GenX Are a Retirement Time Bomb for the American Economy
medium.com
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In other words, GenX getting squeezed by debt payments and cost-of-living etc isn't something that comes ex nihilo. It's deeply related to the demographic situation - large number of long-lived Baby Boomers compared to the demographic makeup of prior generations.
It's not quite that simple. "Stuff" can be divided into things we consume (spending) and things that build more stuff (investment). You can spend more on factories, infrastructure, etc. and then shift towards consumables as the number of non-workers increase. Of course we didn't do that, but it's at least theoretically possible.
> Curiously, the Gen Xers were the least likely generation to say they would save or invest an extra $1,000, instead using it to pay outstanding bills and debt.
How is this “curiously”? The fact that GenX has high debt balances is why their marginal income is more likely to go to paying (high-interest) debt rather than going into (low-yield) retirement savings, which is also why they don't have retirement savings since their money has instead been going to debt repayment.
Not sure about that. The last 20 years (most of Gen Xers working lives), returns in the stock market have been reasonably good, despite there having been multiple recessionary periods.
Jan 2000-April 2019 S&P500: 5.688% annualized (190.085% for the period)
So, if we exclude everyone who has no debt, and include mortgage debt as 'debt', Gen X has a scary-sounding level of debt! Whodathunkit?
I started a new job last year, and it's pretty scary to login and look at my 401k, where it says: "People My Age: Average Savings Rate: 6%. Account Balance: $29,428". Now, presumably, some/many of their account holders ALSO have other retirement accounts, but I imagine the average age of these accounts is probably more than the 1 year I have into it.
https://www.cnbc.com/2019/04/22/social-security-is-headed-fo...
Ok, so maybe it'll be ok for two years.
I would postulate the opposite - I would have thought because we believe that neither companies nor the guvmint would be there to support us, we would have fended for ourselves better (I know that's how I personally took it, and many/most of my friends). But you might be right... sounds like an attitude of "ef it, we're doomed" set in.
Healthcare? Universal healthcare (Medicare For All), allowing for shedding the current jigsaw of healthcare benefits across the country. Less admin overhead, more care providers. If you're a pension that committed to healthcare expenses (state & local government, and manufacturers), you should be ringing the Medicare For All bell the hardest, to get the necessary infrastructure in place before your shortfalls arrive.
> I would postulate the opposite - I would have thought because we believe that neither companies nor the guvmint would be there to support us, we would have fended for ourselves better (I know that's how I personally took it, and many/most of my friends). But you might be right... sounds like an attitude of "ef it, we're doomed" set in.
Most Americans don't have the discretionary income after mandatory expenses to save to "fend for themselves" due to forty years of wage stagnation. This is why so many must rely on government programs to survive. [2]
[1] https://www.cbpp.org/research/social-security/social-securit... (Social Security Lifts More Americans Above Poverty Than Any Other Program)
[2] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us... (For most U.S. workers, real wages have barely budged in decades)
The trust fund is the government loaning money to itself. Ultimately, it is an accounting fiction. Instead of tax payers having to shore up a SS shortfall they have to pay back T-Bills. Either way, there's about 3 trillion dollars missing that will need to be paid.
I would agree there are lots of liabilities (somewhere between single and triple digital trillions) we should start paying back now versus later though, before the debt service becomes unmanageable and we steal from savers by inflating the debt away, but this is a policy issue. We must stop kicking the can down the road, as a society, as a country, and as a species.
[1] https://www.ssa.gov/oact/progdata/fundFAQ.html (Frequently Asked Questions about the Social Security Trust Funds)
[2] https://news.ycombinator.com/item?id=19686549 | https://asia.nikkei.com/Business/Markets/Bank-of-Japan-to-be... (Bank of Japan to be top shareholder of Japan stocks )
You can, it's just that current consumption is fulfilled by current production. Current production gets allocated to some combination of return to labor, return on capital, and taxes. All else equal, the state owning more capital will just squeeze out some combination of return to labor and return on capital. If you look at the cash flows, there's no difference between the government owning 1% more of your employer vs taxing an extra 1% of the company's overall value.
The biggest practical consideration is that taxation is a much more visible way of paying for benefits for current retirees, so replacing that with less obvious means is more politically viable.
How long so you think you can charge an individual or company an "extra 100M"? Realistically would you stay in a country that suddenly added an extra 100M to your tax bill?
And your numbers are wealth, not income.
Also, there are ~600 billionaires in the US, most of them however would pay $100M tax (and realistically numbers can be adjusted down by stretching over say 100k highest TC individuals rather than 11k like my original statement).
