Will Traditional Retirement Exist When Today’s 20-Somethings Are Older?
Retirement today is based upon working during the majority of your life, saving a little bit each year, and accumulating enough funds to live on by the typical retirement age (mid 60-ish), and then retiring from a career. The baby boomers are struggling mightily to make this a reality for them today, although a harsh recession, a stock market crash, and a housing market where many folks’ equity has evaporated has made this reality difficult to achieve. But, what about us? Will this type of traditional retirement be possible for generation Y?
Currently, the old system is still in place. Many young workers today are dutifully putting money away each month into a 401(k) plan or some other retirement account (for me, it’s a Roth IRA). But will this change? Will retirement still look the same in 30-40 years and will young people today continue to pursue retirement in the same fashion?
Reasons Why The Traditional Retirement Is Alive & Well
- I do believe there is a shift coming and it’s primarily in the standard of living for Americans. Currently, Americans (approx 2-3% of the world population) have something like 40% of the world’s wealth. America will still remain much wealthier than much of the world, but this will balance out some, especially as millions of Chinese grow more wealthy. This trend will push the standard of living for many Americans lower. This has the opportunity to be a positive for retirement since a lower standard of living will cost less to fund.
- The debt levels seem to have maxed out for individual consumers in recent years. For the last couple years, people are paying down debt rather than increasing debt. This is a positive for long-term financial health for Americans, yet we still have a long way to go. Manageable debt levels is an important factor in being able to retire down the road.
Reasons Why The Traditional Retirement Is Dead
- Americans have become accustomed to retirement being an automatic. Save a little bit each month, and you’ll be able to live the dream when you’re older. That strategy is pretty unrealistic and has definitely had its weaknesses shine through in recent years. Unfortunately, we probably have to save much, much more than we currently do in order for retirement to be a possibility. Most people can’t and won’t save at higher levels.
- Many believe that historic stock market returns in the 10% area simply can’t be expected in the future. The macro-economic picture will be a headwind on stock returns versus a tailwind like it has been in the past. Too many Americans depend too much on high stock returns for a potential retirement. They trade high returns for high savings and this has a chance at seriously backfiring.
How do you view retirement as a young person? How much do you save?