This morning MSNBC’s Morning Joe discussed a recent USA Today Wells Fargo Harris study of Adults 25-75 regarding retirement:
- 37% will work until death or they’re too sick.
- 48% are confident they won’t have enough to retire.
- 34% will have to work until they are 80 years old.
- 59% say their top daily concern is paying the bills.
- 42% say it is impossible to save and pay the bills.
I agree with the panel: This is a crisis. The American Dream was a concept that said each successive generation has the opportunity to build at least a little bit better of a life than the previous generation. It wasn’t a competition or a guarantee but rather an opportunity that if you work hard and follow some basic principles you could build something better for yourself. The idea that the NEW American Dream is simply the ability to retire before death is alarming.
This is the major driver of the discord in Washington and why our government is so afraid to address meaningful reform to Social Security and Medicare. Many people want our government to keep taxes low and cut the spending but yet when it comes to Social Security and Medicare: HANDS-OFF! Why should there be cuts? These people paid into the programs their entire working life. It isn’t welfare. It’s an earned benefit. The solution is not simple because it seems to be a choice between Bad and Bad. If the political spins could stop for one minute and the choices are more appropriately defined as Something versus Nothing, I think we could find some compromise very quickly. The truth is these programs won’t alone fix the crisis highlighted in the study.
If you’re a small business owner: There is no question that the economy has and continues to slowly get better. However the economy is missing the “pops” that once occurred…………a double-digit month, quarter, season or even year. These little surges along the way fund things like raises, accelerated debt reduction and retirement contributions for small businesses. The epidemic underlying the economy is the fact that the middle class is not thriving and in fact is shrinking into the poorhouse. Compensation is contracting and costs are increasing. All of this pressure even in two-income households means the 401k plans and IRAs are not getting funded. Pension plans essentially do not exist anymore and, again, Social Security and Medicare are not the answer.
I’ve had retirement conversations with three clients just over the past two days. We clearly don’t give retirement enough thought until we hit about age 55. When you’re discussing retirement with someone in their late 50s who really hasn’t done nearly enough to retire, you can see the regret on their face. You can see how they would love to go back to the 25 year old and give them advice. Life takes over and time goes so very quickly.
There are four basic commitments that a working adult must make as soon as possible in their life:
- Save at least 10% of your earnings into a qualified plan (401k, IRA, etc.) every year. No exceptions.
- Pay your total credit card balance every month.
- Stay with your original mortgage term. If you refinance 10 years in on a 30 year note, refinance for 20 years. If you buy a home later in life then limit the term to age 60 at the most.
- If you choose to assist your children with college then fund what you can early in a 529 plan and never co-sign a loan. The rest has to be up to them to budget their choice in school. Your only OBLIGATION is to help your children understand the cost of their school, debt and the alternatives.
Any working adult that cannot commit to these four basic principles must adjust their lifestyle. Buy less house or even rent a home. Buy less car. Eliminate expensive vacations. Stop eating out 4 days a week (unless you are visiting one of my clients). Stop buying the latest and greatest tech gadget.
Our government has to do more to address economic growth, the shrinking middle class and the long-term health of our social programs. In the meantime we must take personal responsibility and commit to our own fiscal health. The individuals and businesses that do not get distracted and maintain strong fiscal principles will realize the NEW American Dream and even perhaps the OLD American Dream.