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Subscribe to RSSWhile older Americans haven't saved nearly enough for a comfortable retirement, those under 30 should be in better shape. After all, they still have enough time to build an adequate nest egg.
But they're going to have to save a lot harder.
Only half of workers between the ages of 18-30 who are eligible to save in a company-sponsored 401(k) plan is doing so, according to a review by Aon Hewitt, a benefits consultant.
Younger 401(k) participants also set aside less of their paychecks (5.3 percent) that those aged 31 to 45 (6.8 percent) or Boomers over 46 (8.4 percent). Only 60 percent of under-30 savers take full advantage of the matching funds provided by employers, which is the most compelling reason to join a 401(k).
Unless their savings rate rises, the under-30 generation is destined for the same bleak retirement outlook as the generations closer to retirement. The study estimates that, at present savings rates, some 80 percent of workers under 30 will come up short when they hit retirement age.
Even when they do begin to build a nest egg, a majority of 20-somethings can't seem to keep their hands off it. Some 60 percent cash out their 401(k) plans when they change jobs. Not only do they face penalties for early cash-outs, they miss out on the biggest advantage available to younger savers: the decades of compound interest they'll earn if they keep their savings intact.
To make matters worse, younger workers will have fewer alternatives to fall back on. Since the 1970s, when Boomers were getting started in the work force, employers have eliminated or sharply scaled back traditional pension plans and medical benefits that millions of Boomers can look forward to. Projected shortfalls in Social Security benefits will likely force some cuts in those benefits in the coming decades.
Workers in their 20s today can also expect a longer life span, which will likely mean they'll need more money to pay for those extra golden years.
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The compound interest argument would be more compelling if interest rates were in traditional ranges. Compounding is not so exciting now, when EE bonds are about the best thing around. When I recently checked, nuthin' times nuthin' is still naught.
The outlook for longterm stocks is not much better. After I retired in '05, my IRA halved itself at the lowest point (on paper.) It has since recovered to about the starting point. Five years of accumulated tax-deferred gain is zero - and I feel damn lucky at that. It looks like the best deal will be to buy some decent stocks that pay 3 or 4% dividends, and pray they don't flop or slash the dividend. And also pray that inflation does not hit 15% in the next few years (the gold market says wicked inflation is coming.)
Mailman8 - I guess we're looking at different markets, because over the last 2 years the returns on my 401(k) have been double digits each year (the DOW is up 5% just this month), and I know I'm not just that good at picking funds that I beat the market by over 2x. I also don't understand how your IRA "halved itself", as you should realize that as you get closer to retirement (and you were in retirement during the bust in 07', so this goes double for you) you should transfer your funds to much more conservative funds or bonds. If you didn't do this, the fault is on you, not the market; and is not evidence that a 401(k) is a poor investment choice for retirement.
Talking the younger generation out of starting a 401(k) is simply not responsible. A 401(k) is a great vehicle for most people to save for retirement (automatic, employer match, and compounding interest - contrary to your assertions it does exist and is substantial), but just like any investment, there is some active management of that investment that's necessary (such as slowly growing more conservative as you get older to protect your earnings).
Mailman8 - I guess we're looking at different markets, because over the last 2 years the returns on my 401(k) have been double digits each year (the DOW is up 5% just this month), and I know I'm not just that good at picking funds that I beat the market by over 2x. I also don't understand how your IRA "halved itself", as you should realize that as you get closer to retirement (and you were in retirement during the bust in 07', so this goes double for you) you should transfer your funds to much more conservative funds or bonds. If you didn't do this, the fault is on you, not the market; and is not evidence that a 401(k) is a poor investment choice for retirement.
Talking the younger generation out of starting a 401(k) is simply not responsible. A 401(k) is a great vehicle for most people to save for retirement (automatic, employer match, and compounding interest - contrary to your assertions it does exist and is substantial), but just like any investment, there is some active management of that investment that's necessary (such as slowly growing more conservative as you get older to protect your earnings).
Forget about retirement. Many people are lucky to have a job and that is temporary. Private borrowing has stopped. We are deleveraging. That is deflationary. Boomers will retire. That is deflationary. To stop deflation, government is borrowing / printing and spending money. That has limits. Budget deficit is almost 1.5 trillion. That is funding almost 50 million jobs if we consider the velocity of money. There will come a time when we cannot borrow anymore and all that is left will be a mountain of debt and no jobs.
