Saturday, May 24, 2008

USA Today: Debt-squeezed Gen X Saves Little

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One day I'll get around to writing some theories on where this is all headed in the "long term" but since this is a market oriented blog, and the definition of "long term" in this day and age is 'next week', we'll stick to the 'medium term'. But since this story has to do with my generation (and therefore is important hah), I thought I'd bring it out. It does touch on 1 of my "long long" term concerns - the total inadequate savings of most Americans 45 and under for their retirement.

We are coming FROM a generation where many (not all) had solid social security benefits, corporate provided pensions, and a home paid off by the time they retired. Hence, decent revenue combined with a lower expense load (a mortgage/rent is the #1 expense for most people)

We are going TO a generation(s) where many (not all) have much lower social security benefits (pushed out to older ages and not indexed accurately to 'real' inflation), self reliant 401ks (mostly funded by your savings, not the company), and a home levered and borrowed upon over and over to consume - hence little equity, and certainly not paid off by retirement. So a much lower monthly stipend to live off of, combined with a higher expense load. Combined with financial illiteracy for many, combined with the inability to have discipline to save for something 20, 30, 40 years out. And this assumes a consistent inflation environment for this generation (which I don't believe to be true in my "future world" where 9 Billion humans compete for the same resources 6 Billion compete for today). Therefore, as I've stated in the past this will be the "Walmart greeter" generation - working as greeters until they keel over. Many will never retire. They won't be able to afford to.

So what is Generation X doing today to prepare and prove me wrong? Don't ask.

But some of it is not there own fault; the median wage statistic is just downright depressing but it goes to my piece on the "long term" trends that are happening in America - changes so subtle that it is like erosion. Until 1 day, ten years later you wake up, and the water is lapping at your doorstep. [Do the Bottom 80% of Americans Stand a Chance?] This is the worst danger of this inflationary era we enter - unlike the 70s, workers simply cannot get wages to keep up with the cost of living - this has been a problem the past decade, as globalization begins to equalize wages across countries, but we lived in relatively low inflation times (and people got by, by borrowing - versus house, versus credit cards, versus everything). Now we are in a much higher inflation environment - and it could be far worse in the coming decade+.
  • For years, experts have warned that too many of the USA's 79 million baby boomers aren't financially ready for their coming retirements. Yet, if the boomers have had it hard, it's nothing compared with those next in line: Generation X
  • Generation X now 27 to 43 years old — have even less assurance than the boomers of receiving company pensions and projected Social Security benefits.
  • In 1979, when the oldest Gen Xers were teenagers, the sole retirement plan for 62% of workers was a traditional pension, according to the Employee Benefit Research Institute (EBRI). By 2005, when most of the Gen Xers had joined the workforce, that number had flipped: 63% of employees found themselves covered only by voluntary 401(k) plans. So much for the corporate safety net.
  • Yet, burdened by high housing costs, stifling college debt, stagnating wages and outsize health insurance and gas prices, Gen Xers are saving too little for retirement, just as workplace benefits have shrunk.
  • More than one in three workers ages 35 to 44 aren't setting aside any money for retirement. Among those ages 25 to 34, 45% aren't saving.
  • Nine out of 10 consumers in their 30s are in debt.
  • Gen Xers also are the first generation to graduate from college with significant student loan debt. About 20% of adults in their 30s are still paying college loans, according to the Federal Reserve study; the median balance exceeds $13,000
  • Gen Xers also face this harsh reality: The standard of living that most of them have so far managed to achieve falls short of their own parents' standard at the same age. The median income for men now in their 30s, when adjusted for inflation, is 12% lower than what their dads earned three decades earlier. (just a depressing fact and I believe this will ACCELERATE as the globe becomes even more flat, and we move closer to global wage arbitrage)
  • From 1974, when many Gen Xers were children, until 2004, when most were in the workforce, family income rose only 9%. And most of that gain came from 1964 to 1994
  • Gen Xers also had the unfortunate timing of becoming adults in a period when the share of income that Americans spend on what most people see as essential needs, such as a home, health insurance and cars, has soared.
  • Schwab found that Gen Xers often don't understand investment basics. Many, for instance, don't realize that an investor can contribute to both a 401(k) plan and an IRA. This might help explain why 82% of Gen Xers have no IRA, according to a Schwab survey.
  • Some specialists suggest that Gen Xers, faced with escalating financial obligations and shakier job situations, have developed a wary, skeptical stance toward the corporate world.

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