America's 60-Year-Olds Are Staring at Financial Peril
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I think what we will see is a return to generational housing in America. More out of a necessity, like how divorced couples still lived together during economic strifes across the world.
The answer is probably a more generous and better funded Social Security, except that fund keeps getting raided for other purposes.
This is one of the reasons I suggest people buy a house rather than renting. The financials may not always make sense, but it forces savings in a way that many people would not otherwise do.
How many people do you think would manually pay a large chunk of their paycheck into a savings account every months before deciding whether they can afford an extra order of curly fries?
Rent eats first and having a mortgage lets you actually save some of that (once you get past the substantial interest heavy starting year).
> The 401k was an experiment, and that experiment has largely failed.
Retirement accounts are not the problem. It’s a general lack of financial education. People can barely calculate simple interest. Compound interest is even less natural. Calculating the present value of a fixed payment annuity in 25 years? We’re a slim minority that can do that from scratch.
Some of the best savers are the ones that do not even understand the financial constructs, but take the savings rates and methods as gospel. Faithfully putting away percentages of their salaries that are orders of magnitude higher than the rest.
> The answer is probably a more generous and better funded Social Security, except that fund keeps getting raided for other purposes.
Social security is claimed to be “money you paid into”. But that cannot be true if the net amount grossly exceeds what you paid in. That system simply would not work without another revenue source.
People have to pay massively more into it over their entire working lives.
And if someone wants a pension the financial product exists. Except nobody wants to actually pay for it because an inflation adjusted guaranteed annuity for life is incredibly expensive! So the present value of it divided out would be more than people are willing to actually pay.
People are irrational. I have a loved one who told me they can’t afford car insurance, but subscriptions to Spotify, Netflix, Duolingo, and uses DoorDash, etc.
I think people are wired to think that small purchases are ok but that long term things are “not possible.” Of course there’s also a sense of people wanting to have some joy in their life now and choosing to gamble away future prosperity.
Yes, that's the Avocado Toast problem. You point out that maybe, just maybe, they don't need all of these optional luxury expenses if they can't afford to do "normal adulting". The response is always a cornucopia of excuses and fatalism: "Saving $5 is not going to make me financially stable!" and "There's no way I'll ever retire--I might as well live a little today!" and "I can't just eat rice and beans every day!" and "Why shouldn't someone have just one little luxury to make them feel happy?" and "The cost of my flagship smartphone is trivial, just 1% of my student debt!"
It's not the actual Toast that's the problem, it's the attitude that excuses the toast.
- Karl Marx
The reality is saving $5 here or there will not make a difference. You need to be saving 60 bucks a day for 10 years just for a deposit. Or over a hundred for a more palatable 5 year saving.
The average wage in Australia is around $1400 per week, tax is around 20% and average rent is around $300 per person. So that leaves you with $120 for everything else.
Yes, it's the attitude that is the problem..
The 401k experiment is not failing because people don't understand how interest and capital gains work. It's failing because people are not funding their 401Ks and the ones who do, don't sufficiently or consistently fund them. I know so many people my age (mid 40s) who don't even save at all. Like zero. They are playing a dangerous game of chicken where they believe the USA ultimately won't let the elderly die en masse in the street, and they think they'll be rescued. They think I'm the sucker for saving the max every year and then saving more.
This isn't a lack of financial education, it's deliberate. People can save but they won't because they don't think they're going to meet the consequences. Or they don't save enough because they don't think they need to. I also know people who say things like "I plan to die the day after I stop working, so I might as well spend everything now."
And that doesn't even consider the large number of people living paycheck to paycheck who literally can't save. It's going to be a shit show in 20-30 years.
If you reframe SS/OASDI as "someday starving because unable to work insurance", many different facets of its rules and financing fall into logical place.
As is, I feel like I'm watching people paying premiums for "house burns down" insurance and then being angry about "their money" not being "all paid back" when their house never has any problems. ("That's not how it works, that's not how any of this works.")
Not really.
By that definition a 401k is also an insurance policy. So is a checking account.
To the recipient, SS resembles an investment account more than an insurance policy.
So here, I'll give you some from the other side.
First, the "Old-Age, Survivors, and Disability Insurance" really is literally Insurance because it's literally in the damn name and I don't know how much clearer I can make that.
Second, you can tell it's insurance because larger payouts are conditional based on bad things happening to you. That is not true for an investment account, therefore they are different.
Third, you can tell it's insurance because the benefits are typically not transferable (inheritable) to another thing (person) being insured. That is not true for an investment account, therefore they are different.
> To the recipient, SS resembles an investment account more than an insurance policy.
Being deeply misinformed doesn't make something true.
> If you reframe SS/OASDI as "someday starving because unable to work insurance"
You might want to contact the Social Security Administration with your gripe, because they present SS as a "retirement benefit":
https://www.ssa.gov/retirement https://www.ssa.gov/prepare/plan-retirement
And look at your annual Social Security Statement. Mine says:
Retirement Benefits: You have earned enough credits to qualify for retirement benefits.
