>Generation X Approaches Retirement finds a dismal retirement outlook for Generation X, the first generation to enter the labor market following the shift from defined benefit pension plans to 401(k)-style defined contribution accounts.
That's probably going to be every subsequent generation too.
retirement is really depressing. No matter how I look at it, there is no way the markets could generate enough returns for give everyone the 7-8% they would need.
That's not what it is about. It's about the agency of not having to work if you don't want to or cannot. Aging with health issues and needing to still work is a scary concept.
>No matter how I look at it, there is no way the markets could generate enough returns for give everyone the 7-8% they would need.
The markets can easily generate 7-8% returns, but you are right it won't be enough for what people need, when the cost of living (rather than the phony CPI number that is bandied about) is rising at more than 8% a year.
I will agree with you that the market can generate 7-8% returns for a certain volume of cash infusion through 401(k)s. but what happened if everybody participates?
I'll spare you the back of the envelope calculation with but if everybody saved 10% of their income to a 401k, it looks like we would have approximately $24 trillion that would need to get that 7-8% return. FWIW,the current 401(k) number 7 trillion. The current stock market size is 46 trillion so where would that money go?
feel free to come up with your own numbers, as professors have told me, more accurate calculations are left as an exercise to the reader.
I suspect that the vast majority of people would stick their money into robot funds and cause the value of the stock market to inflate to unsustainable levels because as we know, stock prices have nothing to do with reality.
Anyway, this calculation is interesting exercise and shows how people really haven't thought through the true cost of retirement and the impact it has on the financial system.
My parents both turn 74 this year - and both are still working. Not sure when they plan to retire. My mother works as a doctor, my father as a pharmaceutical industry management consultant
Either your mom really enjoys her work (doubtful if she’s a doc in the US- they hospital administration seems to ruin that career), or she’s calculated she needs every penny she can get while she is able to work.
Same here, I got to watch my dad burn though his retirement nest egg at an astonishing rate once he fell Ill and needed long term care. Started out at only $3800/m for assisted living and ended up at $11,000/m in a nursing home. This was by far the most stressful period of of both our lives. You will need much more money to retire than you realise unless you stay in good health or die young.
I intend on going the suicide route if my only other option was being such a burden, financial or otherwise, to my next of kin. But you’re right, it’s a common fate for the would-be inheritance. It was around $10k/month for one set of grandparents, and as much as it sucks that they’re gone, there’s a sense of relief across the family that they didn’t live another, you know, 5 or 10 years ($600k-1.2M)
At least in Australia they will be fine. 11% of your income is taken before you receive it and put in to retirement funds. It’s also taxed at a much lower rate.
To end up at retirement age without any savings accumulated, you’d have to either have been unemployed for your whole life, or run a business/be self employed and never make any contributions to retirement savings.
That's funny if you believe that money will still be there for you. That money is paying for those retired now. It's not like that money is in an account with your name on it. It's just a note in a ledger that says you're "owed" that money. Good luck collecting it. Truly.
Edit: missed the relevant Australian bit. makes a big difference to grok the full comment when deciding to reply to it
No, that's exactly how it works in Australia - a compulsory tax advantaged managed investment account for the individual. There is a separate social security-type (pension) scheme that may or may not still exist for future generations, but superannuation is very much your own asset.
That's the old system, I had a choice of staying with the "old" system or moving to the superannuation scheme. My older (read: then about to retire) colleagues told me I HAD TO move to the "new" system, as by the time they retired and took out their money, there would be no money left in the "old" system for me.
It is in an account with their name on it. If the government of Australia wanted to use the money for something, it would be the same as taking money from people's bank accounts.
I worked for several years in OZ and amassed a 6 figure super. Thanks to the greedy super fund companies and several economic downturns,that 6 figure sum is now 5 figures. Sigh.
The Australian system is one of the more sensible ones in the developed world. One could quibble about the details of implementation but I think many countries would do well to emulate it, including the US.
Maybe it was just me (Gen X), but I didn't even work for a company that had retirement plans until I was in my 30s. Right when I also got married, trying to save up for a house, and having kids. Oh and dot com bust and 2008 crisis...
Yep, it is gonna be worse. Same-age savings are shockingly worse for X than Boomers, and worse still for Millennials and Gen Z.
Why does the shift from pensions to 401ks matter? Because it frees up money for zero-sum competition for benefits for one’s kids, in the form of housing (indirectly, paying for quality schools) and tuition/advantage-granting activities. Which drives up the cost of those things, pushing spending even higher. Plus probably some pure keeping-up-with-the-Joneses.
