America’s 60-Year-Olds Are Staring at Financial Peril

[Brett]

As Gen X Faces Retirement Reality Bites
https://www.wsj.com/personal-finance/retirement-gen-x-money-a42bad7b

The ‘forgotten generation,’ born between 1965 and 1980, launched their careers at the start of a massive shift in how Americans work​

The oldest members of Gen X are turning 60 next year. Many can’t afford to stop working any time soon. Born between 1965 and 1980, Gen Xers launched their careers at the start of a massive shift in how Americans work. Companies moved from pensions that promise steady income after years of service, to plans such as 401(k)s that place employees’ retirement destiny in their own hands. Some Gen Xers were hit hard in their prime working years during the 2008 financial crisis. Others are still paying off student debt. Their children are increasingly living aging parents often require care. Few believe they can rely on Social Security to make ends meet later in life.
By some measures, Gen Xers are worse off financially than their baby boomer predecessors

“The Great Recession changed everything for us,” said Moore, who is 57. “After that, I don’t know how many Gen Xers trusted that system.”


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[newbie88jo]

Realize that your purchasing power was reduced by 30% - 40% in the last 3 years and more to come regardless of who is president. Much more for one with history and having much more of the same.
If you have a younger spouse without company sponsored heath insurance, up to 20,000 dollars per healthy person per year for Obama Care insurance in NJ. 1.5 million per person is just to live comfortable/modestly without extravagant spending if you have to pay for Obama care without a subsidy.

 

[newbie88jo]

It is a pretty simple formula. Contribute enough to your 401K to get the maximum match from your company. Start early. Even a few thousand a year in your early 20s can turn into millions.

My daughters each have around $25K in Vanguard accounts. I have shown them how if they earn an average 8% return over time the money will grow to well over a million by age 65. I have also explain how when the money doubles every 9 years. The last doubling was almost $1 million. If they put that money away 10 years later - they wont see that last doubling.

The S&P500 has an average growth of 8% and inflation (until the last 4 years was 4%). So in current dollars the S&P only does 4% in current dollars. Doubling is 17 to 18 years. My mistake was tax deferred IRA and 401k when I was earning very little (and without a match). It will be taxed at a higher rate when I retire. I should have used a Roth but it was not available (over half at low wages). I then when to better paying jobs at paid above average and then salaries flatten. All the companies and state changed the pension plans to eliminate retirement heath insurance for younger spouse and payout amount. I have always live below my means by looking for bargins.

 

[joestein]

The S&P500 has an average growth of 8% and inflation (until the last 4 years was 4%). So in current dollars the S&P only does 4% in current dollars. Doubling is 17 to 18 years. My mistake was tax deferred IRA and 401k when I was earning very little (and without a match). It will be taxed at a higher rate when I retire. I should have used a Roth but it was not available (over half at low wages). I then when to better paying jobs at paid above average and then salaries flatten. All the companies and state changed the pension plans to eliminate retirement heath insurance for younger spouse and payout amount. I have always live below my means by looking for bargins.

Yes... inflation does take a hit, but that is not an excuse for not saving when you are young. I have seen too many people use inflation as an excuse to not save because it will be worth less in the future than today.

 

[joestein]

As Gen X Faces Retirement Reality Bites
https://www.wsj.com/personal-finance/retirement-gen-x-money-a42bad7b

The ‘forgotten generation,’ born between 1965 and 1980, launched their careers at the start of a massive shift in how Americans work​

The oldest members of Gen X are turning 60 next year. Many can’t afford to stop working any time soon. Born between 1965 and 1980, Gen Xers launched their careers at the start of a massive shift in how Americans work. Companies moved from pensions that promise steady income after years of service, to plans such as 401(k)s that place employees’ retirement destiny in their own hands. Some Gen Xers were hit hard in their prime working years during the 2008 financial crisis. Others are still paying off student debt. Their children are increasingly living aging parents often require care. Few believe they can rely on Social Security to make ends meet later in life.
By some measures, Gen Xers are worse off financially than their baby boomer predecessors

“The Great Recession changed everything for us,” said Moore, who is 57. “After that, I don’t know how many Gen Xers trusted that system.”


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Defined benefit plans are just not workable for companies these days. A company shouldn't have to be liable if the market crashes or there is a major recession. Contribute to an account for an employee in a fair amount and then the employee should shoulder the responsibility of the market.