Reduction in pension benefits will be deflationary. Many people thought they would have certain amount when retired. They have been spending freely based on this assumption. When income falls short, they will stop spending! That will put pressure on prices in general. With a deflating money supply, existing prices and salaries cannot be sustained. Here is how deflationary forces are strangling us:
http://www.kondratieffwavecycle.com/economy/deflationary-crash
To cover the government shortfall of income, tax rates will have to go up. 401K is not a good idea anymore. Save after tax money. Pay tax now. Tax is on sale. You never know what the tax rates will be by the time you retire. Government can find other ways to confiscate your retirement savings as well!
http://www.tradingstocks.net/html/pension_plan.html
The root cause of the crash is excessive debt. Entire nation cannot borrow non-stop, inflate the money supply and prices with borrowed money and then hope that all will be fine when the pay back time arrives.
Humans are stupid. They will always be stupid. They spend today and worry tomorrow. That's how we got into this huge recession in the first place. It's embarrassing to be part of the same species.
Well you are part of the same species, so get back in the flock and start bleating with them rest of us.
And today wages are stagnant, housing is still mid-bubble priced, savings earn almost no interest, and government spending is out of control.... a better plan would be to learn Chinese and hope they decide to keep you as an interpreter.
As a member of this particular age group, I'm frustrated with my limited retirement options. My current company does not offer a pension at all, and my 401(k)/Roth options are not great. Companies tout 401(k)-only options as a great way to give their employees a choice in retirement fund options, but it's not a choice if you don't have an alternative program.
I distrust investing as a stable way to generate retirement funds, and constantly feel as though I don't understand it. I would much rather simply have a pension. In fact, I'd much rather have a government-funded pension. I'd never have to worry about losing hundreds of thousands of dollars right on the verge of retirement in a few days the way my parents' 401(k)s did back in 2008, and more importantly I'd never have to try and figure out the workings of a market that actively discourages small investors!
CJ2001013 Surely you jest. The government in charge of your pension? How's that whole Social (In)Security thingy working out, and Oh by the way ANY other government program?
I'm not sure what you mean by "how's that whole social security thing" working out? Obviously there are troubles in the near future that need to be worked out. But since social security was introduced, millions of elderly Americans have been able to avoid a life of poverty and probably homelessness. Do just a little research and look at what life was like for the elderly pre-Social Security. It was miserable and people were much worse off. Social Security has been a roaring success. Now maybe you're one of those people who think nobody should help anybody else; but frankly I'd rather pay a little more in taxes and not have to step over ten thousand homeless old people on my way to the office.
In fact Social Security has never failed to meet it's obligation and it is solvent. It presently has over two trillion in reserves. The claim that Social Security is in trouble is just a lie being propagated to dupe the masses into allowing the program to be privatized. No thanks! I will trust the government over a bunch a Wall Street shysters any day. They are just itching to get their money grubbing mitts on that money so they can start skimming two or three percent off of the top.
I have prepared income tax returns for over 20 years. I have tried to convince younger clients (those in their early 20s) to put at least $2,000 per year into an IRA. If they put in 2k per year for 10 years, invest in an index fund (lower management fees), and average 10% return until retirement, they will be set. I tell them that when they turn 30 they start putting that same $2,000 per year in a 529 plan for their kids college education. Hard to convience a 20 year old to go down that path. Sadly, most of them could care less about saving. They want flashy cars, the latest computers, cell phones, and whatever else becomes the latest fad. Saving is an alien concept. It is so sad....
I'm sorry my $9/hour part time job doesn't allow me to put $2k in my Roth-IRA annually. I promise I would do that if it did.
I like your idea. However, aside from selling illegal drugs where can you earn a 10% rate of return? Please tell me. I'd love to invest my nest egg there. Currently, my 401k, IRA, and savings account are flat at best.
