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How to prepare for the Coming Generational Storm

Dan Piergallini

If you haven't seen part one of my review on the book, The Coming Generational Storm: What You Need to Know about America’s Economic Future, I would highly suggest you check it out to get an understanding of why exactly you should look into taking some of the suggestions of this article.

Personal responsibility is the great opportunity of this century, physically and financially (p. 239).

What exactly does personal responsibility entail? How is it going to help us solve the problems of Social Security and Medicare?

Eat broccoli. Don’t smoke. Don’t abuse alcohol. There are gains in life expectancy to be had from exercise, diet, and even flossing. The authors stress that if you avoid becoming a part of the liability (our massive implicit debts from Medicare) – your personal health and financial future will be improved (p. 237). If we as a nation undertake this task of personal responsibility, we can help reduce health care costs by being healthier and more informed. It may sound like a bunch of hippy propaganda – but the authors think it could mean $11.7 trillion dollars in healthcare savings (p. 239).

Other than giving up Twinkies, cigarettes, and large amounts of alcohol (shit, now I need a new hobby) – what can you do to prepare for the future?

  1. Start saving now – Easier said than done, especially when you have loans, credit card, debt, etc. And there is the trade off between partying young and not saving, or saving up to party as a senior citizen (when you’ll get presumably less action during spring break). The authors label setting 10% of your income aside as ‘dangerous’ and recommend 20% – but the point remains the same regardless of the amount – start saving.
  2. On that note, pay off your credit card debt. If you have a $5,000 student loan and $5,000 in credit card debt (the average figure for a recent college graduate) – that credit card interest is going to kill you. Pay it off as soon as you can, avoid the interest, build your credit. Pay off the highest interest loans first.
  3. Invest in yourself – though Kotlikoff wrote an article questioning the value of a college education (though he does assume certain things like no parental contributions) – education, health, skills are all assets that make you more valuable to employers.
  4. Buy real estate – After all, land is the only thing they can’t make more of. The authors emphasize that home ownership may be one of the best ways to reduce the effect of less Social Security benefits and increased taxes (p. 205).
  5. Pay taxes now – putting after-tax income into a Roth-IRA means you pay taxes now, and avoid paying probable higher taxes on it later.
  6. Build an alternative portfolio – Invest (but not too heavily) in things like precious metals, energy mutual funds, international equity funds (particularly China). This should only be done after you’ve invested in low expense domestic index investments AND traditional bond funds.

I am by no means a financial consultant or an economist, but the two authors are. Kotlikoff has designed financial planning software that can help you plan for the future. Scott Burns has a column in which he provides a great deal of advice in addition to his financial consulting services.

Regardless of what you do to prepare for the future, the key is this: start doing it now.