[edit] oh fuck it just occurred to me that a lot of US GDP growth in the 80s-today may be because everyone but the Boomers has been burning what should have been retirement savings just to keep from falling behind. And now I’m breaking out in a cold sweat.
I'm 40 now. I could see myself being able to retire in about 10 years except for one primary expense. Healthcare. I could have my house paid off, have just enough net worth for investments to live out a very modest lifestyle. But healthcare costs alone blow up any chance of being able to retire until I'm 65 or whatever the age to qualify for medicare will be in a few decades.
In the us there's obama care before age 65. I bet a lot of gen x programmers are thinking if they have 7 or 10 years till 65, and they retire in late 50s, how will they cover retirement until then (when they might take social security & medicare).
That reminds me, vote for politicians who want to make sure social security and medicare and ACA will be around when we all retire, instead of the foolish ones who want to end these programs without any replacements. We can continue to pay for it all with tiny tax increases. We've under-taxed ourselves with paying more than the system affords to the previous retired generation.
Obamacare sucks if you are anywhere above "barely scraping by." The annual deductibles are really high too. $9,100 a year will break someone making $50K a year. I wholeheartedly supported it when it was passed, but it just ain't good. More damage to the middle class who pays for it with higher premiums.
>In 2023, you'll typically be eligible for ACA subsidies if you earn between $13,590 and $54,360 as an individual, or between $27,750 and $111,000 for a family of four.
>For the 2023 plan year: The out-of-pocket limit for a Marketplace plan can’t be more than $9,100 for an individual and $18,200 for a family.
That's an important point that obmacare is too expensive for non-wealthy people and we should change that. For the reasonably well off programmer types like a lot of us, I saw it as a thing i could afford in the transition time before 65. Several people in my family worked until 63.5 and then had cobra. If I retire a few years before that I see obamacare as the main reasonable solution. My state has a healthcare plan separate from that, wonder how I could make a decision. I'm fortunate but there must be tens of millions of people in their 50s and 60s looking for a job and health care.
It's nice that you can pick it up if leave your job for whatever reason and it's definitely cheaper than cobra. I just wish it was affordable for everybody. Currently it seems half way an insurance company giveaway.
The US could decide to tax us all a small bit to make aca cheaper, or even free, just add required payroll taxes to cover it. No one wants to pay more taxes but we'd be so much better off and pay less for healthcare if we worked through the govt. I'm willing to pay more taxes for this public good, and I tell my congressmen. They never respond.
We should all have healthcare as american citizens. We choose (through the actions of our leaders and the influence of rich people having so much political influence or control over the us govt like the koch family) to not have national health care, to live in a country where huge numbers of people are one accident, health issue, job loss, or car crash away from being on the precipice of their family losing their house.
A limitation of this study is that it defines “retirement savings” as money in literal retirement accounts. Due to the perverse structure of how most retirement accounts are tied to employment and the rules around them, there is no vehicle for a significant percentage of Americans to actually put significant savings into retirement accounts regardless of income. As a consequence, a not small subset of Americans have much or all of their retirement savings elsewhere out of necessity. Another subset has a strong preference for rental real estate, which again is outside of the “retirement savings” rubric even though that is literally their retirement plan.
I know quite a lot of GenX that would be impoverished in retirement as defined in this study that are actually quite well off. This is like the oft-quoted study that shows Americans can’t pay for a $400 expense from savings, where “savings” is defined as “literally having a savings account”, which few people even have anymore regardless of income or wealth. It paints a misleading picture.
It would also help if the government didn’t tie retirement saving so closely to your employer. Retirement saving limits should be the same for everyone, regardless of employment.
Roth IRA restricts contribution based on income. Furthermore, the contribution limits are a small fraction of what they are for employer-based retirement accounts, not enough to build a real retirement.
A not small number of high-income Americans don’t qualify for anything but a traditional IRA, which has paltry limits.
It’s worth mentioning that the income limit for contributing to a Roth IRA does NOT apply to Roth 401k accounts, which is likely another “incentive to keep working for the man”. Sole proprietorships/startups and their employees are punished severely for taking people out of the “corporate workforce”, and this is one such way.
My favorite way is paying Uncle Sam almost 40% in taxes on income made as a sole proprietor. Bad cog! Bad!
