More to the point for the OP, after an MBA in finance, and 30 years of studying economic projection, I can solidly state that economists projections are as effective as a fart in a whirlwind, and only slightly longer lived between revisions. Study history instead as all lessons, economic and otherwise are there. The Great Depression was exactly the same over-borrowing mess we're in today, read The Great Crash of 1929
for a solidly researched discussion that should embarrass anybody ever caught overleveraged. And borrowing more to buy our way out is bad math (no bank will lend to an overleveraged person now, tho they did in 05-06, right? But folks are still lending to overleveraed governments????). Learn by other peoples mistakes. Government debt is no different, just that the consequences are nation wide instead of just isolated to some bone heads.
For that reason, simple safety factor
in planning retirement is paramount. You can find no better foundation to build on, and no more intelligent advice. Fancy dance financial wizardry is just some economist's projection reduced to a fancy spreadsheet, and doomed to the whirlwind. Instead, over-earn, and over-save for retirement, so if you think you can get by on X, save 2X minimum, more if you've got energy & time. Figure out how to pay some bills in retirement through ongoing earnings (I consult & sell stuff, so I'm currently not drawing down any savings; that'll end some day but I have fun at both so it'll be a ways off). I also find that being responsible to others keeps me sharper (heaven knows this tool needs sharpening
). Warren Buffett's fortune is built on safety factor (he calls it Margin of Safety
, and he calls those three words the three most important words in investing (google "Buffett three most important words" and you'll find he's been saying if for decades since he learned it from his mentor, Graham
), and all retirement savings is investing). Microsoft's fortune has been built in interesting part on MoS, likewise Cisco and others who keep a large warchest to swallow up newcomers w/great potential. Google ditto. Apple ditto. Read the Millionaire Next Door
, and you'll see that frugality & limiting leverage play important parts in retiring well.
Once caveat about bonds, currently a special case IMHO and only IMHO. I believe are way deep into a many years long series of record low bond yields. Our national debt cost has reflected that in years long record low costs, same for corporate borrowing costs. The way that long data series get their long term average is by periodic "reversion to the mean," meaning long series of abnormally low numbers are balanced out by long series of abnormally high numbers. Right now federal debt costs us maybe 2.5%, corporate debt 3-6% depending on corp; if we revert only to the mean
those figures double; if we revert to abnormally high numbers that would balance the long string of lowball costs
, it could well more than double. Long term average mortgage interest rate is 7%ish, we've been at 4% for so long I've forgotten when we hit bottom. Without dwelling on obvious consequences to federal budgets, if you are caught in low yielding bonds when we revert to the mean, your principal will shrink dramatically (discuss this w/your financial advisor about the potential for bonds to appreciate vs depreciate, then for fun ask him where he is w/his money in bonds). I recommend not much in bonds at this time, wait till yields are really exciting to wade into this pool. A good conservative alternative if you must
is a bond ladder of good quality but higher yielding corporate bonds (locking into low yield is not smart IMHO), again consult your advisor about what that means and how to do it.