Have you heard anyone lately comment about how time flies?

Next time you hear someone say ‘time flies,’ ask them to what are they referring?  Could they be referring to all the time that has passed by while they’ve not bothered to fund their retirement account, which means they’ll probably be working into their late seventies, or longer?  Then they mean, ‘woe is me.’  And that means ‘woe are us.’

For several years, there’s been a peculiar kind of self-denial practiced by Americans.  For over 85% of the prospects and clients we meet with, there is no way they can retire at the age of ’65′ and expect to enjoy a quality of life comparable to what they’re accustomed for their probable life expectancy.  A 65 year old today has a high probability of living into their 80’s.  If they’re happily married, at least one of them will likely live into their 90’s.  They might live to regret it.

Over 85% of those we meet will consume all of their retirement money and have only Social Security support within 7 or 8 years of retirement at age 65, if they budget a lifestyle to which they’re accustomed.  Even when they scale back their lifestyle by 25% to 30%, they find they will likely outlive their money by a number of years.

It seems Americans don’t know how to interpret mathematical messages very well.  Simple math shows them they’re out of money well in advance of their probable life expectancy.  Yet, they go ahead and add a new wing to the house or buy a new car or sit on their hands rather than re-focus their efforts to make sure they’re not eating crackers and cat food in their early to mid 70s.

For the first time in nearly a decade, the savings rate has taken a steep jump UP, albeit for unfortunate reasons.  As a result of the market downturn of 2007-8, people’s retirement accounts got clobbered, losing 40% plus or minus.  That’s a lot of money that needs to be recovered.  It takes longer to make money in the market than it does to lose it.  Folks need to start saving like there’s no tomorrow.

While the stock market was taking a swan dive, real estate values have swooned as well.  Whatever home equity was earmarked for retirement has evaporated for many, dramatically impacting plans for those whose retirement was only a few years away.  Folks really need to start saving like there’s no tomorrow!

Baby Boomers are the largest and perhaps the most influential demographic group in America’s history.  Elder Boomers have begun to retire and the ranks hope to follow suit.  But how well have they prepared for retirement?

Baby boomers have lived large and to the limit.  They’ve taken on debt as if they had the government’s power to print money.  Their homes have been used as an ATM for the past few decades.  That equity has been consumed in hedonistic pleasures rather than conserved and increased in prudent investments.  Home values have declined and stolen whatever equity might have existed and left many poor planning boomers with a mortgage that exceeds the value of their home.  If home equity was factored in as part of their retirement plan, that amount of support now needs to be replaced.  Better work more and save like there is no tomorrow. 

Not only do people need to rebuild their savings, retirement accounts and lost equity in their homes, they need to pay down the record levels of debt they’ve built over the past several decades.  The figures are readily available on the internet.  One USA Today study shows household debt increasing from $84,000 in 2005 to over $112,000 in 2007 – and that doesn’t even include mortgage debt or their share of the government’s promises of unfunded entitlements.  The media uses this as a second major reason why the savings rate has climbed so quickly in mid 2009.

Up to now, we’ve considered only the cash flow management behavior of consumers.  As businesses have seen sales drop, they’ve adopted a similar conservative posture of preserving capital.

So what does this all mean?

If people (and businesses) are saving, that means they’re not spending.  And, if they’re not spending, but with-holding their money from chasing goods and services in the economy, how will that affect the pricing of the goods and services exchanged in our economy and what will be the result?  Can we look forward to a V-shaped recovery, an L-shaped recovery, hyper-inflation or deflation in the years ahead?

Inflation or deflation results from the amount of money chasing after goods and services in the economy.  When there is more money circulating in the economy to spend on cars, houses, etc., it tends to drive prices up.  But when there is less money circulating in the economy, prices tend to drop to attract those rare funds that are being spent.  It’s a basic supply and demand proposition.

Of course, the government has flooded the economy with freshly printed money, but how much of that has found its way into healthy circulation?  Most of it has gone toward paying for – bailing out – the mistakes of special, favored, presumed important entities that must be saved at all costs.  In order for the government’s tactics -injecting new money into the system-  to work in a credit-based system, borrowers need to borrow and lenders need to lend.  So far that’s not happening.

If you had to recoup significant market losses in your retirement accounts AND rebuild lost equity due to a decrease in home value AND reduce debt loads to a more manageable level, would you want to borrow more money?  Would a lender want to lend you more?

Many main street pundits believe that once the record level of newly printed money finds its way into the economy, we’ll see hyper-inflation never experienced before in America.

But as Americans realize the government will not be able to honor the promises it has made for their future, namely Social Security and Medicare, they’ll be forced to take matters into their own hands and save even more.  What choice is there?  What would you do in those circumstances?  Spend or save?

You might hear a huge sucking sound as money is sucked out of the economy and saved by people frantically trying to correct a lifetime of over-indulgent living and lack of planning.

So how does it look to you?  Short term?  Long term?  Inflation?  Or deflation?

And what’s your plan to survive it?