It's Tough Being Young These Days

My peer group came of age in the 1960's. It was a time of plenty in America, and we were taught that the future was ours.


Today times are different for young people coming of age. It's definitely a different and much tougher time for the young.


How tough? Retirement: 36% have saved $1,000 or less has this to say about that:


"The widely watched annual Retirement Confidence Survey was released yesterday, and one particularly confidence-eroding number has been capturing a lot of attention. According to the Employee Benefits Research Institute (EBRI), which conducts the survey, 36% of current workers say they’ve saved $1,000 or less for retirement. But as grim as that number is, it also merits some broader context. A deeper dive into the numbers suggests that it tells a story about the struggles of the young and underpaid, rather than the irresponsible savings habits of the middle-aged.

The first big issue to consider is the plight of the under-35 workforce. The slow economy has been particularly tough on younger workers, thanks to the lethal combination of high unemployment and soaring student debt. One piece of data in the EBRI survey shows the impact of this trend particularly dramatically: In 2004, 63% of workers ages 25 to 34 said they started saving for retirement; by this year, that figure had dropped to 48%.


It’s not coincidental, then, that about half of people in this age group have less than $1,000 in savings, according to this supplemental EBRI fact sheet. That number steadily declines as survey respondents age (though of course it’s undesirably high for any age group). Among savers over 55, only 24% have saved less than $1,000; in contrast, 42% of workers over 55 say they’ve saved at least $100,000, and 23% have saved at least $250,000.


The second issue has to do with retirement plan access: As we’ve often discussed on Encore, people who have access to a 401(k) or similar plan tend to use it; those who don’t are likely to save relatively little. And having a retirement plan is often a proxy for economic stability—if you’ve got a 401(k), chances are that you have full-time rather than part-time work, and that you’re at a stable larger firm rather than a riskier small business. And sure enough: Among people with no workplace plan, a whopping 73% had saved $1,000 or less, according to EBRI; among those who had one, the figure was only 11%.


Another issue: Savings aren’t a retiree’s only asset. EBRI’s survey doesn’t track the value of Social Security, home equity or defined-benefit pensions, but plenty of people still rely heavily on those sources to fund retirement. About 30% of retirees say they have less than $1,000 in savings. But the poverty rate among the elderly is only about 9%: other income sources are clearly sustaining some retirees. . . .


Last but not least: Do you have to be a bleeding heart to believe that it’s hard to save money when you aren’t making money? Among survey respondents who earned less than $35,000 a year, EBRI says, 68% had saved less than $1,000. It’s tough, but not impossible, to sock a lot of money away on a salary that amounts to less than $700 a week before taxes. But if you’re a wage earner, there’s one retirement system that you’re paying into with every paycheck: That’d be Social Security."


Summing Up

While many oldsters have saved too little, the problem is especially acute for young people.

Student debt, a lack of good and well paying jobs, including a lack of full time employment with an accompanying retirement plan, and a clear switch toward 401(k) plans from defined benefit pension plans over the past few decades, all combine to present a very difficult challenge for our young people.

And the current lousy economy and weak prospects don't provide them with a comforting picture of the future either.

That's my take.

Thanks. Bob.