Forget about North Korea, the Brexit or any other existential crises over the world as none of those will have an impact as high as the unpreparedness for retirement of the households in the USA. According to a recent study of the Center for Retirement Research at Boston College, the majority of the US households are now at risk to be unable to maintain their standard of living when reaching the retirement age.

Source: Blackrock presentation

Not only are households less prepared for retirement, the higher inflation expectations will also come back to bite those who have been able to save. After all, even if one prepares for his or her retirement and has a financial cushion which is sufficient in today’s world, it might nog be sufficient further down the road. Have a look at how the purchasing power evolved in the past 30 years.

Source: Blackrock presentation

Whilst the past few years have been relatively benign as (soon to be) retirees were able to take advantage of the combination of low interest rates and high returns on their (dividend) stocks which allowed them to beat the inflation by a substantial margin, the future looks tougher. Not only is the inflation rate moving up again, the higher interest rates will also reduce the net margins of the companies they invested in.

After all, most companies took advantage of the low yield environment to borrow as much as they could, only to spend it on acquisitions or share repurchases. But if the interest rates increase faster than expected, the ‘heavy borrowers’ will see their cost of debt explode, and that could create some serious difficulties further down the road. Not only will the earnings model be under severe pressure, the retirees will be more cautious when they draw funds down from their ‘nest egg’. A lower consumption rate could then send the US economy in a downward spiral as it’s easy to see how a vicious circle could be created.

Source: tradingeconomics.com

But it gets even worse. As you can see on the previous image, American households are having a tougher time to save money. The saving rate fell to just 3.6% compared to a double-digit percentage in 2012-2013. This creates even more headaches as consumers need a stronger financial buffer to maintain their standard of living in the post-retirement era, but at the same time have less financial power to do so…

The solution to protect your purchasing power and standard of living isn’t in buying high yield bonds, ETF’s or stocks. Even though most mainstreamers would like to convince you gold isn’t a good insurance against inflation and economic shocks, it really does help to keep your financial health under control during distressed times, as you can see on the next image.

Source: Sociostudies.org

A lower savings rate combined with higher inflation expectations and the value of money continuously eroding. These three elements are a deadly mix for anyone with a longer term outlook and exposure to gold in your portfolio isn’t a luxury but a necessity.

> Read our Guide to Gold, and prepare yourself!