My 20-something son drives a beater with 190,000 miles, has a five-year-old cell phone and uses the computer at the library. A "vacation" was a weekend trip to Chicago two years ago. He makes $12,000 a year, if he puts $2000 aside, how will he eat or pay his rent? He's not alone in this, his friends seem to be in the same boat, whether they have college degrees or not. Few of them are married, and none of them have kids, they can't afford any of the things that we all took for granted at that age.
John, in the past 32 years I have had some 21% plus years and one that was only 2%; however, my average now stands at 14% on my investments. I will admit that it has not been a put the money in and forget about it thing. I spend an average of about 6-8 hours a week researching investments and market trends. I learned early that financial advisorys were more interested in them making money than the investor. The bottom line is if I can/did learn to handle my own investments anyone can if they are willing to put the time and effort into doing so. Good luck..............
The young have seen what happened with Wall Street and the mess the banks made of everything. If you think they are willing to take a shot themselves right now you are out of your mind. On top of that they don't have the money to put into a 401k. Due to the drop in salaries, lack of jobs, high rents, high cost of gas, high cost of food, etc. there is no money available to put into a 401k above say 5%. A large number of companies are no longer matching.
I think our trust in the generation above us is completely gone. If they tell us to do A we are going to do B. If the Baby Boomers couldn't see the housing crisis coming and I could at 22 years old what makes you think I'm going to take their advice on ANYTHING related to the economy as a whole?
Salaries were barely gaining ground yet home prices were doubling and TRIPLING! They were spending money they didn't have and living off of credit, but now we should take their advice right?
In your dreams.
It is very hard for the young to save in today's world. They must have IPod, Wii, super cell phones, sporty cars, oversized houses etc.. Common sense isn't prevalent, peer pressure is. They don't begin by buying a house they own and not own them. They pay too many years on a mortgage. By carrying a shorter term mortgage they save thousands in interest. Paying interest is like throwing money down the sewer.
I am 59 and started saving in my employer provided 401K 30 years ago. That was when the big thing was for companies to switch from defined benefit retirement plans to defined contribution plans (read, screw the employees, pocket large bonuses from the company's savings). Having about $400K in savings isn't very comforting seeing what Obama has done to health care. Nothing was fixed. all that has been accomplished is to make it more expensive for everyone. All they really had to do was legislate that insurance companies (the same ones that said deregulate us, you can trust us, wink, wink) be required to establish new insured groups that covered the uninsured and insure them as a whole with a group plan and let them pay for it.... Most were willing to do so, if given the option.
Don't blame the low interest rates as a reason to avoid saving. An 8-10% return with inflation at 3% or more, which is what the recent years were giving most people, is only marginally better than a 2-3% return under zero inflation. In fact, if deflation kicks in, even earning 0% would be a good return since the money you have put aside will buy more. Any money saved will add up over the years, and when the rates do increase, the bigger the base you have interest applied to, the bigger the return.
Saving is important. You may not think so now, but if you plan on living to anywhere near your life expectancy you're definitely going to need some money besides the minimal amounts you may get from Social Security or any public assistance (if any exists).
You will grow too soon old and too late smart
comment fail.
You have to have something left after bills to save, workers under 30 now face education costs of $40-300,000 and starter home prices of $200-300,000. When most jobs these days are of the low wage no benefit type what do they expect?
They article didn't mention that their share, and yours, of the National debt is almost $45,000.
Live long and Prosper!
Feliz Navidad!
As a 25-year old, I place some of the blame on financial advisors who won't take a couple of hours a year to spend on us younger people because we don't have the $100,000+ assets. I am blessed with great parents and a great financial advisor who will spend as much time with me as I want. He has told me many times the "higher ups" will tell him to focus on people with large assets. I'm 25, I DON'T HAVE $100,000 IN ASSETS!!!!
That being said, we need to take matters into our own hands if the financial advisors won't help. Ask for help from anybody and everybody like I have. You'll find someone who will sooner or later. After only 3 years of working, my company sponsored 401k sits at $10,000 and my roth IRA at $20,000 with another $5,000 going in on January 1.
Then again... I am one of the lucky millennials who has a professional job!
Here's a great start for anyone in their 20's... Take the Dave Ramsey class! "Live like nobody else now, so you can live like nobody else later!"
