Market Overview

Younger Generations and the Prospect of Retirement

The main headline on the Drudge Report this morning read "Recession 'Lost Generation'" and linked to an Associated Press article written by Hope Yen discussing how the Great Recession is affecting young adults. Yen: "In record-setting numbers, young adults struggling to find work are shunning long-distance moves to live with Mom and Dad, delaying marriage and buying fewer homes, often raising kids out of wedlock." Recent numbers from the 2010 census suggest that the Great Recession is having a debilitating and damaging impact upon young people in the US.

According to Yen, the census numbers highlight "the missed opportunities and dim prospects for a generation of mostly 20-somethings and 30-somethings coming of age in a prolonged slump with high unemployment." The article suggests that these factors may result in a "lost generation" for many. The unfortunate state of the US economy in light of the Great Recession's impact on young people spirals into other cultural and socio-economic aspects. Where many young people do not have jobs and are living with their parents, young people are not as likely to get married, have children, and buy houses. To say the least, the situation is precarious.

On Sept. 15, Bloomberg's Dune Lawrence and Nora Zimmett reported on how members of Generation X (Gen-X), or the "46 million Americans born between 1965 and 1978", are having trouble competing with baby boomers for jobs. According to the article, over a quarter of Gen-X Americans are working longer hours; a little under 75% of Gen-X Americans are making career choices based on credit card debt. Owing to socio-economic factors like education and health care issues, it is as if Gen-X Americans have had "no welcome in the economy". Stuck between baby boomers and the "echo boomer" millennials of Generation Y (Gen-Y), the article suggests that Gen-X is facing considerable adversity in terms of career status and looking forward to the prospects of retirement.

And speaking of the prospects of retirement, US News & World Report's Emily Brandon recently reported on how Gen-X and Gen-Y Americans will "need to save considerably more than the baby boomers to make up for less employer and government help". As a result, a Gen-Y American is going to have to save up about $2 million for retirement. (But how much is $2 million today going to be worth in ameros?) Further, the article states that Gen-Y Americans should not plan on retiring at age 65. Brandon: "If you're 25 now and willing to work until age 70, you could reach $2 million by saving just $95 per week, assuming an 8 percent annual return and not even counting the 401(k) match." Only $95 per week? Wow.

I am not certain as to how feasible an 8 percent annual return is today or will be in the future, but Bloomberg's retirement calculator appears to verify this projection. One also has to wonder how inflation would impact this $2 million price-tag, but Brandon advices young people to not "get hung up on the number". Nevertheless, if you are 25, unemployed with your Bachelor's degree, and living with your parents, I am not too sure what $2 million even means at that point. If you are 25, unemployed, and living with your parents, the price tag for retirement might as well be a hundred kajillion bazillion dollars.

Even so, aside from the sheer numbers, let us suppose that a Gen-Y worker will be retiring sometime in the 2050's. I ask you: What the hell is the planet Earth going to look like in the year 2050? What is American society going to look like in 2050? What crises will the globe be reeling from at that point in time? A water crisis perhaps? Overpopulation? Famine? War? Disease? Euthanasia? We can attempt to crunch the retirement numbers for Gen-X and Gen-Y ceteris paribus, but the simple fact is that things are constantly changing and never remain the same.

The elephant in the room with respect to this discussion goes back to the baby boomer generation. This demographic bulge in the belly of a snake is proving to be a substantial bane for just about every other generation in its chronological vicinity. In particular, for Gen-Y and Gen-X, the baby boomer generation appears to be having an adverse impact on generational economic standings in terms of education, career, marriage, child-rearing, and retirement. Unfortunately, it would not surprise me if in the near future someone were to write a book arguing that the baby boomer generation is the "worst generation in the history of the universe".

The idea of a generation enjoying a rich, full, and functional lifestyle with high health care consumption at the expense of younger generations and passing vast amounts of debt down to not only its children's generation but also its grandchildren's generation is enough to rival when the Roman god Saturn devoured his own children. Nevertheless, in due fairness the baby boomer generation itself has worked very hard for what it has and has been through a lot in its own time. And in my humble opinion, in due fairness I think the baby boomer generation has ample time to truly redeem itself given our current socio-economic mess.

