Bankrupt generations?

There’s an excellent article in the WSJ about the challenges that retiring baby boomers face as 401(k)s fail to meet their retirement needs.

I don’t know if this can be accessed without an online subscription to the WSJ, so to summarize…buffeted by two major stock market crashes, most baby boomers on the cusp of retirement don’t have close to what they need (median 401(k) for  the 60+ age bracket is about $150,000).

The letters are especially interesting for what they reveal about peoples’ generational attitudes.

As examples of sentiments encountered:

  • The “Greatest Generation” was really a generation of moochers all too happy to fund their retirements and other obligations on the back of the taxpayers.
  • People will need far less income upon which to retire comfortably than financial planners claim (very good back and forth arguments on that point).
  • Baby boomers should stop whining about their plight as it was they who got themselves into it.

I find that last point interesting from the perspective of what it means to be living “paycheck-to-paycheck”. For many people I know, this definition encompasses the need to pay-off massive credit card and other debts accumulated whilst purchasing toys, vacations, entertainment and all other expensive lifestyle expenses that many have come to view as entitlements.

Does this square with your observations, or am I being too harsh?

I ask this because my amazing spouse and I have been fairly heavy savers and have denied ourselves many of these pleasures during the years when we raised children. Yet I know that, inevitably, the gimlet eyes of those who lived high on the hog when times were good but failed to prepare for their future will turn their focus on our savings as the solution to their penury.

UPDATE **********

HT/Sadie

This is too good of a summary not to include in the post:

Thanks, SADIE.

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  • Dennis Elliott

    My wife and I each started a 401(k) when the government authorized them in the late 80’s or early 90’s (I forget which). We each put the maximum yearly amount in each. We also contributed to a work related savings vehicle. Her’s was matched up to 5%; mine wasn’t. We were both eleigible for retirement 5 and 7 years ago (pre-boomers) and currently we each have just a little over that $150 grand in those accounts. Given the exigencies of the stock market and the short time period since that option was available in a tax-deferred way, I suspect that $150,000 to perhaps $250,000 would be all that was likely to be earned for amateur investers who don’t churn those accounts on a continual basis. Both of my kids, at the beginning of their thirties, have over half that amount in their accounts and another 30 to 40 years to go till retirement. We have no debts save for 7 years more on a house we’ve been in for 20 years, nor do my kids. Neither of them have any illusions about receiving Social Security of Medicare.

    Therefore, $150,000 is probably a reasonable amount to have in a 401(k) in a 20 year time horizon. The youngsters writing these letters probably need to learn some humility in terms of history. It didn’t start with their birth.

  • Kirk Strong

    The link didn’t work for me.  Here’s where I found the article:
     
    http://online.wsj.com/article/SB10001424052748703959604576152792748707356.html?mod=WSJ_PersonalFinance_PF2#articleTabs%3Darticle
     
    And yeah, the few comments I read were not very sympathetic.

  • Danny Lemieux

    Thank you, Kirk. I updated the link with the url you provided. Hope it works better now.

  • http://photoncourier.blogspot.com David Foster

    One of the biggest problems has been the assurance that “housing prices will always go up.” This amounts to a mischaracterization of what is basically a consumption good, which under certain circumstances MAY also serve as an investment, as being PRIMARILY an investment. That assertion has been made so loudly, by so many supposedly-knowledgeable parties, that it has certainly influenced many people to put far too much stock in their house(s) as part of their retirement planning. It has also surely had an influence on spousal politics, where the spouse who wants the bigger & more-expensive house could argue down the dissenting spouse by quoting the whole weight of opinion.
     
    Also, retirement savings have been seriously inhibited by educational, expenses, which have been manifest in three ways. First, lousy public schools have forced many parents to spend $$ which otherwise could have been saved on private education. Second, many house purchases were really educational expenses in disguise: ie, getting into a neighborhood where the public schools are at least a little more tolerable or at least physically safer. And thirdly, the escalating costs of college.

