Archives For Generation X

Generation X: the generation of Americans born in the 1960s and 1970s. I was born in 1969. I’m a Gen Xer, dude.

This article from DailyFinance has these tidbits about MY generation:

• 41 percent of Gen Xers have saved less than $100,000 for retirement.
• 15 percent have begun borrowing from Peter to pay Paul, siphoning funds out of their 401(k) plans ahead of retirement.
• 23 percent have stopped contributing to their retirement accounts altogether.


Granted, times haven’t been exactly easy on our generation. We suffered through the dot com bust and then the housing crisis. Those who were fortunate enough to not lose their jobs and were able to save money for retirement through the two crises, probably did alright (remember, it’s better to buy when prices are low).

The article goes on to list several of the causes of the poor numbers for Generation X. As the saying goes, it is what it is. I’m sure there are those who can’t afford to save a dime. However, I doubt this is the case for everyone. For those who can, I highly recommend starting yesterday. Prioritize. Put off buying stuff that’s not needed. Make it a goal to save $200 per month (NOTE: NOT including inflation, $200 per month over 20 years will grow to $181,000. No, it’s not a lot but it’s better than nothing. Don’t like that number? Save more.).

Oh, and pray for an inheritance. Good luck getting one from the Baby Boomers.

This past week I received an email about a survey that Charles Schwab conducted called Rethinking Retirement. I went to their website and decided to take their survey. At one point in the beginning of their survey it asked “How much money do you think you need to retire?” To come up with some sort of answer that wasn’t directly pulled out of my you-know-what, I ran some numbers using my little retirement calculator. My calculator told me that I would need somewhere in the neighborhood of $3.9 million so that’s what I entered. It then asked me for my birthyear and then it took me to this screen:

The average Generation Xer who took the survey thinks they will need $1.2 million to retire on. I gotta tell ya, I don’t think that’s enough. Let’s think about it for a minute. Here’s a look at the possible first-year income on $1.2 million based on three different withdrawal rates:

Not too bad until you consider the fact that these numbers don’t include inflation. If the average Gen Xer is my age (38) they have about 27 years until retirement if they retire at 65. Here’s a look at the numbers after you adjust them for a 3% inflation rate over the next 27 years (I realize inflation has been running higher than 3% as of late, but 3% has been the long-term inflation rate):

Call me crazy but I just don’t see $21,000 to $26,000 (I wouldn’t recommend a 6% withdrawal) as being a comfortable retirement income. Sure, there will be some Social Security income available but I can’t imagine it being more than $20,000 to $25,000 per year. Including Social Security, you’re looking at an income of $41,000 to $51,000 per year in today’s dollars.

Is it enough? I don’t think so. What about you?

I received an email earlier today about a new survey that Charles Schwab conducted called Rethinking Retirement (more on this in a follow-up post). On the Rethinking Retirement homepage, there’s a link to take the survey, which I did.

One of the questions towards the end of the survey pertains to parents and children. I’m curious to know how you would answer this question:

Of the following, which are the most important lessons in saving and investing for parents to teach their children? Please select up to two.

A. Live within your means
B. Begin saving at an early age
C. Avoid high interest debt
D. Get sound financial advice from a trustworthy resource
E. Learn how to invest wisely

I had a difficult time picking two answers as ALL OF THEM seem important to me. That said, I chose the first two. My thinking was that if parents can teach their kids to live within their means, they won’t be as likely to run out and use high interest debt like credit cards. The second one was a no-brainer since we all know the power of compounding over long-periods of time. Yes, they need to know how to invest wisely, but I think starting earlier is more important as long as they aren’t just storing their money under a mattress.

It turns out that most of my fellow Generation Xers agreed with me:

I’m curious. How would you answer this question?

Most “retire with one million dollars” articles focus on slow and steady savings over the course of decades. That works of course, and saving regularly is a great habit to get in no matter how much money you have.

But if you’re young enough, with some concerted effort you can save for only ONE year, never save another dime, and still retire with a million dollars. This Motely Fool article explains.

It all comes down to the power of compounding. Let’s say you’re 26 years old, you start with $0, and somehow you manage to invest $20,500 that year (not so coincidentally the same amount it takes to max an IRA and a 401k in 2008). If you never save another dime after that, you can retire at 67 with over $1M if you can achieve annual returns of 10%.

As daunting as it sounds, coming up with $20,500 in one year is not impossible for many 26 year olds. Maybe you live at home after graduation and save most of your salary; maybe you receive a small inheritance; maybe you even have a high paying job and decide to just save half your salary and continue living like a student. The beauty of it is, it’s a one year committment – you don’t have to do it year in and year out forever.

And the longer you wait, the harder the one year challenge would be. If you wait until you’re 30, you’ll have to come up with $30,000 in one year.

Of course you don’t have to do it all in one year (though it’s kind of an exciting concept, isn’t it?). If you can manage to have invested $30,000 by the time you are 30 years old, you can quit saving for retirement and hit 67 a millionaire. That means if you start saving at age 20 you only need put away $2,000 a year for 10 years (earning 10% a year) – and then you’re done. You’ll have $37,000 at age 30 which will grow into $1.3MM in 37 years.

