Retirement clearly is not a priority for far too many young working adults.
Large minorities of the 22- to 37-year-olds who responded to a recent LendEdu survey said their retirement saving every month amounts to less than they spend on various categories of consumer goods. Nearly half of them report they spend more on dining out than on retirement saving. Almost one in three spend more on alcohol or new clothes, and one in four spend more on streaming services such as Netflix and Spotify. What that indicates is that a lot of them aren’t saving very much.
It might seem unfair that saving for retirement is such an urgent matter for someone not yet out of their 30s. After all, they aren’t earning very much yet, are managing household expenses for the first time, and might have a big student loan payment.
But the reality today is that Millennials were not lucky like some of their parents born into a world where they had a decent shot at a job with a pension. And a Social Security check alone is definitely not enough for a retiree to live on.
More and more employers are countering a reluctance to save by automatically signing workers up for the company retirement plan – nearly 50 percent of employers are doing this, compared with just 20 percent a decade ago, according to Vanguard’s client data. The idea behind automatic enrollment is that, just as inertia prevents people from signing up for a 401(k), inertia will keep them in the plan if the employer puts them there.
The strategy seems to be working: 92 percent of workers in their mid-20s to mid-30s whose employers have auto-enrollment are contributing part of their paychecks to their 401(k) plans, according to Vanguard. Contrast that to just 52 percent of workers in this age group whose employer plans are voluntary.
There’s nothing better than to be young and carefree, but the young adults who aren’t saving are already putting their well-being in old age at risk. …Learn More
Walter Mischel, who used marshmallows to test children’s ability to delay gratification, died recently, but his lesson never grows old.
For those who aren’t familiar with his famous test, a young girl or boy sits at a table with a single marshmallow on a plate. The tester tells the child that he or she can eat the marshmallow right away, but waiting to eat it until the tester comes back into the room will bring a big payoff: a second sweet, puffy morsel.
Watching the children in this video squirm as they wrestle with their decisions brings to mind the adult equivalent. A desire for immediate self-gratification can come at the detriment of any number of personal financial decisions.
Like the marshmallow test, consuming now means having less money in the bank later. The test also applies to deciding when to retire. Retiring becomes extremely tempting for baby boomers who want to escape from work after decades in the labor force. But those who wait patiently for a few more years will have a sweeter retirement: a much larger Social Security check and more 401(k) savings distributed over fewer total years in retirement.
Children, when faced with the marshmallow test, struggle mightily to exercise self-control. They pick up the marshmallow to examine it, play with it, nibble it, and move it out of reach – but impulse gets the better of them, and they pop it into their mouths.
The lesson here is the same for children and adults: resist temptation and be rewarded. …Learn More
If an alien were to drop in to study earthlings’ retirement, it would have to conclude that saving is either nearly hopeless or super easy.
Many Americans approach retirement planning with dread – hardly surprising, given that only about half of working-age adults are on track to have sufficient savings to retire in the lifestyle they’ve grown accustomed to while working.
But there purports to be an easier way – and it’s on YouTube. Googling “retirement” turns up all kinds of outlandish promises of nirvana for regular folks. Examples of YouTube titles are: “Retire Young. Retire Rich.” “Guaranteed Ways to Retire Rich.” “How to Retire in 10 Years – Much Easier Than You Think.” You get the picture.
Don’t be fooled. In a 401(k) world, what workers need is determination, planning, and persistence to ensure they’ll be prepared for old age. YouTube offers only magic bullets.
Many of these exploitative videos are targeted to 20-somethings new to the financial world, who may be more vulnerable and persuadable. But perhaps they are also able to attract hundreds or even thousands of viewers because they offer easy solutions to what may be our most anxiety-producing financial challenge: Will I ever be able to afford to retire?
Yes, one video claims. Retire at age 40! The self-appointed retirement expert in this video, who does not identify himself, hides behind cartoon illustrations on a white board to display his mathematical comparisons of workers who started saving at different ages. The point of this exercise is that people who start early will wind up with a better-funded retirement, due to compounding investment returns, than those who start in their 40s or 50s. So far so good.
But things quickly go downhill when he claims that it’s possible for a 23-year-old to retire in 17 years. You “don’t have to work another day in your life, and you’re still able to do the things you want to do,” he says, allowing this tantalizing prospect to sink in with the audience. But his retire-at-40 scheme has a catch – and it’s a big one. To achieve this goal, a 23-year-old would have to save half of his or her income. Young adults are trying to achieve independence – not move back in with their parents to follow his financial prescription. …Learn More
Anthropologists took a deep dive into Middle America’s clutter a few years ago, and here’s what they found:
A wall of shelves holding hundreds and hundreds of Beanie Babies and dolls. Giant packs of multiple paper towels, cleaning fluids, Gatorade, and Dixie cups piled high in the garage or laundry room. Frozen prepared foods jam-packed into twin refrigerators in the kitchen and garage – enough to feed a family for weeks.
I write frequently about the financial challenges facing the middle class today and their perception that the American Dream is slowly and inexorably eroding. This feeling is very real.