Defined benefit plans are review by actuaries who decide how much needs to be contributed. When the market is booming - many times that is very little or nothing - the plan is fully or over funded. Meanwhile - we have a major crash like in 2008 and then the plan is underfunded by billions. There is no way the company can make up that money - meanwhile everyone starts to complain about the underfunding and how payments were not made in the past. I see this a lot with state pensions.

 

[Brett]

Defined benefit plans are just not workable for companies these days. A company shouldn't have to be liable if the market crashes or there is a major recession. Contribute to an account for an employee in a fair amount and then the employee should shoulder the responsibility of the market.

Defined benefit plans are review by actuaries who decide how much needs to be contributed. When the market is booming - many times that is very little or nothing - the plan is fully or over funded. Meanwhile - we have a major crash like in 2008 and then the plan is underfunded by billions. There is no way the company can make up that money - meanwhile everyone starts to complain about the underfunding and how payments were not made in the past. I see this a lot with state pensions.

yes, that's why many companies moved to "cash balance" pension plans and then 401k plans when it became available. It's tough for major companies to compete internationally if they had retirement plans like those of state and local employees

 

[jp10558]

Defined benefit plans are just not workable for companies these days. A company shouldn't have to be liable if the market crashes or there is a major recession. Contribute to an account for an employee in a fair amount and then the employee should shoulder the responsibility of the market.

Defined benefit plans are review by actuaries who decide how much needs to be contributed. When the market is booming - many times that is very little or nothing - the plan is fully or over funded. Meanwhile - we have a major crash like in 2008 and then the plan is underfunded by billions. There is no way the company can make up that money - meanwhile everyone starts to complain about the underfunding and how payments were not made in the past. I see this a lot with state pensions.

Personally I think this is crap - companies have lots of benefits over individuals in investing - they have a potentially near limitless time horizon, they can hire experts for investment advice etc. I really don't understand why they cannot do something like an insurance product TBH kind of like whole life insurance, or the cash accumulation funds on universal life insurance. Buy a guaranteed 4% return, if it does significantly better, you get bonuses, and if it does worse the insurance makes up for it. Yes, you lose a chunk of the potential upside, but at least historically you did get a way better return than savings accounts. My primary complaint is - there's obviously not a good system if it requires everyone to be an investment guru.

 

[HitchHiker71]

Personally I think this is crap - companies have lots of benefits over individuals in investing - they have a potentially near limitless time horizon, they can hire experts for investment advice etc. I really don't understand why they cannot do something like an insurance product TBH kind of like whole life insurance, or the cash accumulation funds on universal life insurance. Buy a guaranteed 4% return, if it does significantly better, you get bonuses, and if it does worse the insurance makes up for it. Yes, you lose a chunk of the potential upside, but at least historically you did get a way better return than savings accounts. My primary complaint is - there's obviously not a good system if it requires everyone to be an investment guru.

While I'm a big fan of taking personal responsibility and I went to school to learn about money, at least in my own personal travels, I've found the majority of people to be clueless about personal money management - from budgeting to retirement investments and everything in between. It was painful to sit by and watch many a baby boomer's retirement disappear up in smoke during the Great Recession between 2008-2010. Some were right at retirement age at that time and watched their chances of retirement disappear in the process.

Essentially what companies have done is to shift the risk of monetary returns away from themselves toward the little guy by embracing defined contribution plans at least in part. Granted, some retirement plans at larger companies that have generous 401k plans offer professional investment management (Vanguard, Fidelity, etc.), but the vast majority of smaller company 401k plans, if they even offer them, don't offer any option for money management, they simply offer up target retirement funds and say "best of luck", hope you don't hit retirement on a market downturn and lose 20-40% in the process (the average - average - market drop in a recession is 35-40%). While everyone loves to trumpet that over the long term the market returns 8-10% - that doesn't really matter if a downturn occurs only a couple years before you are set to retire and you are overexposed to equities for whatever reason. I largely avoided the big downturn during the Great Recession and was very fortunate to have done so - but timing the market is really hard especially over the long term as it's not just a matter of tracking the markets themselves given various external geo-political shocks oftentimes produce market downturns since all market activity is a confidence game at the end of the day - and geo-political shocks are by definition oftentimes deeply destabilizing events that sometimes come out of nowhere seemingly. Again, I'm all about personal responsibility, but expecting the little guy to somehow meet or beat Wall Street isn't a good gambit really.

 

[letsgobobby]

The S&P500 has an average growth of 8% and inflation (until the last 4 years was 4%). So in current dollars the S&P only does 4% in current dollars. Doubling is 17 to 18 years.

the average return since inception including reinvested dividends has been 9.9% and since 1957 10.25% (and almost 11% through 2024 YTD).