Everyone with at least $6500 in earned income can contribute $6500 per year into an IRA, regardless of high-income limits. If you make over a certain amount, the traditional contributions are not tax-deductible. If you make even more, you can't contribute directly into a Roth IRA however EVERYONE can make after-tax contributions to their IRA and then do a "backdoor" conversion to their Roth.
To your point about retirement savings- 401k contributions max out at around $20k per year and generally increase a little bit each year. Currently it’s $22,500.
If one were to max out their 401k every year from age 20 to age 55 (35 years), they’d have a whopping… $875,000 (at an average annual max of let’s say 25k). For the sake of simplicity I’m not accounting for the contribution limit increasing each year, but I’m also not accounting for inflation, meaning you can think of the 875k in 35 years as though it were today. Everybody knows you can’t comfortably retire on $875k, even with a paid-off house and a paid-off car, you’d get 20-25 years out of that amount… if you retire at 55, that only gets you to 75-80, which is close to average in the US, but average just means half of us will live to be older than that.
So two takeaways here:
1. Ain’t nobody retiring at 55.
2. Retiring is realistic when the stock market delivers its trademark gains, but elsewhere in the world, index funds often net you around 0% ROI over a span of multiple decades (see Japan’s NIKKEI from 1995 to 2020- flat).
I’m not forgetting about social security, our politicians are. I wish I could opt out of it.
> For the sake of simplicity I’m not accounting for the contribution limit increasing each year, but I’m also not accounting for inflation, meaning you can think of the 875k in 35 years as though it were today.
You're also not accounting for any income from the principal, which even invested in bonds would mostly keep up with inflation.
The rules around retirement accounts are so ridiculous. There should be no limits on contributions, for example. And they should all be treated as SIMPLE IRA's and let anybody contribute any place they like.
There should be higher limits, but one reason there are limits is so that really wealthy people can't shield all their money from future taxes; we need to let people of more modest means get more gain though. Maybe you could have taxes on the pretax 401k but higher contribution limits (where withdrawals will owe taxes on the gain when you withdraw it), but some limits on roth 401ks, which are post-tax dollars with no tax at withdrawal.
That's kind of a mess of a description. Try 2 - double 401k limits, but still keep some limits so we get needed taxes at withdrawal.
Technically, the contribution limits for 401k are currently $66,000 but your employer has to do the heavy-lifting, though that won’t happen at most employers. You can thread the needle under very narrow circumstances to effect this situation by being appropriately self-employed with a number of constraints but it isn’t easy or common.
The US retirement system strongly and preferentially benefits corporate lifers.
It benefits people who can structure things such that they and a bunch of their family members are “employed” by a “company” that just happens to do the extremely-rare thing of maxing out the employer-side contribution.
At least I assume that’s the scam. Almost no one working for a normal company sees the max contribution, certainly, even high earners.
Hah even in tech it’s very common for a 401k match to have a 4-5 year vesting schedule and max out at under 6%. The only people contributing 66k/year to their 401k accounts are Tim Cook and Friends.
Gen-Xer here. I think many of us are going to be working another 30+ years.
(Well, I've recently told some prospective co-founders that I'd like to have FIRE money in 5 years. But the only point of that is to have financial security and an upgrade from the ramen startup lifestyle I've had too long. Then I'm almost certainly going to keep working, and eventually switch to working on interesting open source, hopefully for another 25. Then something like metal-detecting on the beach, and returning people's lost items. :)
I've moved from a paid-off house in South Africa to Sydney, where most things are so ludicrously expensive that I've reset my finances back 20 years. Worth it for my kid, but man there is no retirement in my near future!
I'm a Xennial (it's a thing). I think Gen X has had had many once in a lifetime events. AIDS, 9/11, pandemic, world collapse of the economy, and housing. I'm sure I forgot a few but who cares.
This generation and the next have were priced out of a lot of housing options, got reduced purchasing power, none of the sexual liberattion from the previous generation.
Now they're going to be able to rest on all that 401k and social security they've managed to gather and chill in their hard earned homes. Wait nvm.
Approaching retirement? At current age range of 43-58 years old? Hardly anyone in gen x or younger is thinking that's near retirement ... I suppose that's one of the points.
If they're 58, various laws begin kicking in soon. They may or may not retire, but retirement-related things begin to matter. They can start getting social security in just 4 years.
71 comments
[ 2.8 ms ] story [ 353 ms ] threadThat's probably going to be every subsequent generation too.
retirement is really depressing. No matter how I look at it, there is no way the markets could generate enough returns for give everyone the 7-8% they would need.