As a 25-year old, I place some of the blame on financial advisors who won't take a couple of hours a year to spend on us younger people because we don't have the $100,000+ assets. I am blessed with great parents and a great financial advisor who will spend as much time with me as I want. He has told me many times the "higher ups" will tell him to focus on people with large assets. I'm 25, I DON'T HAVE $100,000 IN ASSETS!!!!
That being said, we need to take matters into our own hands if the financial advisors won't help. Ask for help from anybody and everybody like I have. You'll find someone who will help sooner or later. After only 3 years of working, my company sponsored 401k sits at $10,000 and my roth IRA at $20,000 with another $5,000 going in on January 1.
Then again... I am one of the lucky millennials who has a professional job!
Here's a great start for anyone in their 20's... Take the Dave Ramsey class! "Live like nobody else now, so you can live like nobody else later!"
All the more reason that the US needs to join the civilized world in providing universal, single-payer health insurance to all Americans and in creating a retirement fund that workers can contribute to that will provide at least enough for basic necessities in retirement. Oh wait, we already have that: it's called Social Security. What we need to do is to stop allowing Congress to steal money from SS and make sure that it is fully funded. There is nothing wrong with SS that a degree of "tweaking" wouldn't fix. Add to the SS payment income from 401k savings and investments and at least a decent level of income should be available, especially if universal health insurance is instituted. But yes, it is important for younger workers to save and invest, but watch out on those investments: there is more than one Madoff or Enron out there. And the Republicans want to allow the sharks on Wall Street to get their dirty paws on your SS funds too under the guise of "private accounts". More crooked dealing.
One must have a job, and a good one, in order to save that kind of money. What you are proposing is 14 percent of my current annual income. Another 15 percent is already going toward student loan payments on a degree that has so far proved to be useless toward finding a better-paying job. If rent is already typically 30 percent of a person's income, how much does that leave to save?
Try turning off the Fox News MLH in OK.
"Social Security is far from bankrupt, with a $2.6 trillion dollar surplus. The federal government has borrowed most of that surplus to pay for the wars in Iraq and Afghanistan, the Wall Street bank bailouts, and the Bush-era tax cuts."
Read more: http://www.disabled-world.com/disability/social-security/usa/social-security-surplus.php#ixzz18mskl4iF
Therefore it is bankrupt. Do you really believe any Congress will repay the $2.6 Trillion Dollars it "borrowed" do you? That's why Congress raised the retirement ages and is considering to do so again to keep Social Security solvent and reduce the deficit.
Joe, the S.S. system works. There needs to be some way to protect it from being pilfered. Instead we're not paying for wars and giving tax cuts to the rich. If persons such as MLH would quit circulating lies, we can have an honest discussion about WHY it's in trouble. Without Social Security 20 million seniors would live in complete poverty.
Joe, our taxes are going to have to go up because we can't turn our backs on the poor and the old.
The only thing worse than Social Security is...
100% Privatization of retirement. Or did the neo-cons above not even read the artice and comments? Unlike many of our private accounts, Social Security did NOT plummet by half in 2008, and 20-somethings are NOT cashing out their Social Security and buying new cars and iPads. That is happening with PRIVATE retirement accounts.
If we did not have Social Security the financial disaster would have been about a hundred times WORSE as we would have an entire generation of folks who retire and realize they have half of what they thought they had. The financial mess is Exhibit A FOR Social Security. Think about it. This article points out how STUPID people are. If they had been in 100% control of their social security dollars they would have had a huge portion of it in real estate, etc. "because the Jones' down the street did that and now have a vacation home on Marco Island." They would have lost that, and we'd now have millions of retirees on WELFARE (god knows enough people did that ANYWAYS). If you hate welfare, you should LOVE social security. It protects the idiots from themselves, and we all benefit.
Oh sure, ask these kids to take their money and dump it into an account that some crooked ass Wall street investment house controls. These are kids who watched their parents lose half their retirement savings after 9/11, HALF! And then they saw their families take another hosing as these same greedy banker trash robbed the 401K's AGAIN in 2008 and 2009.
And now you wanna roll up on these kids and say "Oh HEY, you need to put your money into a 401K for your retirement" Are you effing HIGH? These kids aren't stupid (contrary to what you might believe) and there just aren't a whole lot of them that want to put their money into an account that they can't access, and that some rich dishonest investment banker has control over.