S&P 500 Average Return and Historical Performance

See the historical performance of the S&P 500 Index. Learn more about the factors that affect the S&P 500 average return.

www.investopedia.com

the average inflation since 1926 has been 2.9% yielding an annualized real return of 7%, not 4%. that makes for a doubling every 10 years, not every 17 or 18. Since 1957 inflation has averaged 3.7% for an annualized real return of 6.55%, doubling about every 11 years.

 

[jp10558]

While I'm a big fan of taking personal responsibility and I went to school to learn about money, at least in my own personal travels, I've found the majority of people to be clueless about personal money management - from budgeting to retirement investments and everything in between. It was painful to sit by and watch many a baby boomer's retirement disappear up in smoke during the Great Recession between 2008-2010. Some were right at retirement age at that time and watched their chances of retirement disappear in the process.

Essentially what companies have done is to shift the risk of monetary returns away from themselves toward the little guy by embracing defined contribution plans at least in part. Granted, some retirement plans at larger companies that have generous 401k plans offer professional investment management (Vanguard, Fidelity, etc.), but the vast majority of smaller company 401k plans, if they even offer them, don't offer any option for money management, they simply offer up target retirement funds and say "best of luck", hope you don't hit retirement on a market downturn and lose 20-40% in the process (the average - average - market drop in a recession is 35-40%). While everyone loves to trumpet that over the long term the market returns 8-10% - that doesn't really matter if a downturn occurs only a couple years before you are set to retire and you are overexposed to equities for whatever reason. I largely avoided the big downturn during the Great Recession and was very fortunate to have done so - but timing the market is really hard especially over the long term as it's not just a matter of tracking the markets themselves given various external geo-political shocks oftentimes produce market downturns since all market activity is a confidence game at the end of the day - and geo-political shocks are by definition oftentimes deeply destabilizing events that sometimes come out of nowhere seemingly. Again, I'm all about personal responsibility, but expecting the little guy to somehow meet or beat Wall Street isn't a good gambit really.

It's actually a little worse than that - everyone who's skilled in something finds it painful to watch most others make what seems like absurd basic mistakes. The thing is - no one can be an expert in everything and looking down on "rubes" for the couple things you know a lot about ignores that there's a bunch of stuff where you're the rube.

For optional / luxury things like Timeshares - I'm more OK with having the person do due diligence (though I'm far less OK with the outright fraud the salespeople are allowed to commit IMO).

For something like retirement - I honestly just think the government needs to either explicitly say they really don't care OR beef up social security to continue and meet the basic living standard / retirement level society wants and leave all the market stuff as optional for people who want to spend time or money on it.

 

[DrQ]

Not a 60 year old, but here's a story of a 40 something that is just WOW:

I inherited $250,000 from my grandmother when she died - here's how I blew through it all and ended up living in a rental​

I inherited $250,000 from my grandmother and regret how I spent it. I wish I had overcome my fears around money sooner.

Sara Faith Jacobsen received $175,000 from her grandmother's life-insurance policy and $75,000 from her will when her grandmother died in 2021.

www.businessinsider.com

• When she was young, Jacobson was never really taught how to manage money, except for how to balance a checkbook.
• She went to college and graduated in 2007 debt-free after her family paid for her bachelor's degree in women's studies.
• Jacobson then became a lactation educator and consultant in Colorado, and although it didn't pay well, her family helped her with rent.

For those that may want to complain about a paywall, you can hold your nose and follow this link to the same story on the Daily Mail

 

[joestein]

Not a 60 year old, but here's a story of a 40 something that is just WOW:

I inherited $250,000 from my grandmother when she died - here's how I blew through it all and ended up living in a rental​

I inherited $250,000 from my grandmother and regret how I spent it. I wish I had overcome my fears around money sooner.

Sara Faith Jacobsen received $175,000 from her grandmother's life-insurance policy and $75,000 from her will when her grandmother died in 2021.

www.businessinsider.com

• When she was young, Jacobson was never really taught how to manage money, except for how to balance a checkbook.
• She went to college and graduated in 2007 debt-free after her family paid for her bachelor's degree in women's studies.
• Jacobson then became a lactation educator and consultant in Colorado, and although it didn't pay well, her family helped her with rent.

