Retiree’s Debt Load January 23
I read this article today. It paints a very alarming picture for the current crop of retirees. Their debt is increasing, and in some cases it is increasing at a very high rate. The number of bankruptcies among retirees is increasing too. I am very concerned by the younger baby boomers and my generation, Generation X. The debt levels are increasingly higher the younger you go. You may have heard the term negative savings rate. If you have not, it means that the nation as a whole is spending more than they make. This is a terrible place to be.
This situation if left unchecked presents an interesting scenario in the long-term horizon. If the debt rate continues to increase which I think certainly will happen unless there is a large negative consequence in doing so, interest rates will increase greatly. This is a bad situation for corporate growth. The individual investor can benefit if they buy bonds when interest rates are near their top rate. They will suffer in the short term if interest rates climb after purchasing the bond due to the inverse relationship between a bond’s price and the interest rate. You will also see the dollar continue to slide against foreign currencies unless the G5 uses its power to keep the dollar artificially high.
Writing this blog entry is making me about shifting more of my investment portfolio to international equities. I currently have 19% invested internationally. I have switched my investment allocation in my 401K so that new contributions will be 50% allocated to international investments. This should increase my international exposure pretty quickly. I am also getting close to my target emergency fund. Once this target is hit, I can begin investing my after-tax investments into more international investments. I am considering about going the ETF route with IShare’s EEM.