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Henry Hebeler, President,

If a person is looking at retirement, what kind of provisions should he or she make?

I think people are well advised to get into things that have government guarantees.  Savings bonds are a terrific investment – at least you won’t lose money on them.  CDs that are guaranteed by the FDIC and other accounts that are guaranteed by FDIC, those are safe kinds of things.  But some of those things are not very attractive if you are going into an inflationary period that will follow, so be very conservative.  But when you see inflation starting to rise, then you want to be in things that are adjusted.  And then equities become very good when you have that market.  Equities represent ownership.  What happens with equity ownership is that the value will continue to increase with inflation in terms of whatever today’s values are, so it helps protect you from inflation.

If I’m going to be facing recession or depression in the next five years, what do I want to do with my mortgage, equities, and savings?

If you can earn more on an after-tax basis with that money than you would have to pay in interest on an after-tax basis, invest in equities or something else.  But if you’ve got credit card debt or you’ve got a home equity loan with a high interest rate, the thing to do is put money into paying that off before you it into savings.  The money that you put into savings right now I think should be pretty conservatively invested.  I think that the amount of fixed income as opposed to equities should be approximately what your age is as a percentage.  For example, if you were 70 years old, then you should have 30 percent in equities and your age, in this case, 70 percent, in fixed income, which is things like your CDs or your bonds.

When inflationary times come, how should my investment pattern and my saving pattern change?

My dad always taught me to save 10 percent from my gross income.  As I got near retirement, I actually saved more.  I don’t think that recommendation holds anymore.  I think people have to save more than that – they are not getting the pensions that they used to.  The companies have gotten away from pensions, so retirees are relying more on personal savings plans like 401(k)s. Further, there is some great doubt as to whether Social Security benefits will be as great in the future as they are now, which is another reason to try to save more.

Are people going to be able to continue to retire at age 62?

It is my view that there is no way that people can continue to retire very early.  I get a lot of requests from people who are in their 50s and they would like to retire.  They want to know what to do now that their savings have gone down so much, and I have to tell them, “You just plain don’t have enough.  You are going to have work a lot, lot longer, and you are going to have to save a large part of that income.”  I think we are going to see a lot of people working until they are 70, but the problem there is whether they will be able to maintain the skills or will continue to have the physical capacity to do it.  If they lose their job, can they offer enough attractive characteristics to a new employer that they will be able to get that job, or can they replace someone who is younger?  We are going to see a lot more people that are in the elderly classification that are going to have difficulty finding employment.  I think it is important to keep up multiple skills, and keep yourself in good physical shape and good mental shape.

What are some of the problems you see looming on the horizon for our society?

One is the aging of the population.  Older people require more health care—their expenses are higher and so things like Medicare are going to continue to require more and more funds to be able to support them as the population ages.

Another element that is coming together right now is the huge amount of debt that we have on the federal, state, and local scenes.  The federal debt is going to be approaching $12 trillion very shortly, and that’s very painful in terms of future taxes.

But probably the most staggering element of all is the cost of Medicare.  You can put together some numbers which show that the combination of the national debt, Social Security, Medicare, government pensions, military pensions, and those things all total over $70 trillion dollars.  That has to be funded somehow or other if we don’t change the benefits associated with Social Security, Medicare,  and government pensions.  If those aren’t changed, then on the average we would have to increase our tax rates by four times.

What concerns you about the financial prospects of America’s retirees?

The main thing, I think, is the lack of savings.  People have just consumed way too much and not paid any attention to how much they should save.  If you go back to 1985 and then all the way back to World War II, the savings rates averaged between 9 percent and 10 percent of disposable income. Then in 1985, it started to degrade; 20 years later, it was down to zero.  I’ve analyzed what that has meant to our country in terms of what people would have to do to make up for that.  People would have to save more than 20 percent per year starting right now for the next 20 years just to catch up. The only time in the United States that people have had that kind of savings was during World War II.  During World War II, they had more than 20 percent savings because everyone worked.  Things were rationed; there was just nothing to buy.  If we have to return to that kind of situation, you know consumption has to go way, way down.

Are we facing the potential of another situation in which you have widespread poverty among the elderly?

I believe we are.  It is almost inevitable.  We have this large part of our population that is going to be retiring, the largest segment in our history because of the baby boomers.  They are estimating more than 70 million people will retire in the next 10 to 20 years.  That is a lot of people, and they are going to be retiring with very few resources.  Many of them won’t have pensions.  In fact, the majority will not have pensions and their savings are way, way down.

We have a lot of younger people who are used to spending everything they earn.  Where can they find income both to live and to provide savings?

Well, I have 13 grandkids and I tell each one of them the same thing as to how they can save money.  They all have an expensive cell phone, they are all text messaging all the time, they are all listening to music.  They are buying DVDs and CDs.  The fact is that most of these kids, too, have an automobile that their parents provide for them.  They have to pay the gas in most instances and in some cases the parents ask them to pay the insurance.  They don’t need that car.  That is the fact.

Do you have any savings tips?

There are a lot of people who have started to garden again and that is going to increase.  For those of us whose parents lived during the Depression, we raised much of our food and we did a lot of canning.  We are going to go back to that kind of situation, I believe, because you have got to save some money in almost every area.

Please give us some tips that illustrate the old adage “Use it up, wear it out, make it do, or do without.”

I like to have people look at their utility bills.  Utilities used to be not all that important.  You paid for your heat and you paid for your water, but now there are some large additions to it.  Look at your phone bill, both landline and cell phone, the cable that you have for your television, the cable that you have for your Internet.  These things all really add up.

Another is the size of your home.  What’s happened is that people have gone to very, very large homes.  I think it is going to be very difficult to recognize retirement funds from some of these large homes, because on a dollars-per-square-foot basis, small homes are going to be more dear than large homes. If you downsize and you have a smaller home, your bills go way down, too.

- This is an edited transcript of an interview conducted February 24, 2009.




[...] only to survive but thrive in this new retirement reality, premieres on PBS tonight.  Our advisor Henry “Bud” Hebeler of Ask Bud fame has an interview on how to have a successful retirement in these tough times with [...]


Aloha Bud – what a treat it was to see your counsel featured in the Special Outlook Issue of Money. I did the calculations, which revealed I am good for over 100 years of age. Must be because I took early retirement from Boeing, and moved to Hawaii. Best regards to you. Thanks for all of the golf lessons you gave me years ago. Travis

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