On the face of it, the 401K seemed like a good idea when it was originally created. But after 30+ years of abuses, losses, outright THEFT in some cases, and substandard performance in general, big changes need to be made. Less access to and control of the money by the investment houses that receive it, and more control and greater ease of access for the people whose money it actually is.
When these bankers started robbing the 401K's I couldn't get our money out fast enough. But the accounts are so restrictive that it's hard to avoid losses, and we got stung for about $10K. It was bad enough that my wife's employer also saw fit to change investment houses as well, and they are a large medical corporation. From what I've seen, these investment houses are using investor money for their day trading and reaping colossal profits while passing the losses back to the investors.
Unless the Federal Government takes hard look at the way this money is being handled and managed, and makes some serious changes to the rules, I wouldn't really count on a lot of young people stepping up volunteering to hand their money over. After all, they're not as gullible and trusting as their baby boomer parents were.
Way to motivate us our 20's. Keep giving us more excuses not to invest. People didn't LOSE half after 9/11... only the dumb ones that pulled it all out! The value of the stock market is almost all but back to where it was pre-9/11. I'm so sick of hearing the boomer's complain like you. Investing is a RISK!!!
People taking advantage of other people is nothing new... read up on some history and start taking some responsibility for your actions instead of blaming everyone else.
Let me guess, you're one of those self deluded "Buy and Hold" advocates. Try running your line of BS by Jim Kramer and see how well it works out.
What with the contradictory advices ? One tell us to save, the other tell us to spend (and help the economy). Nobody gives us any incentive to save - the tax policy, the bank interest rate (mine is less than half a percent). There's something wrong with our voodoo economy.
I think CJ has it right... Distrust in the system. I feel it too. My (meager) portfolio has just about recovered to 2008 levels but the media has been touting that the stock market has recovered long ago. Yes the Dow is above 11000 again but that isn't performance! That number indicates the number of trades! Why should I save? While the govt prints more and more money, that in effect means that I can buy less and less with that dollar. A dollar saved today will be worth less in the future. Unless you have a large amount of money to invest, it is difficult to find a financial professional to work with you to put your money in safe (from inflation) investments. Govt bonds are not safe. Maybe today, but not in a couple of years. Oh and those financial professionals? They make ALL their money off you. While you save and invest 100K, over time, they stand to make about 60K in fees to manage your money. Even in 401Ks. Yep. They make 2/3 of what you have-savings and earnings.
So yeah, young people have a reason to distrust the system. It's rigged. And you and I are on the wrong side to benefit.
Try looking at the Social Security Administration's 2010 Status of the Social Security and Medicare Programs, from the mouth of the SSA itself:
"Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation's retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084."
www.ssa.gov
The markets face the same problem as Social Security -- the 'boomers' are coming. Those boomers also 'own' a larger share of the 401k, IRA, pension funds, etc. What happens to the market when there are more sellers than buyers? The 'boomers' own a larger share of the market than Lehman did and we all saw what happened with that one.
There are going to be louder calls for privatizing SocSec and a lot of scare tactics because the markets are aware that the free lunch is coming to an end. That is why retirement investment accounts are being compartmentalized, why account managers do not invest their money in the funds they manage, and why rule changes like automatic enrollment are being made. Part of the housing bubble was to provide adequate returns to pension funds, IRAs, 401k funds, and other instruments.
Right now Social Security is more secure than the markets.
What's this retirement thing? I'm 26 and the retirement age will probably be 70+ when I'm set to retire. I'll probably just die on the job.
Why..??? So 9/11 can make U.S. stocks plummet...?? So the Enron boys can run off with the big bucks...??? So the banks CEO's can have there bonuses...??? All the saving I've done through my life time, I've lost 3 fortunes... Live for today, there is olny one life, and it is way too short to worry about having a fat bank account for the big boys to steal from.. Work hard, Spend big, and enjoy your life, your health, your family, your friends...! There is no luggage rack on a hearst..!!
There can't be a short fall in the social security funds. Our brain dead politicians just gave a break for a year in how much people are paying into the social security fund. Would they do that if there was a deficit coming? This just shows the mentality of the people we elected into office. They don't have a clue.