The markets can easily generate 7-8% returns, but you are right it won't be enough for what people need, when the cost of living (rather than the phony CPI number that is bandied about) is rising at more than 8% a year.
I'll spare you the back of the envelope calculation with but if everybody saved 10% of their income to a 401k, it looks like we would have approximately $24 trillion that would need to get that 7-8% return. FWIW,the current 401(k) number 7 trillion. The current stock market size is 46 trillion so where would that money go?
feel free to come up with your own numbers, as professors have told me, more accurate calculations are left as an exercise to the reader.
I suspect that the vast majority of people would stick their money into robot funds and cause the value of the stock market to inflate to unsustainable levels because as we know, stock prices have nothing to do with reality.
Anyway, this calculation is interesting exercise and shows how people really haven't thought through the true cost of retirement and the impact it has on the financial system.
The rest of us are just temporarily holding the healthcare industry’s money, when we save. Including most Boomers.
To end up at retirement age without any savings accumulated, you’d have to either have been unemployed for your whole life, or run a business/be self employed and never make any contributions to retirement savings.
Edit: missed the relevant Australian bit. makes a big difference to grok the full comment when deciding to reply to it
It is a savings system, not taxation.
NZ has a similar (but shit in comparison) system.
Why does the shift from pensions to 401ks matter? Because it frees up money for zero-sum competition for benefits for one’s kids, in the form of housing (indirectly, paying for quality schools) and tuition/advantage-granting activities. Which drives up the cost of those things, pushing spending even higher. Plus probably some pure keeping-up-with-the-Joneses.
[edit] oh fuck it just occurred to me that a lot of US GDP growth in the 80s-today may be because everyone but the Boomers has been burning what should have been retirement savings just to keep from falling behind. And now I’m breaking out in a cold sweat.
That reminds me, vote for politicians who want to make sure social security and medicare and ACA will be around when we all retire, instead of the foolish ones who want to end these programs without any replacements. We can continue to pay for it all with tiny tax increases. We've under-taxed ourselves with paying more than the system affords to the previous retired generation.
>In 2023, you'll typically be eligible for ACA subsidies if you earn between $13,590 and $54,360 as an individual, or between $27,750 and $111,000 for a family of four.
>For the 2023 plan year: The out-of-pocket limit for a Marketplace plan can’t be more than $9,100 for an individual and $18,200 for a family.
https://www.valuepenguin.com/aca-subsidy-calculator
We should all have healthcare as american citizens. We choose (through the actions of our leaders and the influence of rich people having so much political influence or control over the us govt like the koch family) to not have national health care, to live in a country where huge numbers of people are one accident, health issue, job loss, or car crash away from being on the precipice of their family losing their house.
I know quite a lot of GenX that would be impoverished in retirement as defined in this study that are actually quite well off. This is like the oft-quoted study that shows Americans can’t pay for a $400 expense from savings, where “savings” is defined as “literally having a savings account”, which few people even have anymore regardless of income or wealth. It paints a misleading picture.
It would also help if the government didn’t tie retirement saving so closely to your employer. Retirement saving limits should be the same for everyone, regardless of employment.
A not small number of high-income Americans don’t qualify for anything but a traditional IRA, which has paltry limits.
My favorite way is paying Uncle Sam almost 40% in taxes on income made as a sole proprietor. Bad cog! Bad!
Now healthcare as an individual is another matter…
You're also not accounting for any income from the principal, which even invested in bonds would mostly keep up with inflation.
That's kind of a mess of a description. Try 2 - double 401k limits, but still keep some limits so we get needed taxes at withdrawal.
The US retirement system strongly and preferentially benefits corporate lifers.
At least I assume that’s the scam. Almost no one working for a normal company sees the max contribution, certainly, even high earners.
(Well, I've recently told some prospective co-founders that I'd like to have FIRE money in 5 years. But the only point of that is to have financial security and an upgrade from the ramen startup lifestyle I've had too long. Then I'm almost certainly going to keep working, and eventually switch to working on interesting open source, hopefully for another 25. Then something like metal-detecting on the beach, and returning people's lost items. :)
This generation and the next have were priced out of a lot of housing options, got reduced purchasing power, none of the sexual liberattion from the previous generation.
Now they're going to be able to rest on all that 401k and social security they've managed to gather and chill in their hard earned homes. Wait nvm.