonders of the world, are sad. In some other places those events may pass for national reconciliation day activities, but in the civilized world, the world where Charlie Munger of Berkshire Hathaway notes that people don't invest in gold, people take notice.
The idea of significantly raising taxes, dropping social and government services and increasing the retirement age is a hard one to swallow, especially if, as a citizen, you blame external forces for your economic crisis. You might do so, as that is often the strategy that embattled politicians use in order to deflect attention to their own shortcomings.
Luckily Goldman Sachs (NYSE:GS) has broad shoulders, because it really needs them these days, since it has gone from being called "the brightest in the room" to being reviled for every financial malady of the past five years. How grateful Lloyd Blankfein must be to have some of the heat removed this week (May 18, 2012) with JPMorgan Chase (NYSE:JPM) taking some of the heat.
I really don't have the motivation to look up the details, but Greek citizens can retire far younger than can the typical American. And although many conservative pseudo-economists distort the American story and claim that 50% of U.S. citizens pay no income taxes, the situation in Greece is pretty enticing when it comes to being able to avoid tax payments in their entirety. All it really takes in Greece is the ability to lie. At least in the United States there is the dual requirement of being able to lie and getting away with the lie. That latter requirement is far from a given.
I do understand the need to raise revenues and decrease services, as a general strategy during difficult times. Unfortunately, it would take well-intentioned elected officials to feel and, more importantly, act the same way in Washington. We're not fooling anybody if we think that's going to happen in our lifetime. Well, at least in my lifetime.
But the retirement thing, that does bother me, but not for personal reasons, as my die has already been cast. My concern is for the very fabric of our society. I actually have not been effected by the gradual increase in our own social security age eligibility, although my sugar momma is affected. Besides the fact that I don't really want to work, there are some very pragmatic reasons why increasing the U.S. retirement age may not be the way to go, at least not with the direction that the economy has been headed these past few years and the very slowly mounting evidence of any meaningful recovery.
Unless you've been hiding away someplace for the past 20 years, certain jobs are disappearing from the United States. The jobs and industries that were created to replace those missing sectors of our economy are now disappearing, as well. I'm also now old enough to remember when unions were decried and criticized for acting like Chicken Little when suggesting that technology and automation would replace humans in the equation.
"Nonsense," was the polite response to that uncanny ability to see into the future of the American workplace.
Have you seen the unemployment rate lately? Everyone seems to agree that number is understated due to the people that have simply given up even looking for employment. It's hard to believe that anyone would actually give up on the search unless they were already within sight of retirement.
On a positive note, Zynga (ZYNG), the creator of Facebook's (NASDAQ:FB) wildly popular Farmville, announced its IPO a few short months ago with a suggested valuation of $15-$20 billion. Morgan Stanley was the lead underwriter, but I think Goldman Sachs would have been more up to the task as it has been quite good at downgrading its own IPO offerings shortly after the IPO. Based on its recent stock performance, Goldman could also be the leading supplier of organic fertilizer to Farmville Nation.
Fascinating, but with the exception of corn and marijuana, Zynga may turn out to be worth more than the value of any other U.S. cash crop based on 2005 data, despite it trading 30% below its IPO price. The hope that Farmville would create virtual farming employment and single-handedly save the American family PC farm may be now called into question.
However, given the performance of today's (May 18, 2012) Facebook IPO and the halt in trading of Zynga, neither Goldman Sachs nor Morgan Stanley should get near anyone with heavy tools that can be used for digging.
Let's face it, physical labor and the service sector are honest endeavors, can both be very rewarding and honorable. But they may also be the only kind of productive work a portion of the population could ever be qualified to do. But wait, aren't those the very jobs disappearing or being off-shored?
I'm not trying to be an elitist about this, but it goes back to the notion that even if you equally distributed all wealth to a population, within minutes there would be both millionaires and paupers. As our population grows -- albeit, it is now growing slowly -- newly minted adults will need jobs. But where are those jobs coming from? Increasing the retirement age, coupled with decreasing standards of living simply dry up the existing pool of available jobs, as the now elderly won't even be able to afford to retire.
Of course, from an employer's short-term perspective, given the expense of a codger-like employee pool and their attendant medical needs, a cheaper and healthier alternative may be irresistibly beckoning toward them to fire those highly experienced leeches. Disequilibrium in immigration, birth rates, death rates and retirement rates can have drastic effects on our society.
Instead of listening to annual summertime stories of how inner city youth are unable to find summer employment and how that bodes poorly for street crime statistics, let's transport that model to the entire country. Take your pick: Marauding gangs of unemployed and disaffected youth or hobbling throngs of terminated geezers eating away at the fabric of American society, all clawing for the few jobs left in the United States.
So where will the job-seeking migration send Americans? It's not like the South or Southwest are going to be booming anytime soon. It's also not very likely that China will find itself with a shortage in its labor pool. Libya's burgeoning domain shortening industry is mostly run by an albino savant in a basement somewhere in Detroit, so that's not going to be the solution, either.
Right now we look at Greece. Not long ago we looked at Tunisia. Well-educated, yet high unemployment. That' a bad combination for civil rest.
