The retirement funding crisis is about to hit this country like a sledgehammer. The financial and social implications of this crisis are far reaching and our children (aka younger GenX and Millennial) will bear the brunt of this unless reforms are made soon. Originally published as "Why the Wreckage of Our Retirement is Your Problem"
In the Year 2020:
- The 50+ crowd is not going to retire and make way for the younger generation.
- The youngest Generation X who struggled to get career traction will again be stuck in the middle.
- Part time jobs will become hard to find as many middle income retirees look to semi-skilled jobs to pick up the slack and keep themselves busy. This will greatly impact college students and the working class.
- Younger generations buried under staggering student loan balances will be forced to make ever increasing social security contributions.
- Many midlife professionals will dive head first into the gig economy (my personal choice).
- The pressures felt by younger workers will create more resentment.
- The incidence of age discrimination within the workplace will increase, and so will the number of lawsuits.
- Stressed out elders - working jobs they don’t like - to subsidize retirements that they don’t have - translate into chronic health problems and even more pressure on our failing healthcare system.
- State programs designed to provide food, housing and care for the poorest elderly will be completely overwhelmed.
- The Millennials will become the new sandwich generation as more and more families become 3 generation households.
Understanding How We Got Here - It's Not Black and White
Finding a solution and common ground requires that all stakeholders understand how we got here in the first place and what needs to change.
Conflicting messages in the media portray older GenX as victims of the great recession, having lost, on average, 48% of their retirement . . .
. . . or hopeless slackers suffering from procrastination and narcissism. Clearly (they say) it was our “throw all caution to the wind” and “enjoy life to the fullest” attitude that created this problem
The “obvious solution” that is generally offered is “save more money and work longer”.
Wow! why didn’t we think of that?
Oversimplification is dangerous.
It encourages blame and scapegoating.
It discourages the search for a real solution.
Oversimplification is a symptom of a deeper problem. A sincere lack of understanding of the realities that face 80% of those over 55 right now.
Case in point
Dan Ariely is a brilliant MIT Researcher and best selling author of "Predictably Irrational” Written in 2010 at the height of the recession, Chapter 13 discusses how “irrational” not saving for retirement is. He suggests that the entire problem would be solved if we all would only make monthly contributions of at least $1,000 per month to our retirement accounts. (I'm picking on Dan, but this is the common worldview among his peers).
Here is why we can't Dan
If you didn't graduate with an advanced degree and are only making $75,000 per year, you are taking home less than $56,000 according to a 2017 study of 11 US cities conducted by BusinessInsider. The U.S.Census bureau reported the median US income in 2015 to be $56,516 per year. A recent study of the annual cost of living in various US Cities reported a high of $89,734 in San Jose, CA and a low of $46,238 in San Antonio, Texas. The median is $60,795.
A worker earning the average median income in this country is going further into debt by $4,279 per year.
It is irrational to expect someone with a negative cash flow to save $1,000 per month for retirement. Sorry Dan.
But Wait, There's a Bonus Gift
The wild card is the future of Pension funds. Government and Union funds are becoming insolvent at an alarming rate. Many of these pension fund participants haven’t saved either, relying instead on their pensions to fund their retirement. The reason the pension funds are on the verge of collapse is not just that aging retirees outnumber contributing workers.
They are failing because they cannot be sustained with the conservative investments traditionally relied on. Interest rates were too low, for too long. They began taking on riskier and riskier investments that exposed them and their pensioners to much more risk.
As Market Watch observed “There’s also a serious concern about whether simply cutting benefits or boosting contributions is enough as global growth slows and fixed-income investments yield significantly lower than in recent years. As I wrote a few months ago, some investment experts expect as little as 4% annual returns in U.S. equities, and bonds to yield less than 2% for many years to come.”
Not only were we living too long, the changes in the market made it impossible for the pension plans to keep up. These same changes make it impossible for our 401k’s to keep up.
The bottom line here is that the risk of investments needed to fund retirement was taken away from the pension funds and handed to us in a pretty package called 401k (with higher management fees than the pension funds had to pay).
And Then There Is The Consumer Economy
It is estimated that 10,000 boomers reach retirement age everyday. What is going to happen when their consumer spending grinds to a stop?
In the same Market Watch article mentioned above, the author asked readers to “ think about what would happen to the U.S. economy if older, low-income pensioners suddenly have 5% or 10% less to spend on necessities. . . . That’s the crisis I fear most: a dramatic reduction in benefits to millions of pensioners, the failure of Social Security to bridge the gap and a substantial decline in consumer spending as a result. Then it’s not just older Americans tightening their belts, but younger Americans facing a tough job market as restaurants and retailers start cutting back, too” Scary isn’t it.
Make no mistake - the “experts” saw this coming long ago and dumped it on us (a rant for another time).
Next up, ageism it's a real thing and it’s about to get really expensive
All of these financial pressures are bound to create resentments in the younger generation - further fanning the flames of ageism that are already rampant in our forever young consumer society. Don’t fool yourself, #ageism is and always has been, a huge problem in this country. Even the most “PC” among us hold deep seated prejudices against aging. A close friend recently confided she wouldn’t want to hire a “retiree” for a number of stereotypical reasons. In our rapidly changing workplaces older workers are often seen as out of touch, behind and a drag on the team. They become “invisible” and are treated that way by co-workers.
If older employees are pushed out of the workforce with nothing to fall back on the lawsuits that ensue are going to paralyze the courts and cost billions.
SOON YOUR GRANDMOTHER WILL BE PROTESTING IN THE STREETS
Think #Silverhair Rebellion.
What Are The Experts Recommending?
From Market Watch “ . . . Pension reform — as with Social Security reform — is most equitably approached as a combination of benefit cuts, increased contributions and higher eligibility ages. But since those solutions tend to offend all stakeholders, it is difficult to get past the inertia”
Another solution suggested by Brookings Institute is to create a tiered system of gradual retirement which allows workers to continue working part time for as long as their health allows them to.
All the solutions require sacrifices that will no doubt further exasperate resentments of younger workers who feel like they got stuck with the bill. They need us to “get out of the way”, especially during uncertain economic times and periods of high unemployment (which will come again).
That is why it is so important that everyone understands what happened to our generation could easily happen to them. Resentments need to be replaced with empathy. You can't empathize with what you don't understand. Click To Tweet
So, what do you suggest?
First and foremost, education. Sacrifices are going to have to be made by everyone. Getting everyone on board means we need a new shared vision of what aging and retirement is going to look like in our society.
There is no easy fix and everyone knows it. Each individual situation is different.
Disclaimer: I'm not a financial advisor or expert and am only sharing my personal opinion.
With that said, if you are still working and have an empty nest you do have a few good options.
I suggest making downsizing and paying off all of your debts your first priority. It’s a big step, and requires a huge mindset shift, but it’s amazing the relief and freedom that you will feel once you get through it.
Removing these pressures and reframing the problem gives you breathing room. It allows you to dream of a new second chapter in a much more positive and productive way. Click To Tweet
As for the long term, we need to completely rethink our system of retirement and our societies views on aging.
As Einstein so famously put it, we can't solve problems by using the same kind of thinking we used when we created them. Click To Tweet
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LET'S GET THE CONVERSATION GOING
Join the rebellion at www.genxboom.com where we are creating a supportive community of retirement rebels reinventing themselves and transforming our societies views on retirement and aging. Follow me on Twitter @romawrite and Instagram at @GenXBoom.