  • SADIE

    Almost no one, I personally know. has credit card debt and mortgages were paid off before retirement. My grandmother (1901-2001) never had a credit card. My grandparents worked, saved, never frittered away money, lived not just within their means, but well below it.  My grandmother invested in the stock market from mid 1950’s to 1960’s. Once enough profit was realized, she withdrew the money and put it into a bank account. I’ll add that both of my grandparents enjoyed excellent health. My grandfather died at the age of 94 and my grandmother at 100. The last 5 years of her life were lived in assisted living. Not a fancy place, but more than adequate and within her ability to self pay and still leave a few sheckels to her survivors.
     
    Skip a couple of generations and you get to mine. Most of my friends were born in the 1940’s (some in the 30’s). Some of their children needed braces, special education, tutors (none of which were an option to previous generations) the age of travel and leisure and the seduction of marketing lured some of them into buying more than they needed, including ‘additions’ to their homes. All of us grew up in a one-bathroom home or apartment and survived quite nicely. My generation is the one that is living longer with prescriptions and advanced medical treatment. When we retired 5/10/15 years ago, we were healthy. Some have a long term care policy, some don’t. A chronic or severe illness can erase a 401(k) in no time flat. No one projected the astronomical increases in everyday living from filling the tank to filling the pill box.
     
    The paycheck to paycheck generation will one day be living from cardboard box to cardboard box. My suggestion to them is – Less is more.
    Take a look at this chart:
    http://www.dickmorris.com/blog/the-damage-obama-has-done/

  • Charles Martel

    Most Baby Boomers grew up in the most affluent period in American history. The U.S. was the world’s economic hegemon, and Boomers’ parents, having lived through the Great Depression and a world war, were only too happy to vicariously live a stress-free childhood through their children.

    I’m a Boomer. Aside from the specter of nuclear war, and later, getting drafted for Vietnam, we really didn’t have the nagging concerns growing up that our parents did. Prosperity to us was like water to a fish—it was just there. Periodic recessions were either something our parents sheltered us from or were accepted as occasional hiccoughs in the grand project of ever expanding the American economy.

    Until 2008, we never had the huge wake-up call that our parents and grandparents did back in the late 20s. One of the reasons Obama won, aside from white and black racism, was that he was the campaign’s one cipher who might be expected to deliver some quick, magic solution to the economy’s near collapse. McCain had been around too long (as well as the GOP) for many people to feel that he had any answers at all that would snap us quickly out of having our allowances discontinued.

    My worry about Boomers, the generation that has marched so destructively through our institutions, is that many of them are not going to take the inevitable and permanent drop in their entitlements very well. Those members of my generation whose idea of the struggle for liberty was to pout and pressure their way to sexual and moral anarchy will not give much consideration to the morality of stealing from their children (oh, wait, we’ve already done that!) or giving their liege to statists like Obama and Pelosi who promise to continue to loot what’s left of America’s patrimony.

    Our future, to paraphrase Orwell, lies in the children. Gen Y is getting bitch-slapped something fierce by the arid economy and the realization that “higher education” has turned out to be a debt-imposing farce. If its members can see though the inveigling rhetorical fog that Boomers have enveloped them in, maybe they’ll rise up and tell the Boomers that they’ve had their spendthrift run and now its time for the adults to take over.

  • Kirk Strong

    Here is a curious thing:
     
    My wife had a spinster aunt who had spent nearly her entire career as a low-level administrator in the placement office of a large West Coast university.  She lived quietly and frugally with her mother in a small subsidized apartment on one side of the campus.  Over the years she accumulated a nest egg of about $40,000.
     
    In her mid-70’s, her health starting to fail, she moved into an assisted living facility.  There was no government assistance for her expenses since she was too wealthy according to the means test.  Her nest egg carried her for about 18 months before it ran out, and then she began receiving government aid.
     
    When she died, about three years later, she was dead broke.  So the net result of all that scrimping and saving over the years was to delay by about 18 months the time when government aid cut in.
     
    This is a true story, and it really perplexes me.  Of course we need and ought to save for our later years.  I totally agree with that, but at the same time, I really have to wonder:  If all it does is delay the time when government aid cuts in, was it really worth it?

