Avoid the mistake that millions of people of my generation have made and now can’t undo
Will Millennials make the same errors as millions of people of my generation? I hope not.
But some are headed down this road. This column is an attempt to prevent young people from making the mistakes of my generation.
Who am I?
I am an old man. I am a Baby Boomer (Born at the end of 1952). I can only work part-time today and my prime earning years are likely behind me. I am someone who just had an operation and thank God I have wonderful wife to help me, the ever-comely Suzanne Hall, and that we have the financial resources so we don’t have to worry about money during my recovery process.
No Work for Gregorio
I don’t have to worry about working—I freelance for various publications but will be doing very little of that for next few weeks—because our significant private savings will see us through.
That’s not the case for millions of other Baby Boomers who have little or nothing in private savings—the kind of savings you, not some government agency, controls. By the way, polls show that millions of Millennials are taking the same disastrous path as many Boomers.
With no or little private savings, you are vulnerable to a financial disaster in old age.
Indeed, for millions of Boomers, their primary income, and in some cases their only income, is their Social Security. It averages around $1,500 a month or about $20,000 a year. That is poverty level income in the big cities of this nation. It isn’t even that good an income if you live in the less pricy small towns. Other Boomers have the same problem. They have some private savings but not nearly enough.
Taking a Big Chance
Those who rely on Social Security to be a big part of their retirement income risk a lot. They are likely to have some not so golden retirement years.
“I think anyone who relies on Social Security for 50 percent or more of their retirement income is taking a big chance,” says Charles Hughes, a long time certified financial planner (CFP) in Bay Shore New York.
Hughes’ point is that it is difficult for a financial professional to draw up an effective retirement plan for a client when there isn’t a fair amount of private savings. Social Security, he argues, should be a small part of a retirement plan because it is such a small payment.
Social Security—Paying Less
And, by the way, Social Security payments have been effectively reduced over the years. For example, there was a time when one paid no taxes on Social Security payments. However, over the past 40 years much of your Social Security is now taxed (I don’t understand why it is taxed other than this terrible government system has been mismanaged for decades. But that should be the subject of a column for another time).
And, given that Social Security is now in the red—-more is going out than coming in, which is alarming given that there is virtually no unemployment now so lots of people are paying into the system—the possibility of more cuts is real.
So millions of Boomers are having a difficult retirement. But here is something as disturbing: Millions of younger people, including Millennials, are taking the same approach. They are apparently relying on the government to take care of them because many have very little in private resources.
Who not to Rely On
This is a dangerous approach, one that relies on the promises of governments that come and go. Governments in the advanced welfare state are often headed by men and women who are career pols. They are the bane, I believe, of modern democracy. These politicos often seem to develop amnesia about promises made on the hustings once elected or re-elected.
Millennials, don’t rely on these people.
Whether of the left or the right, most of them are not to be trusted. Trust in yourself, your family, good friends, trust in your determination to work hard and develop resources that can make you independent. Don’t depend on pols. Most of them are simply in it for the office or the allure of higher office (For example, here in New York City, our mayor, Bill de Blasio, has spent much of his time figuring out how he could run for higher office. That, of course, has meant that he has been an incredibly bad mayor. There are lots of Bill de Blasios in our political system).
Yes, Millennials Can
Yet Millennials, who are young people ages 22-37, have a tremendous advantage: They have prime earning years in front of them. Use them wisely. That doesn’t mean the typical Millennial couldn’t or shouldn’t have a good time in what could the best years of his or her life.
Indeed, GregoryBresiger.com. is only arguing that you take some commonsense steps; that you put an automatic savings, spending and investing programs in place.
These include a few steps: Take advantage of all retirement saving plans at work and private retirement savings plans allowed by the government. Your employer could very well offer you a matching retirement savings plan.
Unless there is a problem with a retirement plan at work, use it. Use it for at least a few reasons. The employer will often match what you put in and the government usually reduces your taxation by the amount you contribute.
Passing Up the Chance to Get Rich
Remarkably, there are many people who don’t take advantage or only use it partly. This is a mistake. It’s up to us to use this matching money, which can never be recovered if you don’t use it.
Don’t have a retirement plan at work? You can use the same principles in setting up your own retirement plan through an IRA, if your employer doesn’t have a plan. By the way, in some cases, you can use a retirement plan at work and set up your own retirement plan such as IRAs, which my wife and I did.
If you have some decent investments—and I recommend using low cost stock index funds—over the long term you can accumulate a lot in retirement plans. My wife and I both did this. Today, our retirement accounts represent about 2/3 of our total assets. That’s because we faithfully contributed year in and year out—every year over several decades. We never missed a chance to put more money into our retirement accounts, which grew in part because of employer contributions and preferential tax treatment (Unlike regular investments we paid no tax bill on them at the end of each year. We’re now paying taxes on them as we have begun drawing on them. Tax deferral is the next best thing to low taxes or no taxes. All of this helps build up bigger balances, but nothing is as good as doing these things consistently, over a long period of time. That is why Millennials, with lots of years to go to retirement, have such an advantage. The longer compounding takes place, the better you do).
The Remarkable Power of Math
The power of compounding really helped us. Even relatively small amounts over long periods can add up. In the example I am about to cite, I have purposively chosen a small amount to save because I remember that, in my 20s and 30s, I never seemed to have a lot to save.
Let’s say you start contributing $100 a month into your retirement account at age 25. At a nine percent rate of return, which is achievable for most people if you stay in the plan for a long time and because the long-term rate of the stock is some 9.5 percent, you have $471,643 at age 65. But let’s say your employer matches and $200 a month goes into your account.
Again, your rate of return is nine percent. Then you have $943,286 at the end of 40 years. Of course, as you earn more, save a little more. You’ll end up with a lot more. Say you average $300 a month over 40 years, again at nine percent a year. After 40 years you have $1,414, 929. If you take this advice, your chances of doing well and having a comfortable life will improve. And GregoryBresiger.com will have proven its worth.
The Spending Part of the Problem
Another factor in saving for retirement is not to let your money get eaten up by superfluous spending. Just as you should save on a regular basis, so, too, get in the habit of paying off your bills each month. That’s because when you are paying 20 percent interest on top of your credit cards, you usually have little or nothing to save.
So try to slow up spending. Space out your purchases over longer periods so you will not interrupt your savings plan. The latter is very important.
I know this seems ridiculous, but the years seem to go by so fast. And, some day you will run out of prime earning years. In the latter, I often had multiple jobs—a full time job and several part-time ones—to ensure we had enough income. I couldn’t do that today, nor would I want to given the parlous condition of the wretched state-run New York City subways.
Achieving the Ultimate Freedom
Today my wife and I have the freedom to live our lives as we wish, which in my case is work some and relax some while my wife is continuing her playwrighting career.
I want you, Mr. and Ms. Millennial, to have the chance to do the same.
Now it is up to you, not some unreliable government that pillages the retirement funds that were supposed to be put aside, to do it. Buena suerte.