Could this scenario happen?

[Andre1969]

I was talking with a co-worker today about retirement, saving, etc, and she brought up something interesting that I never really thought of before. She has a son who works in finance, or something like that, and he said that so many people are saving with their 401Ks and such that he worries by the time he retires, there will be so many people with money that we'll all be right back where we started, with nothing! I think her attitude is that if you have a million bucks and everybody else has nothing, you've got it made, but if EVERYBODY has a million bucks, then we're all back to square one and it'll be worthless.

Is there any logic to that? This woman is from an older generation, from a time where pensions were the norm. Plus, she's retired government, so her retirement is set for life. The way I look at it, us younger generations HAVE to save, because by and large, we're not going to get pensions. We're going to have to fund our retirements ourselves.

Besides, with all that money saved up, it seems to me that, once we start tapping into it, it should be good for the economy. Especially those of us who tap into it too much!

[MasterBlaster]

It is not that their nest egg will be worthless, It just that their nest egg will be worth less*

What you are talking about is inflation.

Seniors will be competing against each other for medical care/services. As the relative number of service people drop relative to the senior population, then inflating prices will likely result. It's just supply-and-demand economics.

There will be upward pressure on prices on things that retirees pay for. There may also be downward pressure on the price of assets that retirees will be selling to pay for their now inflated goods and services.

We are already seeing some of these effects in housing and medical care. Add in the poor long term planning for pensions/social security/medicare/lack of sufficient savings/increased government taxes and you can imagine a pretty dismal situation.

The real question that remains unanswered is, How high will prices go and to what degree will asset values drop? Some think it will not be an issue or much of an issue. Others think it will be a real problem. I guess we'll just have to wait and see.

[ladelfina]

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finance, or something like that

*

Huh? We'll end up "with nothing"? I guess if by "nothing" you mean that you won't end up "ahead of" all the other middle-class people just like you who are working and putting money away just like you, and will hopefully have enough saved to keep them more or less in the style they are accustomed to. Do she and her son think that retirement saving is like going to Vega$? Hit the jackpot or go home a loser? I can't even begin to get my head around this...

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so many people are saving with their 401Ks and such that he worries by the time he retires, there will be so many people with money that we'll all be right back where we started

.. And so the solution is..? Quit saving?

Tell her it's more like swimming: you may only more or less keep pace with everyone else, but if you quit paddling, you'll SINK.

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Plus, she's retired government

'Nuff said. Now you don't need to wonder why the gov't. is so incompetent.

[Andre1969]

Yeah, this lady's philosophy and attitudes really throw me for a curve sometime. Her attitude is live for today, I guess. She's around 62-63 now, and retired from the gov't a few years ago. She couldn't make it though, so came back to work 3 days a week as a contractor. She's always carrying on about how she can't make ends meet, and how rough it is.

I remember a couple weeks ago, talking about my Mom, who's in the gov't, and will be getting a retirement of around $60K per year when she retires in 2009. My co-worker threw me for a curve when she said "Oh, I get more than that!!" Yet she can't make ends meet?! :

Now, this woman has gone through a divorce, and raised something like 3 or 4 kids, so she hasn't always had the easiest life. But still, if all my kids were grown and out of the house, I think I could easily find a way to make ends meet on $60K+ per year!

[MasterBlaster]

But still, if all my kids were grown and out of the house, I think I could easily find a way to make ends meet on $60K+ per year!

Well, maybe she has a big mortgage/car payment/ credit card debts that you don't know about.

Depending on how big the hole she is in is, it may or may not be easy to live on $60k. This may be especially true if she is used to living large.

[Andre1969]

Well, I know she sold her house after her second (or most recent...I dunno how much of a "black widow" she is ) husband passed away, and now lives in an apartment in Annapolis, MD. Not exactly a cheap place to live, but if you look around, I think some places aren't too evil.

Honestly, I also wouldn't be surprised if she doesn't provide economic outpatient care to her kids. From conversations I've overheard (I'm not a nosy person, she just has a loud speaking voice ) her kids seem to run into problems from time to time. Plus, she has grandkids, so naturally she's going to spoil them from time to time.

I know she does talk about going on cruises though, and doing a lot of travelling. She runs out to Ocean City a lot, and is definitely NOT the type to sit around on a rocking chair and grow old!

[yelnad]

"economic outpatient care"

I love this phrase!

[cute fuzzy bunny]

Sounds like the worlds weakest rationalization for not saving money.

