The Aging Wave and the Savings Problem
Hey, so you might have noticed this, but it seems like everyone’s getting older this year. Seriously, a record number of people are turning 65, and guess what? Next year, that record’s gonna be broken again. We’ve heard warnings about aging populations for decades, and now? It’s actually happening right in front of us.
Unfortunately, the savings retirement gap for millions of households is wider than it’s ever been. People’s assets? Eaten up by things like inflation, bad investments, and good old-fashioned financial illiteracy. It’s pretty rough.
Get this: over 20% of folks right on the cusp of retiring have no savings at all. Zero. But are they stopping? Nope. Millions of people across the world can’t afford to retire, and they’re doing it anyway.
So, what the heck does all this mean for everybody else?
Consequences for Everyone Else
Think about the Baby Boomers leaving their homes. This could be because they’re moving to Assisted Living centers, or honestly, just no longer living.
Look at Milwaukee County as an example. In the last 10 years, they saw a 22% increase in older residents. People in their 50s are usually at their peak earning potential, right? Yet, more than half of them worry they’ll run out of money in retirement.
Is this the retirement you imagined? Probably not.
The Scale of the Problem: Studies and Statistics
Earlier this year, the Retirement Income Institute released a big study on retirement savings. And seriously, I LOVE the name of this report: the Peak Boomer’s Impact Study.
What did they find?
- Between this year and 2030, 30 million Americans will retire.
- That number represents almost a fifth of the total labor force.
The study mostly looked at how these retirees planned to fund their retirement, and the results were pretty grim.
- More than half of the group they studied had less than $250,000 in assets, and that includes their home if they even owned one.
- That large group would have to rely on Social Security as their primary or even exclusive source of income in retirement.
Now, a heads-up: this study was done by independent researchers, but it was funded by a group that wants to sell annuities. So, you gotta take some of their recommendations with more than just a bucket of salt.
But the study group – retirees getting too old to work – is just one piece of the puzzle. A larger group is also deciding right now is a pretty good time to retire, even if they don’t fit the usual mold.
A study by Pew Research found that the biggest wave of retirement actually already happened during COVID. People stepped back from work, helped along by a bunch of things:
- Record low interest rates
- Generous stimulus measures
- Redundancy packages
- Record asset prices
- And, let’s be honest, a general motivation to not go back into a plague-infested office.
This isn’t just an American thing, either. We’re actually behind a lot of countries that are both older than us and have better support systems for people in their old age.
On top of hitting that “Peak Boomer” wave, there are less typical retirees popping up:
- A growing number of independently wealthy young people. These folks are chasing Financial Independence (sometimes called FIRE - Financial Independence, Retire Early). Their goal is to have investment returns from their assets cover their lifestyle indefinitely.
- On the other end, you have people just giving up on working. They’re scraping by on family support, government assistance, or jobs in the informal economy.
These aren’t your typical retiree demographics, but they’re still adding to this record trend. And they’re all paying for this major financial decision in slightly different ways.
Why People Retire Without Enough Money
Not Always Rational Decisions
First off, people just aren’t always making smart, rational financial decisions. Whether it’s:
- Buying a car on an 84-month Finance deal
- Racking up credit card debt to buy luxury goods
- Or simply not understanding the importance of saving and investing
There’s no shortage of people doing really dumb things with their money.
Now, if you’re watching this channel, you’re probably way more financially literate than the average person. You’re getting weekly, let’s call them, “depressing lectures” on the financial system, business trends, and the economy. But even you have probably made some dumb money mistakes.
People deciding to quit their jobs often aren’t thinking totally rationally. More and more, people are just deciding that if they’re going to be screwed financially when they’re old, they’d at least like to enjoy a few years while they still have their health. They figure they’ll worry about the money part once they’re too old for it to be their problem.
Forced into Retirement (Layoffs)
For some people, the decision isn’t even theirs to make. Layoffs nationwide have hit people approaching retirement age particularly hard.
According to a survey from the Transamerica Center for Retirement Studies, most Americans are retiring 5 years earlier than they expected. While that might sound like more years to chill, the reality is it means:
- Fewer years to save
- More years they need their money to cover expenses
And this is almost entirely involuntary.
A study published by ProPublica found that since 2016, 56% of workers over the age of 50 lost their job involuntarily. That means they were either fired, made redundant, or laid off.
Now, that might not sound too bad on its own. But remember, a lot of people over 50 are choosing to leave their job because they’re retiring on their own terms. So, the fact that the majority are being let go means a lot of people are being pushed out of work unexpectedly.
Difficulty Finding New Jobs
Once older people are out of a job, they find it much harder to get hired again, especially for jobs that pay as well as the ones they lost. Companies just don’t seem to want to hire older people. They have reasons they think:
- They think older workers can’t use computers well.
- They think they won’t be able to do physical work for as long as younger workers (in non-office jobs).
- And, there’s the not-so-secret reality that older workers are usually less easy to take advantage of than younger workers who have their whole career ahead of them.
Legally, it’s technically not legal to discriminate against workers over the age of 40. (Side note: this law doesn’t protect against discriminating against people under 40, but that’s a whole different issue).