These explained benefits are not linked to bad things happening to you.
Earlier you said:
> As is, I feel like I'm watching people paying premiums for "house burns down" insurance and then being angry about "their money" not being "all paid back" when their house never has any problems. ("That's not how it works, that's not how any of this works.")
I disagree, because people expect their SS retirement benefits to pay out even if the house doesn't burn down. Which is why I'm saying I don't think people view it as "insurance" even if it technically is. People just want the income stream (aka "retirement benefit") that they earned (this is the language used by SSA) by contributing over their entire working life.
Sure, had I gone full throttle into a house back then, I could pat myself on the back right now, but at that point my employment wasn’t anywhere near as much of a certainty, and money was sit tight so the wisest thing to do with the information I had was wait a few years.
While I think things may be slightly better now and I need to do my yearly review of how things are, for most people getting stable enough to do anything other than split rent is out of reach. I’m one of the few people I know that could stop working and not be out on the street in 3 months.
I’m fortunate in that at least I have a pension I’ve been putting into over the matched amount all this time.
Money is pieces of paper that determines how a nations resources are divided.
Having more money in a "Social Security fund" is useless. If the social security fund is massive when it comes time to withdraw money from it but there are no resources to divide, then inflation will ensure the fund is worthless. If the fund is tiny but there are lots of resources to divide, the money will go a long way.
Individuals can save money to ensure they get a larger share of the resources in the future. But overall money is a zero sum game -- if one person has a greater share, everybody else has a lesser share.
As a country, to support retirees you invest in the productive capacity of the country -- train nurses, build infrastructure & housing, et cetera.
The auto enrollment private pension minimum contribution in the UK is 8% (3% from the employer and 5% from the employee)...and its widely known that this is pathetically inadequate. It needs to be doubled.
Nobody is taught about this stuff in British schools either. Most people don't start worrying about funding retirement until they hit 50
From an anecdotal point of view, I have never cared for money in the sense that I have not been busy maximizing my money whether it be salary, retirement, etc. not to mention "investments". I could not care to play the game of money/investments, I want to do other things with my time and headspace. However, in our Western society I'm forced to play the money game and to "be on top of it" otherwise later in life I am f*ked.
"Money" seems to be mostly an "interest" of some people and somehow we seem to have pivoted our entire society around that.
The reason most people don't understand this is because retirement has historically been a pipe dream for 99% of the population. You worked until you were no longer able to get up physically (from illness or general deterioration).
Nowadays people don't just want to retire, but retire "comfortably", whatever that means. Presumably living in your paid off suburban home, while travelling and owning multiple cars? It's not sustainable and will revert back to the mean, unfortunately.
Is there any evidence or reason to think that people were just more financially literate in the past and somehow regressed? This theory seems to ignore broad societal trends such as increasing wealth inequality, increasing housing costs, increasing health care costs, stagnation of wages, decreasing employment stability and security over time, and the elimination of employer pensions.
The more kids you had, the more of a buck shot approach it was.
The 5-8% per annum, which everyone older expected to live off of, was stolen to prop up the banks which got us into the mess in the first place.
It's not their lack of planning, not their generations fault. They they shouldn't be the ones to pay for the crash of 2008. There should be thousands of former bankers starting their second decade behind bars... but there are NONE.
Then the 70s and 80s happened, people did not realize there would be a paradigm shift in the work force. So here we are, and back then IRAs were limited on what you could save and I think there were no 401k's at all.
Later the Federal Government adopted a federal program insuring private pensions but that was no help for my dad. And employers, responsible for paying into the federal program, dropped private pensions like a hot potato.
I never had a pension. Hardly any private companies offered them to my generation. And nobody sat us down and explained 'retirement' and who supports you after you work all your life. Nobody explained it to my dad, who thought he was being provided for. And nobody explained it to 'Boomers' because there wasn't anyone with knowledge to explain 'it' to us. Our parents had pensions. They knew nothing about a world in which there weren't pensions.
The perilous and sad fate facing the Boomers in retirement has had the 'benefit' of at least providing us with the knowledge to educate our children about the perils of life. The hard rules are:
In the United States, you are solely responsible for what happens to you your entire life. Health care and retirement are both your responsibility. As demonstrated by my father's plight, this has always been true - even if there were lies told to you making you think you had a pension (btw, my father's employer was far from the only one that didn't have the funds to pay its pension benefits).
We live in a modern society in a modern world. However, it remains a world of winners and losers. And the losers far outnumber the winners when it comes to parceling out resources once you stop 'working for the man' the majority of your life.
And, even with Medicare, healthcare isn't free for good coverage.
We have that and a medical care cost problem set to reach crisis levels around the same time. The only meaningful activity right now that might alleviate any part of either problem is… Ozempic, LOL.