On the topic of retirement, if many Gen-X and Gen-Y Americans find themselves unemployed (and unemployable) going into the future, unable to buy homes, get married, or have children, how will the younger generations be able to take care of the elderly generation of the future? Where will the funds come from? Where will the money to pay the health care costs come from? I mean, seriously, what, are we going to have tent cities set up for the substantial number of elderly citizens in the future? What kind of society are we going to be in the future? If echo boomers are not able to walk on their own now as grown adults of productive age, how will they be able to walk in the future carrying the elderly generation on their back? What good is retirement advice for an entire generation that cannot find jobs and functional lifestyles? What is going to happen to the baby boomer generation? This is something that we need to remember with respect to the issue of Gen-X and Gen-Y retirement. If we are going to be talking about the younger generations and retirement, then let's get all the cards on the table first.

Even in terms of retirement accounts in this time period, we have seen how quickly 401(k) funds can disappear. Given the future of Social Security, rampant unemployment, societal malaise, and the global economy, I wonder how realistic the prospect of retirement for Gen-X and Gen-Y Americans really is. It is easy to say, "Oh, just save $95 a week for 45 years and you will have $2,000,000 by the time you're 70", but when all is said and done, we have to take a good look at the economy, our society, and our culture going forward. Heaven only knows what our "brave new world" is going to look like 40 to 50 years from now.

Last July I discussed how the use of the phrase "lost decade" may prove to be more optimistic than it sounds in light of a possible lost generation. I have also recently discussed how American society is going to have to take a closer look at our broken American culture if we hope to repair our broken political system and broken economy. In this way, on an economic level, we do well in looking towards the future, but we must also be realistic. Yes, those in the baby boomer generation could have asked in the 1960's and 1970's, "Why should we even bother saving for retirement if the world is going to end in a nuclear war in a few years?" However, this time our global situation is a bit different. In 1970, the world population was about 3.7 billion; today the world population is seven billion. According to some projections, the world population in 2050 will be around nine billion. Even so, what will the world look like then? How would a possible collapse of the US dollar affect the younger generations' prospects for retirement?

Though the issues discussed herein may appear to be solely economic, they go back to our culture and our way of life. Where one generation occupies the workforce to the detriment of younger generations, the result is not to be desired; the Arab Spring is a testament to this. We have yet to see if such mass protests could occur in the US. Even so, I believe there is economic hope. And our economic hope can be found in one word: economy, as in the definition of "economy" being "thrifty management; frugality in the expenditure or consumption of money, materials, etc." I am sure that economists like Paul Krugman would disagree with me in that we should be more economical right now rather than spending more, but the simple fact of the matter is that our cultural way of life is unsustainable in the long run. A country cannot just consume and consume and consume without producing anything. The Great Recession is a testament to the fact that we have to take another look at our society and our culture.

Where it may be easy to want every American family to own a home, perhaps this is not economically feasible. Where it may be easy to want every American to have a college degree, perhaps this is also not economically feasible. And if every American has a college degree, what really is the value in having a college degree? As I discussed previously regarding the Amish, in light of this Great Recession I think we have to learn something important about community and family. It appears that those who can spread financial risk across a community will be in a much better financial position compared to those who allot risk to singular households. There is a security-prosperity tradeoff here, but given our current quagmire, many young people may be willing to sacrifice a bit of prosperity for some security (or at the very least, functionality). The fact that more Americans have not embraced a communalistic lifestyle reflects how much our materialistic culture is engrained into our society. We need to start thinking outside the box on an economic level. A few kibbutzim would do America some good.

Even so, as time passes, where it becomes clear that it will be more economically profitable to unite and cooperate (as families or as a group of families) than be divided and bear substantial risk individually, I think the hope for a realistic retirement for younger generations manifests itself. As in the case of the elderly in an Amish community, I am sure that they are not paranoid about their 401(k)s and Social Security; a communalistic entity takes care of its elderly; maybe it's time that American society takes a hint and begins looking to the metaphysical wealth of its community rather than its superficial and dissipating material wealth. Maybe it's time for American society to grow up and stop putting more faith in its toys & playthings than its citizens.

By the year 2050, we could be living in a completely different world. In short, though we do well in looking forward to retirement, we have to be realistic. Despite the popular rhetoric in the news, in advertisements, in the entertainment industry, and on Wall Street, it is important for young Americans to realize that the economy is telling us that our current way of life has to substantially change sooner than later. We would do well in taking heed and responding accordingly.

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