Before You Get Your Iphone40,  Please Read This

                                                   

If I told you I was a millionaire, would my words become instantly credible?  I have been thinking about how we collectively experience the world through the lens of economics.  You can either section your lifetime into thirds or quarters.  For the first 20-25 years of our existence we are essentially consumers (early childhood, adolescence, teens, early 20s) with no real expectation of contributing to the gross domestic product per capita other than stuff being purchased for us.  An unintended consequence of child labor laws introduced during the Industrial Revolution to mitigate or eliminate the egregious working conditions of minors in factories was a virtual suspension of the demand of children, teenagers to contribute in any meaningful way to the growth of our national economy.  Many of us enter adulthood with only a vicarious understanding of substantive employment that requires responsibility and accountability.

The next third or two quarters of our lives are spent in the “real world” of adulthood or initially extended adolescence (college) to prepare ourselves for a career so that this heavily subsidized, acquired skill set will afford us the means and wherewithal to change the trajectory of our lives as professionals hopefully in our chosen field of endeavor.  According to the Pew Economic Mobility Project, forty percent of kids raised in a family in the top income quintile stay there as adults, and 40% of those born into the lowest quintile remain there.  Only 8% of those raised in the top quintile drop to the lowest quintile as adults.  Unfortunately, most of the sixty percent that don’t remain in the lowest quintile are finding themselves in the hinterlands of the middle-class, an amorphous term that seem to vary based on geographical location.  According to a Rutgers survey based on a nationwide sampling, only 51% of those who have graduated college since 2006 are now employed full time (this is a 2012 article).  Twenty percent are in graduate school.  The rest……….

One of the great concerns about those in the second and third quarters of their lives is the growing menace of indebtedness be it consumer loans like credit cards or the incredulous two trillion dollar nationwide debt in the form of student loans. Only 52% of American families say there were able to save anything in 2010, according to the Federal Reserve’s Survey of Consumer Finance.  The median American family’s net worth fell to $77,300 in 2010 from $126,400 in 2007 (due in large part to the housing bubble implosion), according to the same survey.  That erased nearly two decades of accumulated wealth.   Five of every six American families earn more than their respective parents did, according to the Pew Economic Mobility Project, but adjusted for inflation, the median average hourly wage was lower in 2011 than it was in 2001.  If the average American household is out earning the previous generation, why does the future look so ominous for so many people in the second tier of their lives?  

Wealth accumulation in this country is arcing in a manner that is hyper concentrating into the hands of what I call the uber class. Please understand that this is not an indictment of the investment class or those who have amassed fortunes in the Internet Age.  According to economists Thomas Piketty and Emmanuel Saez, 80% of all income growth from 1980 to 2005 went to the top 1% of wage earners. Although this is a dated statistic, this hyper migration of wealth is continuing at a rapid clip which bodes well for advocates of unfettered capitalism.  However, America is aging, which brings me to my focus on those who find themselves in the third tier or fourth quarter of their lives. Older workers (age 55+) are about to overtake younger workers (age 25-34) for the first time.  We have more people working beyond what used to be the cursory retirement age of 55 because of simple economics.  They don’t have enough saved to transition into what are supposed to be the golden years. That dismal disclosure uncovers an alarming trend that shows that many who started their careers in the second tier or second quarter either never started investing in their retirement or never made enough that consistently placing 5-10% of their income into a retirement account was an option.

According to the Center on Wealth and Philanthropy at Boston College, Americans will inherit 27 trillion dollars over the next four decades.  While that is a staggering amount of wealth/assets to be transferred in the future, a lot of seniors find themselves in dire straits financially after a career of earning less than the national median income.  One of the surging expenses tied to the geriatric community is health care costs.  The U.S. makes up less than 5% of the world’s population, but a third of the world’s spending on pharmaceuticals, according to the IMS Institute for Healthcare.  The private sector shift from defined benefit plans (pensions) to defined contribution plans (401ks) has left millions of seniors either underfunded or unfunded (lack of participation) in their putative transition to retirement.  Those 100 dollars a month they might have been encouraged to place in their 401k, 403b or 457 plans seemed to be frivolity at the time it was suggested.  From age 18 to 65 that currency of Ben Franklin could have compounded to become $306,667 assuming a 9% rate of return annually according to an illustration by Schwab.com.  The wealth snowball is inconspicuous, unsexy and flat out boring.  Lotteries have become the fantasy utility for covering the benign neglect that many have engaged in when it comes to planning for their life after a career in the workforce.

I am writing about this because I have witnessed this unfold with a number of colleagues who found their sense of community in the ever shrinking bandwidth known as middle or upper-middle class.  Their lives were anything but pedestrian. They followed the blueprint of college, military or vocational school; raising their families in the suburbs, ascension up the corporate ladder in both the public and private sector and finally peregrinating to the precipice of eligibility for AARP cards.  The dissonance in this journey has been the inordinate amount of unpreparedness for ostensibly 25 or more years of unsubsidized existence.  Certainly their paid for homes and nest eggs mitigate some of the trauma of reduced income.  The Social Security Act of 1935, originally named the Economic Security Act has transubstantiated into something it was never supposed to be.  The vast majority of people reaching age 62, the minimum age eligibility, are blowing through that milestone with almost no resources to sustain them in their post-career life. There is an ominous sign posted in the Capuchin Crypt in Rome.  It says,” As you are, we were.  As we are, you shall be.  It is my hope that the national narrative changes to get millennials to follow a different trajectory before they reach their Iphone40 years.  There is SO MUCH information available in addition to a phalanx of financial tools to get them started in realizing that the future that they want will be shaped by the money habits they embrace or adopt today.