I mean there were junk bonds and corporate raiders in the 80s, as well as the 90s stock bonanza and 2000s real estate. Even a state employee could afford a decent house and saw their net worth explode as housing exploded. That isn’t happening for GenX and Millennials…
there are entire subs on reddit communities full of young people with sizable incomes/wealth. FIRE subs, tech subs, investing, and so on. The FANG job is today's '80s Wall Street job. Biased sample, sure, but it's still a lot of people. State employees still make good income. I think the only sector that has done the worst is retail.
It does seem likely that Millenials and GenZ may do better than boomers.
https://fortune.com/2024/04/30/high-status-millennials-boome...
the technical term is bimodal distribution
To some measurable degree, it's always been this way. How many snowbird communities in Florida are just shitty trailer parks with Gulf access?
> The only meaningful activity right now that might alleviate any part of either problem is… Ozempic, LOL.
I invested heavily in $NVO ~1 year ago at ~$50. Lucky me...
Do corporations exist for humanity or does humanity exist for corporations? (Funny enough I rewatched The Matrix last night. Seems humans exist for AI/imaginary made up beings aka corporations, well actually those that own them and hide behind their limited liability).
or rather: maybe because they enjoyed these decades (which often equals spending wealth), they don't have wealth now.
2) I'm afraid 7% above and beyond inflation is pretty optimistic going forward
US Poverty level for a couple retiring today is $20K/yr. You need $500K saved up to get that kind of income in retirement. And next year, inflation means you need even more.
Many voices have been saying that SS can't be relied on since about 1981.
He's talking to people who normally wouldn't bother to vote, telling them if they actually did it just this once he'd fix the problems the current administration caused that they're facing (one of his standard talking points) so they can go back to business as usual.
For those who qualify for Social Security the minimum benefit for 2024 is $50.90/mo (10 yrs of work) and $1,066.50 for 30 years of work [1].
For what you write to be true, the Administration would have to have a rule that if you apply for disability income when you are of working age, you get enough to survive for life even if you paid nothing into the system (through FICA), but if you apply past the retirement age and you didn't pay into the system, you get basically nothing. I suppose that could be true (and I'm not going to search the web to try to find out) but it seems unlikely.
If you have a very strong work ethic, but have piss-poor ability to get paid a decent income and never applied for Social Security disability income, you've almost certainly worked some and consequently paid some amount into the system. When you get to retirement age, my strong guess (although I don't have personal knowledge) is that the SSI program kicks in such that the combination of your month Social Security retirement check and the SSI check adds up to $943 if you are single (plus $20 because the first $20 per month of non-SSI income is not counted) just like the millions of chronic schizophrenics that went on SSI in their 20s who never paid any FICA.
But if someone replies saying that they personally know an American with no other sources of income and no savings who has applied, but gets less than $943 a month from Social Security, I'll believe them.
ADDED. If you apply for disability or retirement benefits, the Administration automatically assesses whether you qualify for SSI benefits: one application suffices for both programs.
Individuals own wealth, not generations, and individual wealth is distributed extremely unevenly.
"The top 10% of households by wealth had $6.7 million on average. As a group, they held 66.9% of total household wealth. The bottom 50% of households by wealth had $50,000 on average. As a group, they held only 2.5% of total household wealth." https://www.stlouisfed.org/institute-for-economic-equity/the...
You should feel sympathy toward them because not all monetary gains are felt uniformly. If you look at the savings from median Americans and median wages you’ll notice most Americans are not actually wealthy as the media portrays.
When you have the working poor battling payday lenders, bank fees, credit card debt, increasing healthcare costs, or lack of homeownership for their entire lives why would you expect them to suddenly become rich when they retire?
I mean for myself I didn’t start saving aggressively until I was 32 and I didn’t get my first programming job until I was 25. I was 28 when I met the first person in my life that owned stocks (CTO of my second job).
I already have more money saved for retirement than my parents and siblings combined. I honestly attribute this to complete luck too. I could have easily ended up like them financially.
I suppose I should count myself blessed because my parents raised me to value education, a love for learning, and reading books. I’ll forever be grateful for them because I’m positive I’ll be able to provide a better life for my family because of their sacrifice.
A sacrifice not everyone is even allowed to make.
https://www.visualcapitalist.com/americas-average-retirement...
I honestly suggest you go to your local foodbank and talk to the people that use it. You should also go to your local nursing home that takes medicare residents as well.
Tell them to their face what you truly believe after hearing their stories.
At the start of my career, I earned very little (I was lucky to have a job at all). Certainly no spare money to save for the first decade.
Then house prices went insane, and the financial crash and almost zero interest rates meant we got no value from compounding the minimal amount I could save for most of the rest of my working life so far.
I am lucky in the sense that I now earn a lot compared to my peers. I am fully in catch up mode. Despite what I earn, the majority of it goes to pension contributions and paying off my very large mortgage (on a tiny house next to the railway tracks). I have very little disposable income.
And I am doing a lot better than most of my peers, who don't even have the luxury of having somewhere to live and not being in absolute poverty when they retire.
Some people have obviously done very well in my generation, but most have not.