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And for some depressing news for people my age....
Myself, I am not counting on the pyramid scheme of Social Security to be around. I hope it is, but my statements are already telling me it's possible it'll be gone when I'm ready to retire. (in so many words)
I'd gladly take 70% of everything they've taken from me over my career.
As kids, they sat on gas lines in the backs of their parents’ cars. As young adults, they saw the stock market crash, and when it finally came time to settle down, they bought a house at the peak of the housing bubble and then were faced with the worst economy since the Great Depression.
It’s no shock that Generation X — those born from 1965 to 1981 — may get short changed in their golden years.
Though they’ve watched parents and grandparents nestled with pensions, Social Security and strong economic growth, these are no longer guarantees. On the other hand, longer life spans with more medical bills and greater need for cash are the reality for many.
Gen X is the first generation to deal with the fact that the models of American retirement are changing — and its members are flustered. The generation once called “slackers” has been true to form with retirement planning.
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“Gen X is a transition generation,” says Carol O’Rourke, a certified financial planner and Executive Director for the Coalition for Debtor Education in New York City. “Gen Xers were young during the tech bubble, and when they came of age, housing was a lot more expensive. With all the talk about whether Social Security is going to survive, there is a sense of not having something to look forward to.”
According to a 2012 Insured Retirement Institute , IRI, report, only one-third of Gen Xers are "very confident" about having enough money to live comfortably during retirement, cover their medical expenses, and pay for their children’s higher education.
Just 41 percent of the group have tried to figure out how much money they will ultimately need to save for retirement, and among those who have saved, half have amassed less than $100,000.
“Even though they have a longer time horizon toward retirement, there has been a tremendous emotional impact on their confidence in the future. What are they going to do to be sure that they have enough?” adds Cathy Weatherford, IRI president and CEO.
Along the same lines, a November 2011 report from the Guardian Life Insurance Company of found 82 percent of Xers believe the economy is headed in the wrong direction.
Skepticism is one of the defining X characteristics, says Robert Wendover, managing director at the Center for Generational Studies in Littleton, Colo.
“Many of the institutions that they were taught as children didn’t play out, whether it was political or social or economic. They just kind of unraveled for a variety of reasons,” says Wendover.
With the complexity of financial products on the market, Xers are not investing like other generations because they can’t find advice, say experts.
O’Rourke points out that, “while you used to be able to start small, private banks these days are looking for large clients and you need something like $250,000 to open an account.” Though Xers might be comfortable with online banking, they're not the type to invest in the Internet.
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Gen Xers have been burned and are more hesitant, agrees Shalyn Courtenay, a Senior Associate at a Cambium, a full service financial advisory firm in Purchase, NY. In some cases, Courtenay encourages clients to put money in the stock market, but frequently suggests annuity products and cash value whole life insurance that provide guarantees.
The IRI study also revealed that during the recession, 15 percent of Xers made early withdrawals from their 401(k) plans, 23 percent stopped contributing to their retirement accounts, and 22 percent stopped contributing to college savings plans.
“The leakage out of their 401(k)s to meet current needs is what is most worrisome,” adds Weatherford.
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“Tapping into retirement accounts is expensive,” agrees Courtenay, who is quick to remind clients that everyone should have emergency liquid funds, such as a money market account,.
On the job front, Xers may not be in the executive level jobs that they hoped for because the Baby Boomers are working longer.
“It delays the natural promotion and succession process within in many firms,” Wendover points out.
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Home ownership in the X demographic is also down. The Census Bureau reports that in the first quarter of 2005, 70 percent of older Xers (ages 35 to 44) owned homes. In the fourth quarter of 2011, it had fallen to 62 percent. Among younger Xers (under 35), it dropped from 43 to 38 percent in the same time period.
The elephant in the room, however, is Social Security . An American institution since the 1930s, there will almost certainly be modifications that will apply to the X generation, say experts.
It’s possible that SSI benefits will be taxed more heavily, particularly for upper-income earners. Younger people will probably have to pay more in Medicare , and because of stress to the system, it is almost a foregone conclusion that the retirement age will gradually be lifted for those under 55.
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“One of the biggest mistakes that people make when planning for retirement is they underestimate health and long-term care costs,” says AARP's VP for Financial Security Jean Setzfand.
According to a February 2012 AARP report, half of all Medicare beneficiaries pay at least $3,138 in out-of-pocket costs, amounting to 17 percent of their income. Nearly two-thirds of Americans 65 and older will need long-term care at home, through adult day health care or in an assisted-living facility.
The IRI report cited 64 as the average age at which Xers thought they’d retire. A longer horizon for sure, but if they don’t step it up, Gen X may be in the trenches a lot longer.
I must be gettin' old... I still think baseball is cool.
Not to look at the glass as half full, but I have an opinion that may shed some light or provide relief for the non-believers.
The Social Security taxes you now pay go into the Social Security Trust Funds, and are used to pay current beneficiaries. The Social Security Board of Trustees now estimates that based on current law, in 2037, the Trust Funds will be depleted. Because people are living longer and the birth rate is lower, the ratio of workers to beneficiaries is falling. Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amount. Even if modifications to the program are not made, there would still be enough funds in 2037 to pay about $760 for every $1,000 in benefits scheduled.
As you may know, people receiving Social Security checks are eligible to receive a raise every year, known as a COLA (cost of living adjustment). There might not be much we can do with regard to inflation, but you will have greater control of income and expenses through financial planning.
Should Social Security be in good shape to make payments to our children and grandchildren, that would be great. But unless modifications are made to improve the program, let's not count on it. Encourage young people to save. Young people with long time horizons will benefit greatly from the power of compounding interest. Here's an example, let's consider a $1,000 gift is made to a grandchild. What's that worth in 30 years?
At 5% = $4,321
At 8% = $10,062
At 12% = $29,959
At 15% = $66,211
Sounds good, right? All we need is a fixed rate of 15% and we can be set for life! Now, where can I get a guaranteed 15% for 30 years? No place that I know of, and don't let anyone else promise you double-digit guaranteed returns either. No such thing. Even at a 8% rate, you money will be worth 10x more. At 12%, it will be worth 30x more. That's the power of compound interest.
Because most of us are still young enough to prepare, we should take control of our financial plans. Don't let your finances take control of you!
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Yeah, let's not even get to the 401k's and the like. I do believe in them, especially if your employer contributes. It's free money, so to speak, and you are helping your tax bracket as well. But, the returns? Historically good. Now? Not sure. Lots of people had to put off retirement in the past 5 years or so due to their 401k's getting absolutely obliterated.
Sometimes, I think maybe your best option is to just stick it under your mattress.
I must be gettin' old... I still think baseball is cool.
Look's like my generation (Generation Y: 1982-2000) will be facing the same problems as listed above. The average household is currently spending about 7% of their wealth just on gasonline, a number that has not been reached since the early Reagan era economic crisis. Lord knows where this number will be 10-20 years from now when my generation will be in our wealth accumulation years. Nonetheless, my generation will likely fare off better than previous generations in the housing market.