If you've spent any time reading the financial press you'll likely notice that Americans are chronic under-savers and this spells bad news for retirement. In fact, it turns out we're so bad we recently reviewed a lot of the ideals Alan Greenspan championed and it turns out he might not have been exactly right (or at least that's the current preveiling theory, I've always believed he's sharply sarcastic and often made subtle jokes while addressing Congress that went over most people's heads). If you want “proof” that we're meandering up the creek without a paddle check here:
The Great Risk Shift
Solving a Looming U.S. Retirement Crisis
Now that you've seen how screwed everyone is, let me ask a question that I've been wondering about for many years: How come people aren't laying dead in the streets? I mean, with all the talk about America's huge savings crisis, shouldn't we have some sort of manifestation? When the big banks were in financial trouble, we heard that something was awry, and then suddenly they started closing.
So what evidence do we have that people are in fact in a very dire situation. Bankruptcy would be a pretty good indicator, right? Sure, only problem is, when broken into age cohorts 65+ is the group with the second lowest frequency of bankruptcy, and not by a little, by a lot.
So if bankruptcies are looking good for the older crowd, what about foreclosures? After-all there must be those silly people who listened to LEAP or some other “crazy” iteration and decided paying off their mortgage was less important than saving money. So, since all of these people don't have any money, they can't possibly be keeping current on their mortgage. Turns out this isn't correct either. Though the AARP attempted to paint a bleaker picture, the 65+ crowd has a much lower frequency of home foreclosures.
So, all this nonsense about the American savings epidemic is perhaps a tad overstated? Just fear mongering perpetuated by investment salesman who want your money? After all, life doesn't seem to be that bad…or does it?
Long criticized for its selfishness, it turns out the largest cohort of the American population–the Baby Boomers–are miserable. A little more than a year ago, Pew discovered that the Baby Boomers were the most dissatisfied generation. Perhaps the generation that was in its prime through two of the largest expansion decades the U.S. has ever known and probably will know for many many years to come is discovering that there is a morning after to all the years of conspicuous consumption and mortgaging the good life, and the hangover sucks…a lot.
What's more, the Boomers aren't retiring, at least not like the Silent Generation did before them. 60% of Boomers polled claim they are planning on delaying their original retirement, most indefinitely. On top of this, the 55 and older crowd now makes up more of the U.S. workforce than it has since the 1940's (perhaps ever, but that's when the Board of Labor Statistics started collecting data on age cohorts in the workforce).
Philosophically, Boomer's are also mostly pessimistic about prospects for standard of living for themselves and their posterity. They are cutting back, and realizing the temporal cost of instant gratification.
So people aren't laying dead in the streets because by and large the cohort that is in retirement is the last generation not to lose its mind over excess and (to be fair) not to have been stuck with the entire retirement bill. Of course, complaining about the decline of pension plans doesn't solve the problem, realizing the game has changed and accepting your new responsibilities does (remember, life isn't fair). People aren't laying dead in the streets, yet. However, the stress fractures of chronic under-saving are showing. Older Americans who have neglected saving for retirement are going to have to deal with a prolonged work life. The Golden Years might be short lived if they exist at all. On top of that, extended working years for the Boomer's means less labor demand for up and coming generations. We've already seen this play out, as Gen-Y fights an increasing tough battle to secure employment and/or gives up and decides additional education is opportune. Gen-X has also experienced a stalled promotional track in the work force as attrition of the older workforce slows. What's even more scary for Gen-X and Gen-Y is neither is likely to benefit from the one guardian angle that might just see the Boomer's to a semi safe heaven regarding their retirement prospects.
Boomers have benefited from being in the right place at the right time in so many circumstances it's hard to believe they are staring daunting retirement prospects in the face. They not only had an opportunity to save early through massive economic expansions, a lot of them also happened to have purchased real estate prior to a giant boom in that market. This isn't to say that Boomer's have been insulated from the housing bubble burst, but a lot of them owned real estate way before that and benefited from the run up unlike Gen-X, which hit the market to purchase its first home on the eve of the big meltdown.
So, the Boomers must deal with staying in the workforce longer than they originally planned, and falling back on home equity in a way that probably wasn't how they originally figured. For them, life is unpleasant, but adapting to your surroundings is a an important feature for survival. The more worrying cohorts are the two generations immediately following the Boomers. They are squeezed by the transitions the Boomers have had to make, and are following a much different set of standards and norms–a quarter of Gen-Y has yet to move out on its own. Perhaps these two generations will lead the way into a paradigm shift concerning American spending and saving habits, and conquer the retirement beast in a way the Boomers were unable. They certainly have plenty of fair warning. Ignoring ample opportunity to address your savings habits and plan for retirement will get you no where but broke and miserable.
Brandon launched the Insurance Pro Blog in July of 2011 as a project to de-mystify the life insurance industry. A specialist in the design and application of life insurance cash accumulation features, Brandon is one of the foremost authorities on the subject of coordinating life insurance cash values in a financial plan.