  • Danny Lemieux

    Kirk, what you describe is interesting. Nobody is saying that everybody, left on their own, will have the wherewithal to save for a secure retirement. The description you gave is exactly the situation for which social security and welfare is supposed to provide a safety net. She made decisions in her life. At the end, as you said, she was flat broke. Sad.
     
    The sad thing is that your wife’s spinster aunt probably never received the full value of the social security payments that she made into the system, but that’s another topic. It isn’t the role of working people (i.e., other taxpayers) to guarantee everyone a comfortable middle-class lifestyle in their retirement.

  • Charles Martel

    “If all it does is delay the time when government aid cuts in, was it really worth it?”

    Let’s assume it wasn’t worth it. If not, government aid, paid for by the rest of us, would have kicked in earlier. In that case, what would have happened to the nest egg that she didn’t spend because the government was now bearing the cost? (Perhaps government aid should kick in gradually once a nest egg drops below the means test figure, with the aid recipient receiving more government aid as her nest egg dissipates.)

    When did your aunt die? If it was a few years ago, the government was vastly more solvent than it is now. Even if we were to agree that government assistance should kick in much earlier than it did with her, there is now no real money to pay for it. Debt and IOUs are not money. They are a manipulation of money that doesn’t yet exist.

  • Charles Martel

    I should clarify: Govenment IOUs are not money.

  • suek

    Kirk Strong…
     
    Ideally, what other outcome would you want?  What would have been better?
     
     

  • Kirk Strong

    I dunno what would be best in this situation.
     
    On the one hand, it’s not right that the rest of us tax payers should pay for her care so long as she has money to pay for it herself.  On the other hand, it seems kind of crappy to have scrimped and saved all her life just in order to postpone the time when government aid cuts in by a few months.  It seems to me a sort of anomaly in the system.
     
    She died in the mid-70’s when the government was in better financial shape than it is today.  And now that I think more about it (with the help of your comments), I realize that had it been, say, 50 or 60 years earlier, she would simply have run out of money and died.  So she did get the benefit of 18 more months to live on the rest of our nickles.
     
    Still it seems strange to me that from her personal point of view (not us taxpayers), she would have been better off not scrimping so much and enjoying her life more while she still had her health.  I’m sure there must be many out there who realize this fact and are happy to play grasshopper relying on us ants to take care of them later on.

  • suek

    >>50 or 60 years earlier, she would simply have run out of money and died>>
     
    Maybe.  Or she would have moved in with relatives who would have cared for her instead, and then they probably would have inherited whatever was left.
     
    It’s funny.  That’s apparently what happened in my Mom’s family.  “Aunt Jenny” (I don’t know what relation she was.  My Mom’s dead, so I can’t ask.  I should have) lived with them until she died.  She was bedridden with rheumatoid arthritis and apparently my Mom felt so dominated by Aunt Jenny’s little bedside bell (which she used to call for whatever needs she might have had) that she swore that she’d never place such a burden on her children.   She didn’t live long enough to test her preference, although the last year of her life, she too was bedridden, and my Dad took care of her.  My Dad, and my in-laws moved to retirement homes.  My children are determined that we won’t have to – they intend to care for us in our later days.  They don’t want us to live away from them, so that they can  only visit.  We’ll see.  I suspect they have _no_ idea of what’s involved.
     
    I guess the fact is that old age isn’t for sissies.  And that includes those who are caring for the old as well.
     
     

  • SADIE

    I guess the fact is that old age isn’t for sissies.  And that includes those who are caring for the old as well.
     
     
    Well said. When we are least capable due to age and less strength is when many a partner has found his/herself caring for their spouse or a parent. I can’t tell you how many times I’ve watched the caregiver fall ill and die from the physical and emotional stress.
     
    Quick Sadie story: Shirley took care of Harry (friends of my mom) for more than a dozen years. Harry had heart problems and did not work after the age of 55 or so. Shirley went to work to support them and later retired when she was diagnosed with lung cancer. Shirley died at 70. Harry, who was five years her senior lived to 85.
    p.s. Harry managed to meet a ‘nice’ lady and they lived together for some years after Shirley died.