Millennials and Gen Xers: On the Brink of Retirement Disaster

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Two-Minute

Transcript:

We haven’t done a Two-Minute Retirement Solution for the kids and grandkids in a while, so this week’s segment goes out to the millennials and “Gen Xers” in our lives.

Sometime around 1985, our nation changed. We went from being a nation of savers to being a nation of spenders. The savings rate dropped from around 11% of disposable income to just 5%.

The result is what we call “savings loss,” or how much wasn’t saved due to spending habits.

That number clocked in around $16 trillion in 2015.

And that’s where the retirement disaster begins for millennials and Gen Xers…

Today, the entire retirement system is primarily based on savings, not pensions.

If your kids or grandkids have a 401(k) or some other kind of retirement account, the consensus opinion is they should save at least 15% of their annual pretax income to fund their retirement.

Unfortunately, that number sits at just 5%, on average, today.

That puts the total savings loss from 1985 to 2014 at $27 trillion.

That’s 38% greater than our national debt.

But it gets worse…


You see, the same people seriously underfunding their retirements will be the ones stuck paying for our country’s nearly $20 trillion in national debt and our huge outstanding education (student loan) debt.

And many of them will also be on the hook for caring for their elderly parents, who, due to increased longevity, will be living long after they’ve lost the ability to care for themselves.

In many cases, our kids and grandkids will also have to deal with the mortgage debt 42% of us boomers are carrying into retirement.

The most frightening part? Despite numerous free, online retirement analysis tools and calculators out there designed to provide the information they need to set up effective retirement plans, a shocking number of them still haven’t done it.

So, if the system doesn’t undergo major adjustments, and if our Social Security trust fund is broken by 2032 and our benefits get cut by 30% (the current prediction)… what’s down the road for our kids and grandkids?

Have I got your attention now? Because I know I don’t have theirs.

None of us wanted to hear this kind of stuff when we were in our 20s and 30s.

We felt immortal, like we still had a lifetime to save. But that lifetime is just about over and the numbers for us are horrible!

Cash reserves are so low that 60% of boomers would have to borrow money to pay a $500 car repair bill today. Nearly 20% struggle to pay their medical bills, and few have made any prior financial arrangements for long-term care, which will cost around $300 per day.

And if major changes don’t happen, the retirement situation is setting up to be even worse for future generations.

If you have any influence over the millennials and Gen Xers, you owe them a solid “kick in the butt” style wakeup call!

Life at poverty level has to be experienced to be believed, and most of our kids and grandkids will find themselves in line to experience it… if drastic changes don’t happen.

Sit them down and make them listen.

Good investing,

Steve