Even Though We’ve Been the Most Comfortable, We Will Also Be the Most Hard-Working Generation.
Welcome back Aluxers. Today we’re talking about something your parents and grandparents have probably always taken for granted. Retirement!
The idea that you work until you’re in your 60s. And then, once you hit a magic age, that varies a little from country to country, suddenly you get to sit back and spend your time sipping cocktails, travelling, or doing whatever your heart desires. Without having to worry about that four-letter word you spent the last few decades doing — work. Of course, we’re talking about retirement. But it looks like pretty soon, it may not be an option anymore.
We realize that not all of you spend that much time thinking so far ahead to retire. Especially when you’ve got so much exciting stuff to do on the way there. But you should be aware that if you were born after 1980, the chances of you enjoying a care-free retirement are getting slimmer. And the sooner you get used to this reality, the better prepared for it you’ll be .
But we promise, this article won’t be all doom and gloom. And be sure to stick with us right to the end. Because as effed up as this situation is, we’ll also be talking about how you can fix this, and make it work for you.
With all that work in our share, doing more unnecessarily only adds to the load. Instead of reading the long article you can switch to a fun YouTube video:
With that plugged, let’s continue with the article and find out the first reason why we’re not retiring anytime soon.
Life Expectancy Is Going Up
Let’s start off with math behind this. People around the world are living longer, thanks to medical advances. In fact, since 1900 average life expectancy has doubled. And it’s still going up. And the average lifespan is now 72 years.
So, what’s not to like about that? Well, it is amazing — no doubt about it. But, like so many good things in life — whether they be impulse purchases, cake, or tequila shots — it comes hand-in-hand with some less desirable consequences. In this case, a higher percentage of people in the world who are of retirement age. That’s more people for the world’s social security systems to look after. And those systems will get stretched until they just can’t look after everyone any longer.
Fertility Rates Are Going Down
Put really simply, people are having fewer babies. But Aluxers, isn’t the world population going up? Well, globally, yes — but it depends on where in the world we’re talking about.
In richer countries, births are going down. And that means an even older population. In the USA and UK, for every four people working, there’s one who has earned the right to retire. In France and Germany, that’s three to one. And in Japan, it’s two to one. And in all these countries, those numbers are slowly but surely heading towards one on one — that’s one person working to one person retired.
Given enough time, this is going to happen everywhere. China’s population is expected to peak and start going down in the next few years. In India it’s projected around the middle of this century.
With population increasing for the time being, the big question that hangs over our head is “How Are We Going to Feed 10 Billion People?”
Pensions Systems Around the World Will Collapse
Put the first two points together, and what do you get? Having more old people and fewer young people can only mean one of two things. EIther higher taxes. Yep, we all know how popular that is. Or not being to support people in their old age. And while taxes might still go up — the second of these, looks like the inevitable outcome
For government retirement plans all over the world, it’s a matter of when, not if. In the USA, some estimates put the collapse of the pensions system in 2037.
Sky-Rocketing Cost of Living
So, if pensions aren’t working, what if you save up and put some money aside for when you’re planning to retire? Well, of course it’s a good idea. But, for a lot of millennials, it’s not that easy. And the main culprit? The rising cost of living.
That cost of housing has been going up and up. And the same goes for transport, food. And paying for all that technology that modern life just doesn’t work without.
According to a study by Deloitte, the average millennial has a net worth that’s 34% lower than people of the same age 25 years ago. And that makes saving for retirement a lot harder than it was for the previous generation. All the indications are that this trend is going to continue, and make it even worse Gen Z-ers.
Millennials Have Less Invested Than Older Generations
Less savings also translates into less money to invest, and less financial security later in life. In fact, millennials have around half the number of assets invested that baby boomers had when they were the same age.
It may be tougher than ever to put money together into investments. But if you’re smart about it, and get yourself educated on the topic, it’s not impossible. For a few tips, start by checking out our video ‘15 Basic Money Skills Everyone Should Know’.
And if you want to go deeper into it, one book that really helped us figure this out is ‘Rich Dad Poor Dad’ by Robert Kiyosaki. He talks you through the thinking behind creating long-term wealth. And to get away from just looking at it in terms of income and expenses — but to focus on assets, like property, stocks and intellectual property.
Here at Alux, we strongly recommend you pick up a copy. Better still, why not get it from those fine folks at Audible. We’ve partnered with them, and if it’s your first time signing up with them, they have an offer specially for our community. Click on the link alux/freebook, and you’ll get a copy of “Rich Dad, Poor Dad” for free, and you can start learning the basics of how to create wealth that will last.
Something else to blame for the rising cost of living. Millennials may be the most educated generation ever. But the flip side of the coin is — they also have the highest student debts ever. That makes it difficult to retire.
True, it varies from country to country — and it’s nothing like as bad in places like Finland and Denmark, where college education is free. But in the USA, the average student will rack up $30 000 in student loans by the time they graduate. Some of them, a lot more. And when you have to spend the first decade or more of your working life paying off loans, investing money for the future isn’t that easy.
But there is a solution. Although it depends on your specific circumstances. That solution is to skip college. It’s not for everybody — especially not if you plan on becoming a doctor or lawyer, which you do need a degree for.
