Tuesday, March 19, 2013

What a Difference It Makes to Have Been Born at Either the "Right" or "Wrong" Time ... Sooner Was Better

There's a new study issued by the Urban Institute which is very revealing about how tough the younger group of Americans has it compared to the older folks. It analyzes the relative wealth of the relatively young Americans compared to the oldsters.

And it warns all of us that continuing to force the young to pay for the benefits of the old will make those younger people even more dependent on government assistance than the oldsters are today. And as that happens over time, the ability of younger workers to fund oldster benefits will become virtually impossible.

In other words, we're setting up a financial time bomb for the under 40 crowd and those that follow them, but we're not even discussing it openly and candidly as a nation, let along addressing it effectively. That has to change.

It could be worse: you could be under 40 is a summary of the new study:

"The Great Recession and its aftermath have been a financial nightmare for millions of us, and there’s no question that the economic debacle has put many baby boomers’ retirements in jeopardy. But while you may be having a tough time, chances are your adult kids and your younger neighbors are looking at a much rougher road than you are. A new report published today by the Urban Institute shows just how badly people who belong to generations X and Y – basically, anybody born after 1964 – has been set back by the economic trends of the last decade-plus. And it also shows how the financial advantages of being older have insulated baby boomers, as a group, from some of the worst effects of the economic slowdown.
The study . . . compared age groups over time, using inflation-adjusted dollars – for example, comparing people who were between 56 and 64 years old in 2010 to people who were in that same age range in 1983, and so on.

Every age group except those 74 and over was doing worse in 2010 than its counterparts were in 2007, before the market and housing crashes – no big surprise there. But the 2010-to-1983 comparison is far more dramatic. Average household wealth roughly doubled over that period, according to the study’s authors. People aged 47 to 55 (younger boomers, essentially) were 76% wealthier on average than their precursors; those aged 56-64 (older boomers) were 120% wealthier. But people aged 38 to 46 were only 26% wealthier, and those aged 29 to 37 were 21% less wealthy.

Part of the older generation’s advantage is a matter of timing, as the study’s authors go on to explain. Older homeowners who’d bought their property well before the housing bubble, for example, were less likely to lose some or all of their equity when their houses lost value. Just as important, middle-aged investors who’d had time to build up a substantial retirement nest egg – and were able to avoid the temptation to bail out of the markets at their worst – had more assets on hand to benefit from the rebound that started in 2009. And people who’d already retired were more likely to be relying on annuities, Social Security and other income streams whose value wasn’t affected (or wasn’t affected much) by the crash.

Of course, there are other factors hampering younger adults. The unemployment rate has been higher for 25-to-34 year olds than for boomers for most of the last five years. Student debt, meanwhile, has become a huge obstacle to their efforts to save for the future: As MarketWatch has reported, over the past two decades the average college tuition has risen 20 times as fast as the average college grad’s wages."

Summing Up

While household wealth has doubled since 1983, that's not true for those born in 1952 and thereafter. And for those born post 1970, there's an especially rough road ahead.

A typical 60 year old today has twice as much wealth as the typical 60 year old had in 1983. In contrast, the 40 year old today has less than the 40 year old had in 1983. Put another way, the oldster today is twice as well off, and the youngster has fallen behind his 1983 peer.

The Urban Institute's study should be required reading for all politicians and concerned Americans. In fact, I recommend that you click on "published today by the Urban Institute" hereinabove and take the time to review the study. It will only take about fifteen minutes and will be worth the time spent.}

Although it's certainly not a cakewalk for anybody, and it's nothing that more government goodies can solve, the hardships have fallen disproportionately, and I would argue unfairly, on the younger generation.

So it's time that we take a good long look at what burdens funding the existing entitlement programs are currently placing on the young. It's not the government that's supporting the oldsters; it's the workers.

In my view, it's time for oldsters to help provide the youngsters of today with the kinds of opportunities that we had.

We can start with means testing and working longer before beginning to receive retirement benefits.

That's my take.

Thanks. Bob.

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