But frankly, the law doesn’t matter anyway. Any hiring manager or HR department that’s even half-competent can find a different reason for hiring a young worker instead of someone over 50.
All of this boils down to the same thing: if people lose their jobs over the age of 50, they are almost forced into retirement, whether they can actually afford it or not.
So, let’s figure out what this means for everyone else who might end up supporting a growing group of people who can’t support themselves.
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Societal and Policy Challenges
Okay, back to the main topic. What to do about aging populations in countries across the world? This is something that’s keeping a lot of policymakers up at night.
People are living longer and having fewer children. This means:
- More pressure is going to be put on a smaller group of young people.
- Alternatively, people are just going to have to make do with less when they’re old.
Now, don’t get me wrong, a lot of Baby Boomers are independently very wealthy. They had a high level of job security and saw incredible asset price appreciation over their careers. The classic picture of a typical white-haired couple driving a gold buggy around a gated Floridian retirement village might be the first thing you think of when you picture a Boomer retiree. But those people are far from the average.
People of retirement age collectively own more than half of the wealth of the country. But that wealth is spread even more unevenly than it is over the general population. There are some extremely wealthy Baby Boomers, a small group who will be able to comfortably fund a nice retirement, and then there are millions who are fighting for what little is left.
The real question is about what happens when this huge group just can’t work anymore.
A study by the Stanford Center on Longitude found that even though Baby Boomers are the wealthiest generation in history as a whole, they are still facing tougher retirement conditions on an individual basis than their parents did.
Some countries are trying things like pushing back retirement ages. This is meant to squeeze a few more years of work out of people before they can get a government pension or access their retirement savings. While this might feel like a necessary evil, it’s going to be a hard sell. Retiring Baby Boomers are a large group, and they vote. The very mention of them needing to work a few more years is borderline political suicide for politicians. Most plans here in America center around pushing back retirement for young people who aren’t close enough to retirement yet to really care.
Whatever the plan is, it’s not being helped by the millions of people who are dropping out of the workforce right now.
So, the compromise often ends up being that the government payments are stretched thinner. According to Census Bureau data, poverty rates amongst people over 65 has actually been on the rise. Government programs just haven’t been able to keep up with general inflation, and they certainly haven’t kept up with the spiraling costs for age-related healthcare and senior living.
Returning to Low-Wage Work
If people do try to re-enter the workforce, it’s normally into low-wage jobs. These jobs often only help support other payments, they don’t provide full financial security.
A study by the American Society of Aging found that a fifth of older workers were making less than $15 an hour. And that included people between the ages of 55 and 65, who really should be in the penultimate years of their peak career earnings.
The authors of this study also pointed out that a lot of this low-wage work is:
- Intense
- Routine
- Almost always highly monitored (meaning a person controls neither the pace nor content of their work)
Now, you probably don’t need a fancy study to tell you that minimum wage jobs are hard. But they are even harder on old people with deteriorating health. This means it could be tough for them to keep this work, even if they really, really need it.
The Burden on Adult Children (Intergenerational Cycle)
When this happens, the last line of support becomes relying on their adult children for care.
Now, the idea of your parents moving back in with you might be terrifying enough on its own. But the burden of being a caregiver to elderly parents is disproportionately falling on lower income households.
Think about it:
- Lower income households are less likely to have saved adequately for their own retirement.
- They’re also more likely to have children who are also low-income.
When those parents start needing care from their children, it can seriously impact the adult child’s:
- Relationships
- Career growth
- Even how many hours they can put into their paid work
Plus, a dependent parent might be a direct financial burden if their assistance payments don’t cover all their expenses.
What does this all mean? These adult children are going to be even less likely to save for their own retirement. This creates a vicious intergenerational cycle of financial struggle.
What Can Be Done?
So, what was supposed to be a feel-good story about millions of people leaving behind the 9-to-5 has unfortunately turned into a bit of a lecture about the grim financial landscape that millions of people are forced to deal with. Welcome to the channel – by now, you should probably know what you’ve signed up for!
But seriously, what can actually be done about this?
Societal Level
As a society? Not much, unfortunately. A lot of incredibly smart people are trying to tackle the problem of aging populations. The solutions they’ve come up with so far mostly boil down to getting people to work longer and live on less.
Individual Level
Individually though, you really need to assume that there is not going to be much there to support you when you are too old to work. Pensions? They’re already strained. If you’ve got a few decades left in the workforce, there’s really no guarantee your pension will even exist at all for you. And if it does, it’s probably only going to be enough to cover the bare necessities, if that.
So, the most basic advice is still the most important: try to set something aside. Whether it’s in a 401K or whatever the equivalent is in your country. It’s basic stuff, yeah, but when so many people cannot or will not do the basics, doing them yourself could put you a long, long way ahead.
Beyond Typical Retirement: Early Leavers
Now, everything we’ve talked about so far mostly applies to elderly retirees. But remember, this problem is being made much worse by the millions of people leaving the workforce decades before they would normally retire.
Go and watch my video on “Why millions of men are simply choosing not to work and how they are surviving without even any of the supports available to regular retirees”. It digs into that part of the trend.
Stay Informed
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