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Friday, July 15, 2011

1% makes a lot of difference



A report has just been published in the US called the: “The Potential Impact of the Great Recession on Future Retirement Incomes.”

I really wished we had an institution attempting the same type of research in the UK.

The simulation showed that adults age 25 to 34 in 2008 will see their incomes fall, at the age of 70,  by 4.9 percent (or $3,000 per person) as a result of the recession.

I was shocked by how little impact the recession appeared to have. Then I read the assumptions that include that wage growth resumed in 2010 and continues indefinitely. In fact, the assumptions assume that that the economic conditions prior to the recession were the norm and that what we are experiencing now is a finite blip and then the world returns to ‘normal’. The three charts, showing the assumptions used illustrate the world going on as 'normal' situation.

Sorry guys but I don’t buy this idea. I am much more impressed with the work done by the giant bond company Pimco that talks about the future being the ‘new normal’ when growth returns to 2% not 3%. At this level it means that US unemployment will rise to 12% and there will be little growth in real income.

If you are a marketer then you need to decide if tomorrow's world  is going to be a 2% or 3% place to live and plan accordingly. A bit of free advice – stick with the 2%. Dick Stroud

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