But surely hyper-consumerism has something to do with our financial stress. U.S. households have more possessions than in any other country, UCLA anthropologists said in this video:
Money spent unnecessarily to stock our own personal Big Box store in the garage leaves much less for long-term goals like savings, retirement, and college tuition – the same expenses middle class families struggle to afford. “We buy stuff we don’t need with money we don’t have,” summed up one commenter on the video’s YouTube page.
The United States has long been a prosperous and material culture. But anthropologist Anthony Graesch argues that the magnitude of consumption has grown by leaps and bounds. This trend has probably been encouraged by the proliferation of inexpensive imports from countries with lower wages. Over a lifetime, these small expenses add up to boatloads of money.
“The sheer diversity and availability and fairly inexpensive array of objects that are out there – this has significantly changed over the years,” Graesch said. Toys are a prime example. “We’re perhaps spending more on kids’ material culture than ever before.”
Minimalism goes in and out of vogue, but there are few minimalists among us – this takes work, self-control, and a willingness to part ways with sentimentality. For the rest of us, there’s a personal finance lesson in this video. … Learn More
PBS Digital Studios is producing an excellent video series to guide 20-somethings who are starting their careers and want to get a handle on their finances.
In “Two Cents,” financial planners Julia Lorenz-Olson and her husband, Philip Olson, will make you laugh as they convey their very solid advice about personal finance. “How to Ask for a Raise” is perhaps the most relevant video to young adults – especially the ladies. Only one in three women believe that their pay is negotiable. Nearly half of all men do.
The potential for pay raises is highest for employees when they are in their late 20s and early 30s. But the boss isn’t likely to volunteer to increase anyone’s pay, the hosts explain – you have to ask. This is a scary thing to do, and the couple eliminates some of the anxiety by explaining how to prepare for that meeting with the boss.
The “Love and Money” episode asks the questions that are crucial to a successful partnership: how much does he or she earn and how much does this person owe? In “How Cars Can Keep You Poor,” the Olsons advise against buying a new car, which depreciates 63 percent in just five years – they compare it to investing in an ice cream cone on a hot day. A used car is a much better deal and the only sensible option for someone who’s already juggling rent and student loan payments. And the answer to “Should I Buy Bitcoin?” is, uh, no. Nearly half of all bitcoin transactions are illegal, Olson says.
For future-minded young adults, “How Do You Actually Buy a House?” walks through the entire process, explaining why it’s critical to get preapproved for a mortgage, how to choose a realtor, and what to expect in the closing. “Insta-Everything lays out the few pros and many cons of paying for on-demand services such as Grub Hub, InstaCart, and Task Rabbit.
Lorenzo-Olsen explains that the goal of their “Two Cents” videos is not to help young adults get more money (though a raise would be nice), “but to be happy with the money you have.”Learn More
This blog has spilled plenty of ink over the problem of so many workers having inadequate retirement savings.
One theory is that they don’t understand the urgency. But a new survey makes clear that they not only are fully aware of the problem but are very worried about it.
The vast majority of the 1,000-plus baby boomers and Generation-Xers who conceded to being behind on their saving wish they could save more – Allianz, which conducted the survey, calls them “chasers.”
These chasers recognize that if they don’t make adjustments, it’ll be too late to repair their finances. Two out of three fear the worst: they’ll run out of money at some point in old age and will be forced to eke out a living on their Social Security checks alone.
Their fears are warranted. The typical boomer household approaching retirement who has a 401(k) has saved just $135,000 in its 401(k) and any IRAs combined. At retirement, this amount equates to only about $600 in monthly income
Half of the workers put the blame on a single culprit: “too many other expenses right now.”
This sentiment dovetails with mounting evidence that many workers are overwhelmed by the increasing costs of health insurance, college, and housing, which are far outpacing their pay raises. Low-paid workers are especially hard hit, according to 2017 research. If they save at all, they set aside only 3 percent of their paychecks – half of what top-paid people are able to save. …Learn More
The student loan problem has gotten under our collective skin – so much so that a new game show revolves around it.
“Paid Off,” on TruTV, promises to pay off a share of the winning contestant’s student debt – 20 percent, 50 percent, or 100 percent – depending on how many answers he or she gets right in the final round of questioning.
“Paid Off” is as inane as any television game show. The format is more “Family Feud” than “Jeopardy,” with softball questions designed to spark as much faux competition as possible among the former students who compete. One example: name the most romantic date costing under $10: picnic, walk, Netflix movie, etc.
The show’s host, Michael Torpey, who also plays a corrections officer in “Orange is the New Black,” explains in the first episode of “Paid Off” that he created it because he and his wife struggled with student loans. He was only able to pay them off because he landed a long-shot acting job for a television commercial.
Torpey says his goal is to help debt-laden students “achieve their dreams by paying off their student loans.” He’s right that college debt is, indeed, standing between many Millennials and the adult milestones of buying a house,saving some money, or getting married.
The average amount of debt owed by college graduates increased again last year, to more than $39,000, according to Student Loan Hero.
Unfortunately, the weekly show won’t make a dent in this growing problem. … Learn More