The death of the American pension: How older Americans are entering their golden years with a lack of retirement savings.
Listen carefully to the sales pitch from Wall Street. In the late 1970s and the early 1980s there was a push to get Americans away from pension plans and into 401k style retirement plans. The notion was that Americans would save enough on their own and would have the financial wherewithal to play in the Wall Street finance game. Well here we are a generation later and for most Americans, the self-directed retirement experiment has been an abject failure. We have now learned about a litany of mutual funds that have charged high expense ratios that basically ate into a good chunk of savings. The ETF and index fund world is new for many since it isn’t heavily marketed. And these are the options for the savvy people that actually dive in. Pension plans used to be commonplace. Now, they are rare and are headed to extinction. For most elderly Americans, the number one source of income is coming from Social Security. What happened to the pension plans of America?
What are the top 10 financial worries of Americans? Two of the most common themes include paying for children’s college and saving enough for retirement.
Financial worries are a big concern for many American families. In spite of a booming stock market and a resurgent real estate market, most Americans don’t seem to be feeling financially better. A large reason is that many Americans did not partake in the rise in the investor driven real estate boom and also, many Americans own very little to no stocks at all. Is it their fault? For some, yes. But for many the growing low wage economy simply leaves little left to save after paying for daily expenses. Having enough for retirement is becoming a growing issue since 10,000 Americans per day are hitting retirement age. Are they fully retiring in the traditional sense? No because many will have to work deep into old age. Many retirees are fully reliant on Social Security as their main source of income. With this as the backdrop it is no surprise that the big political theme for 2016 is going to revolve on financial and economic inequality. Gallup conducted a survey and asked different subgroups of Americans what their biggest financial worries were at the moment. Let us look at the data.
There is something alluring about swiping a card and making a purchase. It almost seems euphoric and fun. Credit cards come in a variety of sleek designs to help you part with your current and future income. Americans are deeply in debt. Mortgages, student loans, auto debt, and credit cards consume a large portion of future income. You would think that most people would reflect on the mechanics of how debt works but this is not the case. Most people are oblivious to how credit cards work but continue to use them and go into deep debt. Throw in online shopping and you can store your credit information virtually and shop with one-click. This wouldn’t be such a problem if incomes were moving ahead. Unfortunately that is not the case and many are struggling to find their economic balance in the new low wage economy. Credit card debt is once again on the rise and two-thirds of Americans do not understand how credit cards work.
Student debt now makes up nearly half of federally owned financial assets. The student debt bubble edges on with many more unable to pay their debt.
The student debt epidemic is spiraling out of control and the public is becoming more aware of the situation. $1.3 trillion in student debt is now outstanding. This is already a problem with nearly one out of three loans in repayment already in some form of delinquency. Clearly if you are not paying back an obligation there is some sort of underlying problem. But like most of the epic debt bubbles, people are slowly coming to the realization that most of this debt will never be paid back. Consider it a forever loan. The problem with this mentality is that student loans are now becoming a giant part of federal assets. In fact student debt now makes up nearly half of federally owned financial assets. Again, I remind you that nearly one out of three loans in repayment is in some form of delinquency.
1 out of 4 college adjunct faculty collecting government assistance: Students in debt and professors barely getting by all the while tuition soars.
The student debt crisis continues to move across the nation’s landscape like an unrelenting storm. The stories of economic pain are growing involving students but what about adjunct professors? For those of you that are unfamiliar, adjunct professors are like contract teachers at many colleges. Many carry a heavy teaching load but receive very little job security. At many for-profits, more money is spent on marketing than actual instruction which begs the question as to where the money is flowing. It certainly isn’t on career services to help students given the abysmal results. Adjunct faculty as it turns out, are now part of the new low wage America. A recent study found that a whopping 25% of college adjunct faculty are receiving some form of government assistance. This isn’t someone working a part-time job making pizza. No, these are people teaching your young college kids economics and science.
The new American retirement plan equates to working forever: Nonexistent nest eggs and most Americans are bad at planning as to how long they will live.
The idea of retirement is a modern one especially when it comes to saving and having a nest egg. In the past, retirement was only a luxury afforded to a small number of wealthy families. The rest of the population was destined to work until they died. That may seem harsh but that is historical fact. After World War II the idea of mass retirement started to take hold. Even Social Security was merely a safety net to keep you from starving or being homeless. Social Security was never designed as the main source of income for retirees but that is what it has become. Many older Americans simply did not prepare adequately. The taking away of pension plans was supposed to usher in the era of the self-directed 401k. One generation later the results are in and Americans are looking into the new retirement plan. The new retirement plan is working forever (in other words, until people can no longer physically hold down a job). This certainly doesn’t coincide with the brochures we see of older Americans galloping across the beach with cocktails in their hands.
The mega Chinese stock market bubble: Over half of new investors only have a junior high education or less and the Shanghai Composite is up 100 percent in one year.
I still have vivid memories of Japan’s massive bull-run in stocks and real estate. For many years the consensus was that Japan had found a secret method of perma-growth and prices would only go up. Down was not in the vocabulary. We are seeing similar perceptions and narratives when it comes to China’s roaring economy. Let us make this clear, China is clearly growing and at a very fast pace. I don’t think that is subject to debate. But what is up to debate is that valuations in real estate and now stocks are fully out of hand. In other words, a bubble is fermenting. There are a few key metrics that really reveal to me that we are heading into deep bubble territory for China. The first is that the government has stepped in dramatically to curb real estate speculation and this has done very little to curb the rush for real assets. Next, we see the stock market through the Shanghai Composite being up 100 percent in only one year. But finally, a large portion of new entry level investors only have up to a junior high education and many new investors do not even qualify as literate. You still think valuations are fine? Let us take a look.