For those that may want to complain about a paywall, you can hold your nose and follow this link to the same story on the Daily Mail

Typical American...... spends every penny they can get their hands on or borrow. She had "experiences". Now... she has a new experience.... it is called "poor". She says now she "knows better" and wants to save to invest in RE. I can assure you that she will continue to spend every penny she gets and will most likely never save money to invest. Then she will cry about not being able to retire when older. Maybe that is cold... but that is reality.

also..... maybe if she had bought normal size chairs, she might have some money left.

 

[DrQ]

Typical American...... spends every penny they can get their hands on or borrow. She had "experiences". Now... she has a new experience.... it is called "poor". She says now she "knows better" and wants to save to invest in RE. I can assure you that she will continue to spend every penny she gets and will most likely never save money to invest. Then she will cry about not being able to retire when older. Maybe that is cold... but that is reality.

also..... maybe if she had bought normal size chairs, she might have some money left.

No, not typical, but you can kind of read between the lines that she was the "princess" of the family. The illness is affluenza, while she doesn't have a case as severe as Ethan Couch, she seems to have a mild case of it. Given a free ride for a university degree, she did not think anything of chucking her job when she received her inheritance. It looks as if everything was a gift, so therefore it has no value.

 

[SmithOp]

How much did Sarbanes-Oxley affect corporations when they had to start carrying pension liabilities on the books? I don't know, I'm asking, but it seemed to me it all started downhill about that time.

When I started with IBM it was a defined benefit (plus medical) when you put in 30 years, then it slipped to a cash balance (no medical). By the time I retired it was a 401k match, and the annual match was paid in December so they would let people go quarterly to avoid paying that last year's match. I got the "package" at 58, 6 months pay and 6 months Cobra. I put in for my pension and left the working world behind, no regrets. Fortunately my wife had a full pension with medical, dental, and vision. It could have been ugly going on ACA until Medicare. That happened to my sister, she just turned 65.

 

[HitchHiker71]

It's actually a little worse than that - everyone who's skilled in something finds it painful to watch most others make what seems like absurd basic mistakes. The thing is - no one can be an expert in everything and looking down on "rubes" for the couple things you know a lot about ignores that there's a bunch of stuff where you're the rube.

For optional / luxury things like Timeshares - I'm more OK with having the person do due diligence (though I'm far less OK with the outright fraud the salespeople are allowed to commit IMO).

For something like retirement - I honestly just think the government needs to either explicitly say they really don't care OR beef up social security to continue and meet the basic living standard / retirement level society wants and leave all the market stuff as optional for people who want to spend time or money on it.

I guess my overall point is that shifting the responsibility to the individual generally doesn't work out well - at least for certain things. I'm all for individual rights, but as you said, we're not experts in everything, especially these days, there's just plain way too much data to ever become an expert at everything in life - especially something as important as retirement planning. Some folks have a knack for it, but most don't.

This is why our legal system puts the onus on the larger party (typically) from a contractual standpoint (contra proferentem rule) for any items that are ambiguous for example - and favors the smaller party/contractee from an interpretive standpoint. It's almost universally the case that the contractor is the larger party with more resources/monies, which is why the contractee is favored. With this concept in mind, it strikes me as odd the the larger entity (a corporation) is able to entirely transfer the risk of retirement plans onto the individual who comparatively has very limited resources. It's no wonder many individuals suffer with investments as a result, and it's no wonder the majority of Americans have little to no retirement savings to speak of.

 

[easyrider]

One thing for certain is we are all born, live and end up dead in the end. I always thought I was working too much so I would temper that feeling with plenty of good times. Thanks to timeshare, the good times were, and still are, in nice condos in the nice areas of the world.

Bill

 

[joestein]

One thing for certain is we are all born, live and end up dead in the end. I always thought I was working too much so I would temper that feeling with plenty of good times. Thanks to timeshare, the good times were, and still are, in nice condos in the nice areas of the world.

Bill

Life is a balance. You have to make the choices that work for you. I stayed at my job where they are fewer opportunities and poor benefits because it offered a good work life balance. I happened to have rose up there because of my abilities and make good money, but I could have gone elsewhere and would most likely be earning quite a bit more. Of course there are other choices in life about money, love, home, children, etc....

We are the sum of our choices. Hopefully we all make the choices that allow us to have good times and nice condos that balance out the hard work.

 

[HitchHiker71]

Life is a balance. You have to make the choices that work for you. I stayed at my job where they are fewer opportunities and poor benefits because it offered a good work life balance. I happened to have rose up there because of my abilities and make good money, but I could have gone elsewhere and would most likely be earning quite a bit more. Of course there are other choices in life about money, love, home, children, etc....