[0] - https://www.fool.com/retirement/2018/10/28/americans-average...
Let me put it in another way. I think a 60 year old doing manual labor in 1980s would be less productive than a 72 year old doing desk work in 2030.
I’ve never included it in my retirement planning.
I didn't realize this was a generational thing.
> Just over half (53%) of Gen Xers report having three months worth of salary socked away — money that could be used as an emergency fund. What’s more, 48% of Gen Xers said they’re living paycheck to paycheck
Since 48 + 53 > 100, either there is a rounding error or there are people who have 3 months’ savings who are also living paycheck to paycheck. I don’t see how it’s possible to be living paycheck to paycheck and have significant savings, unless this implies a sudden and relatively recent change in circumstances. It would be interesting to see if there is more detail on this in the linked MetLife study (which I haven’t got time to read right now, unfortunately).
It can definitely be the case that someone's income is being entirely spent each paycheck and that they have some savings.
Why? To avoid the situation you’re in - no easy access to savings.
You borrow from the 401K. If for some reason that's not an option, you take money out with a penalty, but with sufficient match you are still often ahead.
If you have steady employment, might I suggest opening a line of credit with your bank? If you have good credit the rate is reasonable. It costs you nothing unless you use it. And if you have to liquidate your 401k, you can pay it back in days.
My definition of pay check is two fold.
1) Having to withdraw from the emergency fund to cover bills/groceries. 2) Hitting 0 in the daily spending bucket, and counting down the days until the next pay date.
So there can be some people. With good intent of saving, and putting away what they can. But also being fiscally tight.
It's awfully hard to have any sort of trust in a system that allows this to happen.
Nonetheless, it did, and does, give me pause.
This in my opinion is the biggest problem with the move from a defined benefit to a defined contribution retirement scheme. It took the investing out of the hands of the people that knew what they were doing.
Along those lines it really grinds my gears how the financial industry is ripping off people who are saving for retirement. Most 401k plans I've seen have incredibly high fees with a few investments that charge equally as high of fee. Especially those at small companies.
This is why I largely avoid investing (I do have some money in index funds, though). I know that I don't know what I'm doing in that world, and I also lack the time or interest required to become competent in it.
How’s that for “coddling and preventing them from making poor decisions”
The yield curve has already inverted so we’re looking down the barrel of “Recession The Sequel.”
But yeah, keep blaming GenX (and presumably GenY and GenZ) for someone else’s problem. Many of them aren’t even earning a wage to save, avocado toast aside.
Also, keep in mind that even supposedly-safe types of investments got hit pretty hard in that downturn. Top-rated funds were actually far riskier than anyone knew because of the ratings shenanigans that were part of the MBS/CDO/etc. mess. Home values also declined sharply. Many lost their jobs, so they had to draw from already low and declining retirement funds.
I was fortunate. Many of my friends were not. While I'm proud of having made choices that preserved my ability to provide for my family, I wouldn't be so quick to criticize others whose rationally-equivalent choices turned out much worse.
The more volatile assets, if sensibly diversified, were not "wiped out" in 2008. The paper value dropped but then rebounded. As a GenX worry wort, I watched my own retirement account do this dance. I also watched my cash accounts slowly deteriorate against inflation. I am too risk averse to have gone all-in on the stock market even in my younger years, so had a portfolio mix more like someone 15-20 years older. If I'd been forced to live off my multi-year cache equivalent reserves, my 401K equivalent investments had mostly bounced back before I had to think about tapping any.
What was the worst in 2008 were those who had gone all-in on the housing market and turned out upside-down. And, those who still counted on a pension as a large part of their retirement plan and saw their pension providers going bankrupt. Those were really wiped out.
Each individual case is different, but en masse household net worth (house value and stock market investments) dropped 17%. Four years later, it was back to where it was pre-recession. 17% is a hell of a haircut, but not what I would categorize as "ruined". Unless, and here's my most likely theory, they panicked and made a poor timing choice in selling the house or selling stocks at the worst possible time, and then had to buy back in at higher prices (because they missed most of the upswing while sitting out).
My parents, OTOH, sat it out just fine, and are so far from ruined that Mom bought herself a new C7 Corvette a few years ago. Anecdata all around, but if you can't sit tight for four more years, you're doing something wrong.
So, being "negative" means someone is owed money. How does one do that with >1MM net worth? You sold everything, and still owe people money? You either weren't really a millionaire to begin with, or you were over-leveraged (which means you probably weren't really much of a millionaire to begin with).