Gold and The Golden YearsPosted on — Leave a comment
Retirement, like a mirage on the horizon, is an oasis many will never drink from.
More Americans are learning that retirement is less feasible than they thought. There are many causes of this evaporating dream.
Consider that wages have stagnated for over thirty years. This is likely due, in part, to the fact that almost half of Americans of working age (18-64) earn a median annual wage of less than $20,000 according to research compiled by Brookings Institute.
Additional research from the Economic Policy Institute (EPI) adds dimension to this picture. Researchers learned that the portion of all US families with retirement savings has decreased since the onset of the Great Recession. The EPI’s conclusion is definitive and clear: “most families—even those approaching retirement—have little or no retirement savings.”
This trend comes at a time when the cost of living is rising considerably. While inflation has moderated slightly in recent weeks, it is clear that many resources remain lower than they did before the pandemic. The result is elevated costs associated with everyday necessities, particularly gas and food. Meanwhile, retirees face other rising costs, like healthcare, which increase as individuals reach old age. Research from Fidelity estimates that a 65-year-old couple in the US should expect to pay $275,000 in out-of-pocket healthcare costs post retirement.
These headwinds have compounded the difficulties brought on by the Great Recession which resulted in falling 401K plan participation, and the long-term erosion of pension plans.
The confluence of these factors means that “retirement inequality is greater than income inequality even in peak earning years,” according to the EPI study. Moreover, this problem comes at a time when a record number of Americans are entering retirement. The pandemic likely accelerated Boomer’s movement into their golden years. Approximately six months after the start of the pandemic, 40% of all baby boomers were retired and the total number of boomers entering retirement each year since has increased.
Investors facing retirement are considering ways in which they might make up the shortfall through a better asset allocation in their portfolios. Gold is one answer for three reasons.
First, gold offers the possibility for capital appreciation that is not subject to the whims of the equity and bond market. This independence is important, as more equities begin to rise in fall in unison which undermines the intent of a diversified mix of holdings.
Second, gold offers freedom from counterparty risk which is the risk that another party connected to one’s investment fails to act in the investor’s best interest. Unfortunately, investors experienced the outcome of this risk during fiascos like the Enron scandal and the subprime housing collapse.
Third, gold has a history of providing a safe haven during periods of equity market turmoil. As 2022 moves to a close many investors have seen their savings shrink as the broader markets have succumbed to the effects of the Ukraine war, inflation, and economic uncertainty surrounding the prospect of a recession.
The looming retirement crises will not be solved by a single solution. But savvy investors can make moves today that provide a degree of protection.
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