But the fact is, for many other career paths, college degrees are becoming less and less relevant to the workplace. And when there are so many other options out there when it comes to educating yourself — Like micro-credentials, learning on the job, or a combination — why get yourself into that much debt for something you just don’t need?
Short-Term Planning of Governments
There’s no doubt about it. Government retirement plans for the future are hugely underfunded. And it’s not an easy fix. But it’s not helped by the fact that governments do have a bias towards short-term thinking.
Politicians often talk about solving problems for retirees now, or for people who are about to retire — because it’s a pressing concern. But it isn’t so often you hear them talking about planning ahead for people who are going to retire 30, 40 or 50 years down the line.
That’s partly because young people have more immediate issues. And partly because the fix sure isn’t easy. Yep. Everybody’s favourite — higher taxes.
But add onto that, an inherent problem in the way the system works — the fact that there isn’t much incentive for politicians to solve problems they’re not going to get credit for another 30 years. And fixing it seems less and less likely.
The Fall-Out From the 2008 Financial Crisis
It happened over a decade ago, but we’re still facing the consequences of it.
For years it’s given us a cash-strapped tax system, with taxes being put into getting the economy going again and dealing with the unemployment it caused, and not having enough left for pensions. As well as lower interest rates over the last decade. And that means lower return on investments — and even more bad news for retirement funds.
And, we’re definitely not out of the woods on this one. Not even close. That’s because …
The Pandemic Just Made It Even Worse
A lot worse. Recovery from this is going to take a long time. And that means, all the problems we just mentioned with the financial crisis — we can just repeat them over again. They’re going to add to our struggle to retire.
Governments having to support businesses from collapse. As well as supporting the hundreds of thousands of people around the world who’ve become unemployed, and medical systems too. With all of these on the cards, pensions aren’t top priority for a while to come.
Mismanagement of Retirement Funds
This one’s another result of the financial crisis. Remember we mentioned lower interest rates, which governments across the world used to get the economy back in shape. And how do they spell bad news for investments? A lot of those fund managers of pension plans have turned to riskier investments in the hope of higher returns if they get it right. But they get it wrong, then that’s even more bad news for pensions.
One more hangover of the train wreck that was the financial crisis. The cost of living may have been going up and up. But wages haven’t kept up with it. And adjusting for inflation, millennials earn an average of 20% less than young adults a generation ago.
The solution for this one? Don’t rely solely on your employer’s wages, that never helped anyone retire. Like more and more people are doing, start a side hustle, and see where it goes. Earning more on the side will help you escape from the trap of wages that aren’t moving in line with inflation. And you’ll have more to invest.
And if you can turn it into a successful full-time business, even better still.
Medical Care Is Getting Harder and Harder to Cover
There’s no way around it. As you get older, looking after your health is going to become more and more of a priority. And unless your country has an excellent public health system that’s free of charge, you’re going to have to pay for medical insurance. Which is getting more expensive too.
And if you haven’t got another source of income when you’re older, like a private pension or other investments, another reason you’re going to have to keep on working will be to pay those insurance premiums.
Governments Are Raising the Age of Retirement
What’s the fix for a population that’s getting older, and tax systems that are more and more strapped for cash? Apart from raising taxes?
The other option is to raise the age of retirement. And guess what, governments around the world are already busy doing the second of these. As time goes by, the age to retire everywhere is likely to creep up and above.
Nerdwallet estimated that in the USA, for people who graduated in the last five years, retirement won’t come until they’re 75.
Millennials and Gen Z-Ers Are Less Likely to Own a Home
Previous generations bought homes. And by the time they were of retirement age, they’d paid it all off and, and could sit comfortably knowing they owned the roof over their heads. With millennials, it’s more and more difficult to get onto the property market.
On top of all the other problems like the rising cost of living and stagnant wages, the average price of a home has gone up 55%since the 1950s — that’s adjusted for inflation. The result? young adults have the lowest home ownership rates ever. Which means that more and more young people will still be paying rent into old age.
If that’s you, you’re going to need an income to pay for a roof over your head. And with no government pension — you guessed it. Another reason you’ll need to keep on working.
Higher Expectations From Life
That fact is, we grew up and entered adulthood with the bar set high, with high hopes of what to expect from life. A lot of the time, higher expectations than generations that before us had.
Not just for material goods. Probably more so for experiences. Whether it’s travel, extreme sports, or an active social life filled with variety — the fact is, we’re used to having great experiences that we turn into great memories. And most of them cost money.
Your 60s might seem like a long way away — but once you’ve got used to excitement in life, you’re not going to want to retire. And for that, you’ll need money.
A solution? Don’t give up on the things you really love. But do prioritize. It’s easy to end up spending money on things that don’t bring us that much value. Whether it’s things we rarely use. Or things we do that aren’t really that rewarding. Focus on spending money on the things you really want out of life — and be clear on what those things are. And when it comes to things that don’t bring you value — don’t waste your money on them.
Yes, we are saying be more careful about how you spend your money. And for a few tips, check out our video ‘15 Biggest Wastes of Money.’ And the money you’ve saved. Invest it instead, and put that money towards looking after your future.
Aluxers, as always, we’d love to hear your ideas. How do you think you’ll face this challenge?