The epic retirement crisis for older Americans: The median family of retirement age has $12,000 in savings.
Given the discussion of 401ks and IRAs you would think that most Americans have a nice nest egg ready to support them into their margarita drinking days on the beach. Yet like most dreams, the reality is very different. Most Americans are broke. The Economist put out some data highlighting that the median family of retirement age has $12,000 in savings. In other words, one minor injury and you are bankrupt. It is a troubling contrast to the image that is portrayed on television and throughout the media of the fully financially prepared family. Life just doesn’t work out that way for most. Unsuspected illnesses, job losses, stagnant wages, inflation, family changes, and student debt all throw a wrench into the plans of most. What is also startling is that this drought in retirement savings is happening at a time when the stock market is near an all time high. So what gives?
The list of retail bankruptcies continues to grow in 2017. The list includes J.C. Penney, Sears, RadioShack, and just recently Payless. Of course there is massive growth in dollar stores as Americans are pinched for cash. There has been a retail apocalypse and part of this has to do with the ridiculous amount of mall space that has been built out over the last few decades. Just like Blockbuster not seeing Netflix coming, many malls simply assumed things would never change. Then we get Amazon. The game has been fully upended and people simply choose to be more selective with what they buy. For the first time ever, Americans spent more money on bars and restaurants than at grocery stores. Habits are changing and the Millennial generation simply has different interests.
Miami condo market acting as if it is 2007: Condo market in Miami is saturated with units and inventory is growing.
There is a major leading indicator in the housing market and that involves inventory and sales. These two economic points can signal trouble ahead. And we saw this trend unfold in the last housing crisis when over euphoric builders chased bubbles across the country. The sad part is that most Americans are too broke to afford a home. So the condo market in Miami is seeing a big surge in inventory while sales decline – obviously these two indicators feed into each other. The euphoria in real estate is running red hot and it is no surprise that Florida is at it again. Is this simply an isolated market or is there something larger brewing in the nationwide housing market?
Baby boom or bust: Retirement withdrawals now exceed contributions. Since 2008 US public debt up by $10 trillion, nearly the same as the Russell 3000 Index.
You knew it was only a matter of time before baby boomers started taking out their money from retirement accounts in mass. If you think boomers were rebalancing every year carefully, think again. We have now crossed an interesting threshold where retirement withdrawals exceed contributions. Part of this has to do with a younger and more broke generation of Americans. You also have older Americans being stretched financially thin so they need to get additional funds from retirement accounts. This also means that there is likely going to be more forced selling from this massive market. After all, that is the point of a retirement account in that it should throw off income when you retire. But for every sell you need someone willing and ready to buy. The market hasn’t been necessarily tested in this regard with tens of millions now utilizing the sell side of a retirement account.
Subprime auto loans face mounting problems: With $1.1 trillion in loans outstanding we all know bad deals are made in good times.
Exuberance breeds bad decisions as inhibitions and due diligence get tossed out the window like dirty water. This is exactly what is unfolding in the rampaging auto market. The latest data from Fitch Auto ABS Indices shows that 60+ day delinquencies for subprime loans are now at 5 percent of all outstanding balances. This is the highest it has been since 2008 when the financial crisis was wrecking havoc on global markets. The issue we have today is that auto loan standards are deep in the toilet. Essentially what happened in the housing market with no-doc and no-income loans is happening with the auto sector. Part of this has to do with the pressure being seen in the industry since new cars are simply built much better and can last a long time. So dealers hustle out late model used cars which eat into new car sales. So incentives are the name of the game and when incentives end you simply start giving out loans to anyone with a pulse.
The runaway cost to attend college just continues to sprint ahead. The average student loan balance for graduating seniors is now $40,000. This is astronomical considering the per capita wage of Americans is in the high $20,000 range. The math behind this astronomical debt is rather clear and simple to follow. Student debt is one of those categories where your ability to pay said debt back is completely devoid from reality. For example, you can go into one hundred thousand dollars of debt for a degree in art that has little earnings potential in the market. Is that wise? Depends on who you ask but you can’t walk into a car dealership and purchase a $50,000 car without some financial backing and ability to pay it back. This applies to most things but the way we fund college is somewhat dysfunctional.
There is a massive student loan epidemic in the United States. Over $1.4 trillion in student debt is floating around in our economy lingering like an albatross on the necks of many young students. While the idea of getting a college degree is more popular today than ever, it would seem like going to spring break is also very popular. It is hard to track how students spend their student loans. Obviously most (if not all) goes to pay for college for the vast majority of students. But some use student loans to finance unnecessary items like partying it up on spring break and getting inebriated to celebrate a semester well done. A new LendEDU poll found that roughly one-third of college students used a part of their student loans to finance their spring break. While this is not the bulk of young college going Americans, the number is somewhat startling. Priorities folks!