Ooops, I mean "Poor lady, she'll have no money for retirement..." says the cute fuzzy bunny...

[Andre1969]

The more I think of it, I'm not sure if she's rationalizing NOT saving money. I think what she's trying to say is that, to all of us that are hoarding it away, that it's not going to worth as much as we think it is. Still, I'm willing to take that chance!

Oh, she also tends to blame "the system" alot. I'm not sure why exactly, but she always mentions about how she's getting screwed with social security, or lack thereof. I think she's pissed because she's not entitled to her dead husband's SS, or something like that.

[MasterBlaster]

Well, Even in the severe inflation scenario you are better to have saved some money than no money. That's true even though your million dollar stash buys much less than you though it would.

On the other hand, money saved is sometimes thought of as deferred consumption. To induce you to not consume now you must expect to be able to consume more later. If that changes so that you now expect that saved money means that you will have less later then there is a big dis-incentive to save.

So your friend just may have a point. If you expect to live in style in your old age you just may be deluding yourself. Just maybe you would do well to live better now cause' it just may cost less than later.

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...so many people are saving with their 401Ks and such...

That's not true.

[bongo2]

While simplified, I think her concern has merit. The simplest way to look at it is supply and demand. Over the next few years the demand for "retirement" will increase dramatically, while the "supply" won't change. It will become tougher to retire. We're already seeing a global capital glut that is lowering investment yields and increasing risk across the board.

[justin]

If our world economy keeps growing, the pie will get bigger. Save more than others, and your slice of the pie will grow larger than others.

[SteveR]

Interesting concept but I am having some trouble with it based on what one reads or sees everyday about most people NOT saving for retirement or anything else for that matter. There would have to be a tremendous shift in current saving patterns to anything like this to come about. How likely is that when people are up to their eyeballs in debt and the markets are moving essentially sideways? Where is all this saving going to come from? Are people going to suddenly stop buying cars, boats, vacation homes, cruises, HD TVs, McMansions etc etc and start saving more than 2% of their incomes? I don't see it happening short of some major social/economic event sequence that would allow more money to flow into savings while still supporting a growing economy.

[Andre1969]

TromboneAl, that's something else I was wondering about, just how many people really are taking advantage of their 401k? From this woman's perspective, you'd think everyone is doing it, but that's because back in her day, there were no 401k's, and naturally, as more become available, more people will utilize them. So her perspective is a bit distorted. On one hand yes, more people are probably putting into 401k's than ever before, but on the other hand NO, they're probably still not putting in enough.

I also remembered hearing some statistic at one time, like only 1 in 5 people is adequately prepared, financially, for retirement?

[justin]

I don't know the stats, but it's something like 30% of those eligible for 401k's don't even use them, another big chunk of people don't contribute enough to take advantage of the full company match.

My guess is that only a small portion of 401k eligible employees contribute 10+% or max out their contributions. MY20-something buddies I work with (who earn approx. what I earn) did not believe that I was making the max contribution. They acted as if it couldn't be done. It is something like 30% of my pay, but after tax savings more like 23% of gross. Of course of all my work buddies, I'm the only one with a tv smaller than 55 inches.

• Four out of 10 people aged 55 or older, have less than $100,000 saved toward their retirement.
  
• One out of four workers do not sign up for their employer's 401(k) retirement savings plan and only one in 10 contributes the maximum amount allowed.
  
• Nearly half of all American workers don’t contribute enough to their company's 401(k) savings plan to get the full company matching funds.
  
• About half cash out their 401(k) savings when they change jobs instead of rolling it over into an IRA to avoid tax implications and to continue saving and investing for their retirement.

[Andre1969]

Justin, I'm in kinda the same situation. Most people don't believe it when I tell them I'm contributing the max, too. So I've just given up on trying to convince them. And yeah, my tv is smaller than theirs too, and my paid-off cars are older than theirs, and so forth....

[maddythebeagle]

I agree this is a poor rationalization. Most people are not saving and living below their means.

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Ooops, I mean "Poor lady, she'll have no money for retirement..." says the cute fuzzy bunny...

More likely, she will have to put a sign up in the front yard "rabbits, for pets or meat".

[grumpy]

I read a statistic the other day in the Washington Post that the median net worth of households headed by those 50 and over is something like $84K. If that is true, then I don't think any of us need to be worried about being outbid for essential goods and services by all of those who are saving SO
MUCH for retirement. :

Grumpy