I must point out that $1MM several decades from now will not buy nearly as much as it does today. Still, it’s a nice round number to shoot for. And once you’re in the habit of saving that much I doubt anyone would really be able to stop. If that 20 yr old kept investing $2,000 a year rather than stopping at age 30, she would have $2MM at 67. And if she increased her contributions with inflation (putting in $2,060 in year two, 2,121 in year three, etc) then she’d end up with almost $3MM.

[Note: invest in index funds to minimize fees and within retirement accounts to minimize taxes, and you’ll be even farther ahead!]

More from Meg at The World of Wealth

NOTE: The reader-submitted question of the day will begin tomorrow morning.

Should Parents Bail Out Their Kids?

That is the title of Liz Pulliam Weston’s article over on MSN Money.

I can’t remember a time when I ever “bailed out” financially by my parents. Sure, they helped me from time-to-time and my wife’s parents helped us with groceries and stuff when my wife and I were in college but nobody bailed us out. Why? Because my wife and I knew our place. In other words, we didn’t go out and buy things we couldn’t afford. We were responsible for ourselves.

Normally I agree with Liz but her excuses for why today’s kids get into trouble bother me. Check this out:

Most baby boomers had the economic winds at their backs. They graduated into decent job markets and enjoyed strong appreciation of their homes and (for the most part) stock portfolios.

Today’s graduates, by contrast, are a bit more behind the eight ball:

  • A rapidly decelerating economy means college graduates are facing the worst job market in several years.
  • Instead of getting free money in the form of grants to pay for college, they’re taking out student loans — an average of about $20,000 at last count, an amount that’s nearly doubled since the mid-1990s.
  • And then there’s the demon credit card, pushed on college campuses today with a vigor unheard of a generation ago. The majority of students now have credit cards, according to studies by student lender Nellie Mae. The average balance was $2,864 for college seniors in 2004 and $8,612 for graduate students in 2006, the latest years for which statistics are available.

Excuses, excuses. Tell me, what generation hasn’t had obstacles to overcome? Didn’t the Baby Boom generation graduate from college into the inflation-ridden 70s?

I think the root of the problem lies in the fact that today’s kids think they deserve everything right off the bat. There’s no working and saving up for things. At least that’s my perception of today’s society. Maybe I’m wrong and maybe I’m being harsh but I think today’s kids need to figure out that everything costs money and that they are going to have to prioritize their finances and make decisions accordingly.

Our kids are still young so it’s tough to say how my wife and I will treat them when they are adults. I’m hoping that they will have a good understanding of their responsibilities when they leave home. I can tell you that if they were to ever come back home after leaving, rent will be due. Hopefully it won’t ever get to that point.

What are your thoughts?

Americans at Work

April 14, 2008

I am sitting at my desk at work right now, clearly not engaged in productive activity for my employer. I don’t have any pressing deadlines, but there are certainly customers I could be calling, things I could be processing ahead of time, and skills I could be learning that would help me do my job better.

Instead I’m writing this.

I have a friend who really busts his hump all day long every day for his employer. He just got this new sales job, so he’s really trying to impress. He’s constantly reaching out to refereral sources. He sets up at least 1 meeting a day with a potential client. He’s learning quickly, he’s always polite and helpful, and he’s already initiated over 20 new deals in 6 weeks – they expected him to do 10 in his first 90 days.

Interestingly, this friend told me he was thinking of strategically slowing it down, in order to avoid setting the bar to high with his new employer. But in reality I know he won’t do that; he takes pride in his reputation, which is clearly tied to his production at work. That’s the beauty (and scariness, to me) of sales.

I just read the following article by Ben Stein on Yahoo! Finance: Want To Survive the Recession? Work it Out. Ben uses some personal anecdotes to point out that many American workers (specifically young ones) just don’t care about doing their jobs well. He asserts that despite the idea of workers begging for jobs that the media perpetuates, in reality it’s employers that are begging for qualified workers.

Why? Well, because many of us have never had to struggle at work. Those in my generation – myself included – have never faced a tough (or nonexistant) job market, a deep recession, or even a job loss. On top of that, many if not most jobs today are such that it’s easy to slide by without really trying your best or working your hardest. No one will notice if you’re online shopping instead of working on that power point for an hour or two. Sure you may only get “meets expectations” at your next review as opposed to “exceeds expectations,” but that is likely the extent of the consequences.

The difficult thing for all involved is that some of the best workers aren’t even noticed by their employers in certain industries. Secretaries are often more vital to the company and to the client relationship than the highly paid people they support, in my experience. But they seldom get the bonuses, the glory, even the thanks. Customer service reps aren’t going to get paid more or even recognized for being polite to you on the phone. Only if you are physically producing something might you get recognized for finishing ahead of schedule; or if you are selling something your boss will notice if you exceed your quota.

Ben closes with a quote that I’d like to echo: “I wish every worker in America had to be a freelancer at selling or writing or painting or carpentry or computer repair or law or something for two years. I wish Americans could have a period in their lives when they only got paid for what they sold and produced. It would do this country world of good.”

I know it would do me a world of good; what about you?

More from Meg at The World of Wealth

Loving Your Job Is Overrated

January 11, 2008

The message that you can and should be wildly passionate about and totally fulfilled by your career can unintentionally promote impatience, entitlement, poor work ethic, chronic dissatisfaction, frustration, and even depression. Plus it causes huge amounts of stress.

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