Are America’s Boomers “Dead Men Walking”?

In prison they’re known as “dead men walking.” They’re the prisoners who spend many years on death row.

It may soon also refer to America’s would-be retirees—the baby boomer generation.

According to data compiled by the Federal Reserve, the median household headed by a person 60 to 62 with a 401(k) account has less than one quarter of what is needed in the account to maintain their standard of living in retirement.

That’s a startling figure. It means most boomers won’t be retiring anytime soon. Instead, they’ll have to work into their 70s and beyond.

As veteran market watcher Richard Russell put it recently, “It also means that mass retirement will become an American memory.”

Even taking into account Social Security and other savings, there’s still a big gap between what most boomers have saved and what they’ll need to fund a comfortable retirement.

One of the big providers of 401(k) plans, Vanguard Group, recommends that people salt away 12% – 15% of their incomes into their retirement plans.

That’s a big ask considering that over the last decade, wages have been more or less flat, and the S&P 500 has delivered zero returns.

Meanwhile, rising living costs and taxes have been eating away at incomes.

Judging by recent fund flows out of emerging market stocks and into U.S. stocks, a lot of mutual fund investors are hitching their wagons once again to the idea that the good ol’ US of A will pull out of its recent tailspin and deliver the kind of returns investors saw in the great 1982-2000 bull market.

But as stock analyst Mary Meeker put it recently in her cover story for Bloomberg Businessweek, if the U.S. were a company it would be one that was losing $2 trillion a year and had a negative net worth of $44 trillion.

The problem, of course, is that Washington spends too much. And it isn’t likely to reverse course anytime soon.

Meanwhile, the Federal Reserve under Ben Bernanke, is printing up boatloads of cash ($600 billion in the latest round of so-called “quantitative easing” alone).

The idea is to create what I call “the illusion of prosperity.” The Fed’s stated intention is to make people feel richer by boosting stock prices.

It hopes this will improve company profits, get businesses hiring again and solve the unemployment problem.

Dream on.

If creating real prosperity were that easy, Zimbabwe would be one of the richest nations on earth. And Japan would never have experienced a 20-year slump.

3 Steps to Greater Financial Freedom

So what can you do about it if you’re one of America’s boomers?

If you’re reading this e-letter, you’re already familiar with how International Living can help you live a better life overseas for less.

When IL first started advising people on how to lead the good life overseas, America was in better shape. Ronald Reagan had just arrived in the White House. And the biggest bull market in history was about to unfold. (Between 1982 and 2000, the Dow rose 1,409%.)

America wasn’t exactly debt free. But it was in pretty good shape. The nation’s debt-to-GDP ratio was 32.5%. Today, total debt is fast approaching 90% of total economic output.

So the case for considering retiring or living for less overseas is even more pressing now. (I lived in Buenos Aires, Argentina for a number of years and am now based in Berlin—two places where the cost of living is far cheaper than in my native Ireland.)

Other things you can do are:

1) Become financially educated The biggest single step you can take toward ensuring your financial freedom is to educate yourself about personal finance and the markets. Read books. Talk to friends. Subscribe to newsletters that interest you. If you don’t know how the markets tick you are almost guaranteed to be a victim of them.

2) Make sure your savings are safe – Too many people leave all their savings in the one currency, usually the U.S. dollar. As I said recently, this could be a big mistake over the long run, as investors turn their back on the buck. Diversify your savings across multiple currencies and ensure you have a good chunk of assets in an old fashioned store of value such as gold. (A gold ETF, such as the ETFS Physical Swiss Gold Trust (NYSE:SGOL), will do the job.)

3) Invest outside of America’s borders – Most of the real growth is going on outside of America, in places such as Asia and South America. By all means keep a large part of your portfolio in U.S. stocks. But make sure you diversify the rest of your holdings away from America. Not only will you better be able to capture profits, but you also reduce your risk through diversification.

Don’t let yourself become one of America’s new “dead men walking.” Take steps now to shore up your finances.

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