How Will Younger Generations Be Able to Retire? by Bob Lowry
Recently, I have added a simple poll question on the top right side of my blog. For a period of 6 days readers are asked to pick one of the possible responses. Then, I post another question and collect results. If the responses are sufficiently clear to a particular question, this is a simple way to generate new blog topics.
A few weeks ago the question asked how your retirement would compare to those in younger generations. Out of the four possible choices, more than half (56%) said, “Worse than me.” Another 15% said these folks would never be able to retire. No one thought those who follow us would do better than we are.
That is a conclusive result. Roughly 7 in 10 thought their children or grandchildren would not have the chance to experience a retirement as satisfying as theirs. This is a country where we have always believed those who follow us have the opportunity of a better life. If my completely unscientific poll is even close to right, a majority no longer believes that.
So, the question becomes, Why? What won’t younger people have what we do? My answers have to be entirely speculative, since that was not asked on the poll. But, I think I am on pretty safe ground with these thoughts.
1) The lack of company pensions or strong retirement plans. Certainly, the generation before us benefited from a system of pensions and health coverage after retirement. Many older Boomers enjoyed the same benefits. Beginning with changes in tax laws in the 1980’s and 90’s defined benefit pensions began to be replaced with defined contribution plans. This type of plan is much less generous and provides much less stability to one’s retirement planning.
2) The soaring cost of medical care. On a per capitas basis, health care costs have increased 500% since 1970, or to an average of over $11,000 per person per year. Younger workers have substantially less help in covering health care costs than we did. With the current political climate, it is likely this burden will continue to take away money that might otherwise be invested in retirement accounts.
3) The weak wage growth over the past few decades = poor rates of savings. Average wages have increased 4.63% on an annual basis since 1960. For most, that has not been nearly enough to keep up with the cost of living.
4) Instant gratification and confusing wants and needs. We remain a society driven by consumption. Advertising has one goal: to create dissatisfaction with the status quo. Financial education is lacking, so too many younger folks do not appreciate the need to delay gratification for a long term benefit.
5) A tax system based on what we earn, not what we consume. All the variables are too involved for this post, and I do not pretend to understand all the issues involved. But, a taxing system that emphasizes a tax on purchases, like a VAT tax, seems to be more logical than one based so heavily on taxing income and investments.
This is a complex problem, one well beyond my ability to suggest a solution that works for everyone. But, the poll I mentioned, along with any number of Internet articles and research reports indicates the ability of younger generations to enjoy retirement like many of us do should be of serious concern.
I sincerely hope that a satisfying retirement is not something that ends when our generation does. It is a stage of life that everyone should be able to experience, if that is their desire. As readers of this blog appreciate, retirement is not just about not working. It is about discovering aspects of one’s personality and character that can remain unrealized until the freedom of this phase of life begins.
By Bob Lowry