“The worst thing you can do for those you love is the things they could do for themselves.” ~President Abraham Lincoln
This was probably the most controversial chapter of my book, “Millennial Millionaire”, simply because of its title. Older generations have told me I hit the nail right on the head, while most of my fellow millennials have complained about perpetuating a stereotype that’s just not true. Let’s see who’s right…
It’s human nature to believe in cause and effect. Hundreds of thousands of young men and women graduate from prominent colleges every year, proudly carrying a new diploma, filled with a belief that now they must be owed something. Universities spend obscene amounts of money marketing a neatly packaged product that alumni will get what’s coming just by obtaining their degree. However, studying all those years to then become a rookie is a tough realization. Everyone remembers how John Wooden won 10 national championships in 12 seasons, but few realize that he coached the famed UCLA Bruins for 15 years before putting on a ring. It is not supposed to be easy starting out.
As our country, the greatest nation known to mankind, unfolds a balance sheet of devastating proportions, it’s imperative we detect the problem. The greatest trouble is one of expectation or rather entitlement.
Today there is a trend politely termed “Delayed Onset Adulthood” or more commonly “Boomerang Kids”. They go to college for four to six years, spend around $150k on education, only to end up back home searching for a job. For the first time ever, more young adults ages 18-34 are living at home with parents than independentl [1]. Once we get past the basis that graduation doesn’t give us a job, we must then grasp that landing a job doesn’t give us a retirement.
Social Security, Pensions, Medicaid, Welfare, Obamacare, etc. all come at a cost. As society trades in these autopilot programs for a do-it-yourself approach, the responsibility to earn, save, and plan falls on the individual. Never has it been more important to start early; but unfortunately, incomes are starting later than ever.
These autopilot programs are the source of constant political debate. The Heritage Foundation cited that 66% of the government’s budget goes to entitlement programs [2]. Politicians on both sides of the aisle are accustomed to going in the backyard to pick from the money tree, but that money tree is awfully expensive to water!
Social Security, the most notable of such programs, is the cornerstone of retirement today, accounting for 40% of the average retiree’s income [3]. Resembling a faltering Ponzi Scheme, waves of baby boomers are retiring and they simply aren’t being replaced quickly enough. In 1935 there were over 40 workers per beneficiary[4]. Those early beneficiaries collected in the 1940’s and 1950’s for five years of retirement, a bit shorter than our grandparents are doing. Perhaps the writing should have been on the wall, the first beneficiary was Ida May Fuller who received a monthly check of $22.54, she lived to be 100! It’s hard to fathom that Americans have actually lived longer without Social Security than with it (OASI began in 1935 under FDR).
Today, there are roughly two workers per beneficiary (i.e. just two horses trying to drag a train in excess of 30 years rather than 40 horses pulling a cart for only two years). Even the Social Security Administration has expressed concern, “Benefits are expected to be paid in full until 2037, when the trust fund reserves are expected to be exhausted.”[5]
A mirror image of Social Security can be observed in modern-day pensions, the second largest source of retiree income. My home state of New Jersey currently has over $135 billion of pension debt (nationally the unfunded liability is over $1.3 trillion) [6]. Today, pensions are close to extinct as retirement can last as long as a career, if not longer. Therein lies the rising battle between government officials and public unions, who reflexively balk at a slightly larger payroll deduction towards their pension fund. Let’s do a quick exercise to compare their retirement to the rest of America in the private sector… Most economists recommend that one spend down his or her portfolio at a rate of 4-5% per year throughout retirement. That means that if you were proactive enough to accumulate $1,000,000 in your 401(k) upon retirement, you should be able to generate $40,000-$50,000 of annual income for the rest of your life.
How many common folks or small business owners do you know with seven figures in their Individual Retirement Account (IRA) or brokerage account?
Not many.
Expect to see more headlines in your local paper highlighting retiring cops and teachers crunching overtime and PTO to boost their $70,000 lifetime pension to $90,000. Similar funding issues plague Medicare, Welfare, and Public Employee Healthcare at such magnitude that the conversation escapes the scope of this article (go buy Millennial Millionaire for more info).
We Americans have adopted the habit of entering the workforce at a later age, retiring at a younger age, and living to a much older age. But will all these outstanding liabilities come home to roost? We can debate it as a problem or an opportunity, but we must agree it’s a shift to personal responsibility that demands aggressive saving sooner than ever.
Mark Twain once said, “Don’t go around saying the world owes you a living. The world owes you nothing. It was here first.”
Seniors may have a point about Millennials asking for handouts, granted it’s a generalization, but we didn’t design these programs that got us here.
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[1] Pew Research. www.pewsocialtrends.org (05/24/16).
[2] www.heritage.org – 2014 Federal Spending Charts
[3] U.S. News- 2014
[4] OASDI Trustees Report- 2012, Table IV.B2
[5] OASDI Trustees Report- 2009
[6] Another Report Shows NJ Has Worst Public Pension Debt in US. www.nj.com (04/21/2017).bryan
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