We are the sum of our choices. Hopefully we all make the choices that allow us to have good times and nice condos that balance out the hard work.

Agreed. I'm still in my current position for the same reasons, it has good work-life balance, which has become increasingly important to me as we have gotten older (early 50s now). I could have moved elsewhere and risen up the chain faster and would likely be making a good bit more - but that's not as important to me these days. I work from home full time, travel on business maybe 10-20% of the time at most, largely by choice really, and I get to see my wife every day, be home every day, enjoy home projects, see our kids who are local, etc. A few friends of mine left the company I still work for pursuing upward career movement and more money, of the three that did so over the past two years, two were subsequently laid off by their new companies over the past three months as the economy has slowed, and they are now scrambling to find work in an IT market with a lot of unemployed competition. I'm increasingly happy to have stayed where I am.

 

[jp10558]

Agreed. I'm still in my current position for the same reasons, it has good work-life balance, which has become increasingly important to me as we have gotten older (early 50s now). I could have moved elsewhere and risen up the chain faster and would likely be making a good bit more - but that's not as important to me these days. I work from home full time, travel on business maybe 10-20% of the time at most, largely by choice really, and I get to see my wife every day, be home every day, enjoy home projects, see our kids who are local, etc. A few friends of mine left the company I still work for pursuing upward career movement and more money, of the three that did so over the past two years, two were subsequently laid off by their new companies over the past three months as the economy has slowed, and they are now scrambling to find work in an IT market with a lot of unemployed competition. I'm increasingly happy to have stayed where I am.

Yea, I am (albeit a decade younger) very much the same. I get to live in a pretty rural area, get paid pretty well for that area, vast majority of the time can work from where I am, mostly get to choose what I want to work on (within the orgs needs) and actually have decent benefits. My cousin moved away and when I visit he's always getting a new job, IDK how he's managing the proliferation of retirement accounts etc. I know I could make more money, but I'd have to move, I'd have to go into an office again, and I'd probably never have the same job security.

 

[ScoopKona]

I'm all for individual rights,

It would be one thing if these individuals didn't expect society to pick up the check if they behave foolishly.

Ayn Rand's final days on this Earth spring instantly to mind.

 

[TolmiePeak]

It would be one thing if these individuals didn't expect society to pick up the check if they behave foolishly.

Ayn Rand's final days on this Earth spring instantly to mind.

Well they will respond that we picked up the tab for Wall Street back in 2008/2009 when they went belly up.

 

[ScoopKona]

Well they will respond that we picked up the tab for Wall Street back in 2008/2009 when they went belly up.

That was also a mistake.

Back when I was working, coworkers said things like, "what if you save and invest and die young?" (As a means of justifying their wastrel, mindless-consumerism ways.) This was at a company which had generous 401K matches, a pension fund (not for every employee, but many of them), and regular "get your retirement on track" workshops in the employee dining room.

This company made it EASY to save and invest. And yet most people spent every penny they made.

 

[HitchHiker71]

Well they will respond that we picked up the tab for Wall Street back in 2008/2009 when they went belly up.

The very definition of moral hazard in action. Too big to fail is merely code for moral hazard on a grand scale.


Sent from my iPhone using Tapatalk

 

[Panzerman]

The 6 P's come into play here. Proper planning prevents piss poor performance. People when they hit 60 years of age have had 4 decades to plan and invest. If they don't, what can I really say that would be polite?

 

[ScoopKona]

The 6 P's come into play here. Proper planning prevents piss poor performance. People when they hit 60 years of age have had 4 decades to plan and invest. If they don't, what can I really say that would be polite?

But they'll demand to be taken care of. It's the Ant and the Grasshopper scenario. And we have entirely too many selfish grasshoppers to trust people to keep their own financial house in order. Forty percent of retirees only have Social Security. (They failed the 6Ps, miserably.) Most of those retirees aren't going to be able to live with 25% cuts in their Social Security checks (or higher -- I'm wagering on closer to 33% cuts when depletion day arrives). What then?

New Report: 40% of Older Americans Rely Solely on Social Security for Retirement Income - National Institute on Retirement Security

Only 7% of Retirees Have Ideal Situation of Income from Three Sources: Social Security, a Pension and Savings Social Security Kept More Than 7.5 Million Households Out of Poverty, Reduced Public Assistance Costs by $10 billion in 2013 Pensions Kept Nearly One Million Retirees Out of Poverty...

www.nirsonline.org