A day of reckoning is coming, and retirement savings could be in jeopardy

Boca Raton, FL June 18, 2004 -- Just four years ago there was a record federal budget surplus — that is, the government took in more money (mostly in the form of tax dollars) than it needed to run its programs. But now there's a federal budget deficit — in other words, a shortfall of government funds. And it's getting worse. The Bush administration has estimated that the federal budget deficit will reach a record $521 billion this year, 4.25 percent of the total economy.

If you think that's no big deal? Think again. According to Federal Reserve Chairman Alan Greenspan, the federal budget deficit is more problematic than any other economic problem in the United States, including the soaring trade deficit and record levels of household debt.
The reason? The shortfall in government funds has arrived just before people will need those funds most — when baby boomers retire.

The "baby boom" was a period of time, from January 1, 1946, to December 31, 1964, when the birth rate in the United States skyrocketed. More than 77 million babies were born during that time, and those children — called baby boomers — will start becoming eligible for Social Security and Medicare benefits in 2008. But if there's a federal budget deficit, the Social Security and Medicare wells could run dry. The government could be forced to say, "Sorry, we miscalculated. You're on your own."

The Bush administration says it plans to handle the problem by cutting the federal budget deficit in half over the next five years, before the onset of shortfalls in Social Security and Medicare. Greenspan has even suggested raising the retirement age or scaling back annual cost-of-living adjustments for Social Security.

According to Certified Senior Advisor Advisor Alan Haft, boomers should plan now. "Adjust your finances rather than waiting until you retire to see if you get the benefits you're expecting," Haft said. "You may think it's too late to start investing, but the power of compounding can work in your favor."

What is compounding? "To explain, let's say you make a one-time deposit of $1,000 into an investment account that returns 10 percent and compounds annually. At the end of the first year, you'll have $1,100 — the original investment of $1,000 plus the $100 earned on your original deposit. At the end of the second year, you have $1,210 — the $1,100 you started the year with and $110 of "compounded" earnings. But that's just the beginning. Each year, compounding could increase your investment, even if you don't contribute another penny. Eventually, the earnings on earnings could exceed the earnings on your original investment," explains Haft.

"Now, let's use compounding in a real-life example. Let's say you were born in the middle of the baby boom years, in 1955. You'll be 65 in 2020, which means you have about 15 years until retirement. What happens if you start investing $300 a month in a tax-deferred account now and continue for 15 years? Well, you'd invest a total of $54,000. At a hypothetical annual growth rate of 8 percent, after 15 years that investment would be worth $103,811.47 — a difference of $49,811.47."

The lesson: Yes, the federal budget deficit could threaten your financial security in retirement. But planning now and investing monthly can help you build assets over time — and possibly make up for any future shortfall in Social Security and Medicare. A financial advisor can help you learn more.

An avid commentator on financial topics, Certified Senior Advisor Alan Haft was selected as the financial commentator for The Home Show, radio programming on KRLA, a popular AM radio station in Southern California. With a distinct specialty in retirement income planning, he is dedicated to serving the financial goals and providing fiscal educational counseling to investors in or planning for retirement. In addition to his work as a financial advisor, Haft launched the North American division of Day, an international public corporation, which services some of the world's largest financial institutions. Since the early 1990s, he has maintained an active business relationship with acclaimed actor James Woods, with whom he launched Breakheart Films. Haft, who hosts financial workshops nationwide, has offices in Newport Beach, California, and Boca Raton, Florida. He can be reached at 800-809-4699.

The example above assumes that your investment is tax-deferred, that you reinvest dividends and capital gains, that your investment grows at 8% annually, and that your investment is com-pounded monthly. But of course, there's no guarantee that your money will grow in any type of investment. This example is for illustrative purposes only; it doesn't represent the performance of any specific investment. A program of regular investing cannot ensure a profit or protect against a loss in a declining market.



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