Sunday Morning Quick Hits # 5 - Retirement a Phenomenon of the 20th Century?

Friends and family closest to me know that my passion for the Fighting Illini is borderline unhealthy, that I think Mr. T should have won an Oscar for his role as James “Clubber” Lang in Rocky III, and “retirement” may well have been a phenomenon of the 20th Century.

My feelings about retirement are not mine alone. My generation, the so-called Generation X, has a dismal outlook on retirement. A recent Insured Retirement Institute (IRI) study finds that one-third (1/3) of us have nothing saved for retirement and only 8% of Gen Xers have enough saved to support themselves in retirement. What happened?

First, retirement was invented. It’s this notion that at age 65 the rest of our time should be dominated by leisure during this final phase of life. Modern institutions and assumptions were built around this notion. Private and government funded pensions were created to benefit our grandparents and baby-boomer parents. Pensions are now diminishing or disappearing because we have come to realize that financial resources cannot support people living 20-40 years in retirement. Regardless, they don’t work because it’s harder to create any meaningful level of benefits given the disappearance of the single job career. Gen Xers that saw the launch of MTV and gathered around at a friend’s house (that actually had cable) to watch the debut of Michael Jackson’s Thriller video did not make saving for retirement a priority as we entered the workforce because we had not yet embraced the seismic shift to self-funding our own retirements.

Second, we are becoming too reliant on Social Security. When Social Security was established, the age for collection of benefits was set at age 65, because the planners knew at the time that the average life span was age 63. Thus, few persons were expected to actually collect benefits, with benefits going only to the truly needy. Social Security, conceived as a kind of insurance, works like a pyramid scheme in which those “in early” benefit the most, and those “in last” may not benefit at all. It is difficult to imagine how it can sustain itself without meaningful reform. Gen Xers that have incorporated into their financial plans to much reliance on Social Security as an asset during retirement may very well wake up one day to the reality that retirement is not the leisurely endeavor as they had hoped.

Finally, pop-culture may remember Gen Xers growing up in the 1980’s seeking independence from our parents. We should celebrate that strive for independence as sadly the generations that followed have become too reliant on their parents for healthcare, housing, college tuition and unlimited data for their mobile devices. Dilapidated apartments that housed us during college have been replaced by high-rise luxury apartments with granite, workout facilities and hot-tubs … but I digress. However, that quest for independence is also a blind-spot for us when it comes to investing. The problem is that most Gen Xers (8 out of 10) are do-it-yourself (DIY) investors who manage their money without any professional guidance. See my recent blog Sunday Morning Quick Hits # 3. Only 1 in 5 Gen Xers works with a financial professional. But Gen Xers who do seek professional advice are twice as likely to have more saved for retirement, compared with those who plan on their own. We cannot afford to let our DIY mentality with investing become a legacy we regret. If we want retirement to be in our futures, we have to seek financial help and make savings a disciplined priority in our lives. Otherwise, retirement will be just another relic of the 20th Century.