I'm just trying to do my part as a citizen who cares about our youth's future livelihood and don't want to see generational warfare in the streets. I'm more than happy to stay at home, especially on those days that I can make more money by just tapping a few keyboard entries. But, as part of my civic duty, I've assembled a retirement portfolio that is specifically designed to generate income that can sustain investors in retirement.
It's very difficult, however, to get accurate data on how much in retirement savings the average American has available. What complicates the data collection is that funds may be held in any number of vehicles, including IRA, 401k, 401b, saving accounts, pension plans and the mattress.
At best, the information gathered by Fidelity Investments is sobering and cause for concern, particularly since a very large portion of Americans have very small retirement related reserves. Beyond that is the knowledge that despite the adage that a $1,000,000 nest egg will last forever if you only withdraw 4% annually, two things come to mind.
Who has $1,00,000 and how am I going to live off of $40,000/year?
The answer to the former question, at least according to the Federal Reserve Board Panel Survey of Consumer Finances is "not many." The problem, therefore, is that a very large portion of Americans will not have enough upon which to retire and will have to delay retirement, unless they can find some other source of revenue.
In a sense of civic duty, my suggestion to supplement retirement funds is based upon the 2009 data, which suggests that the average retired household has approximately $250,000 in retirement savings. Unfortunately, a large portion doesn't have that much, but the proposal can still apply. To the best of my knowledge there is no similar data available regarding the age stratified readership of Seeking Alpha.
As I am a fervent believer in covered call strategies, which incidentally Barron's Magazine referred to as the "only winning combination in 2011," the Option to Profit Retirement Portfolio is dependent upon covered call premium and dividend income. For purposes of the sample portfolio, which is based on the closing prices from Friday, May 18, 2012, and the monthly options bid premiums for June 2012, shares are purchased in lots that are multiples of 100, in order to be able to sell options on all shares.
Additionally, the portfolio is diversified, with near-equal distribution among sectors, with the exception of the two speculative holdings that serve as hedges in case of a downward moving market. They are each held at approximately 5% of the total starting portfolio value. The requirement of holding shares in multiple of one hundred share lots causes some discrepancy in the proportion of the total portfolio that each position represents.
For those of you who don't feel like clicking on the link, the primary stocks for this model portfolio are: Boeing (NYSE:BA), British Petroleum (NYSE:BP), Caterpillar (NYSE:CAT), Dow Chemical (NYSE:DOW), Freeport McMoRan (NYSE:FCX), Goldman Sachs (GS), Halliburton (NYSE:HAL), Kohls (NYSE:KSS) and Microsoft (NASDAQ:MSFT).
The speculative positions, as you may imagine, may alternate among themselves on a regular basis, as market factors warrant.
Beyond those 11 positions are "on deck" holdings that can be used to replace shares that are lost to option exercise.
Those are: General Electric (NYSE:GE), Lockheed Martin (NYSE:LMT), Deere (NYSE:DE), ProShares Energy ETF (NYSEARCA:XLE), Conoco (NYSE:COP), DuPont (NYSE:DD), Mosaic (NYSE:MOS), JP Morgan Chase, Morgan Stanley, American Express (NYSE:AXP), Visa (NYSE:V), Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP), Transocean (NYSE:RIG), Baker Hughes (NYSE:BHI), Williams-Sonoma (NYSE:WSM), Intel (NASDAQ:INTC) and Wal-Mart (NYSE:WMT).
The use of covered calls in your investing strategy will invariably lead to the need to replace positions. However, as a caveat, shares lost to exercise should be replaced by shares from a different sector, perhaps one that is relatively out of favor, when compared to the sector in which the assigned shares resided. In that way, you avoid "buying high" and instead, "cost average down," at least on a sector basis. If the assigned shares open lower on the first Monday of the new option cycle, then by all means consider a re-purchase of those shares at the lower price. The other exceptions to that caveat come in the hedging, speculative choices, in which the "on deck" alternate should be used as a direct replacement.
Further, the speculative positions may alternate between being a primary or "on deck" position, based upon which is out of favor at the time you start the portfolio. For example, on May 18, 2012, SIlver had experienced a week of downward pressure, but then made a marked recovery. As a result, the UltraShort leveraged ZSL was relatively expensive. In response, one would instead use the price depressed UltraSilver product, AGQ, to initiate a position or alternatively sell puts in ZSL. The decision of which of these or similar hedges to use should be based upon market conditions at the time of initiating the model portfolio.
Finally, for option income, the nearest two strike prices are used in two separate "what if" scenarios. An individual investor may also want to maximize option premiums by occasionally using in the money options or optimize capital gains by using further out of the money strike prices. There's also no reason why a combination of these approaches couldn't be used on various share lots.
The Retirement Portfolio presented is a relatively simple and almost turnkey solution. Those a bit more motivated can apply other components of the Option to Profit strategy, including selling put options and utilizing the "Double Dip Dividend" strategy.
Clearly, the stock suggestions are a simple snapshot and are meant as a template subject to individual needs and tolerances. As with any investment, material changes may occur without notice. However, the strategy itself is an answer to supplementing income in retirement, if not accelerating your retirement age.
At the very least, I've done my part and removed myself from the employment market. What can I say. I'm just a patriot who doesn't want to see fellow citizens rioting in the streets.