My generation: missing the boom years?

[soupcxan]

When I look at baby boomers that are "comfortable" (neither super-rich nor scraping by), it seems like the vast majority of their accumulated wealth and retirement income comes from three sources:

1) Stock market returns over the last 20 years that exceed the historical average
2) Real estate returns over the same period
3) Social security

Looking at this from a 24-year old's point of view, I am skeptical that I will be able to count on outsized returns from either of these asset classes during my accumulation phases. Indeed, inflated real estate values make it even more difficult for me to afford shelter, and excessive stock valuations make it more likely that we will revert to the mean with long periods of underperformance in the years ahead. Although I am now paying into social security, I doubt anything as generous as the current system will exist by the time I am eligible to receive benefits (assuming anything exists at all). Plus there are two other factors against us: Many of my peers are graduating from college with five-figure student loans, something that I never hear 1960s graduates talking about (even if you adjust for inflation). Second, some baby boomers may even have corp/gov't pensions, which are all but non-existant for my generation.

So if we can't count on these sources, what will be the tide that lifts the boats of my generation (those of us currently in our 20s)? Just by happenstance of being born 30 years later, have we missed out on the boom years? Will the today's "average" (i.e. non-ER focused) 24-year old have to work until he is 75?  And even for those of us who are thinking about ER, will we face an uphill struggle to get to ER, compared to all the advantages the baby boomers had?

 

[SteveR]

I am not sure all BabyBoomers like myself had it as good as you might be lead to believe.

Let's see how much of an advantage I had over someone just starting out today.

I started with a negative net worth in 1992 and had a significant amount of CC and other debts to pay down before I could do much investing.

Lost all my home equity from 3 previous moves in one fell swoop in the TX RE market in 1988.

Lost it all again in a divorce in 1991.

Took a 30+% loss in my retirement and after tax accounts in 1999-2000 and have only now gotten back to even from 1998.

Lost half of my retirement 401k and penson to ex-wife.


I would not call that such a great advantage over someone who can start saving and investing for the next 25-30 years.

My good fortune was being able to save and invest a little at a time and over the past 13 years or so I have been able to make some $$. A good salary and living below my means has helped a lot. I can only imagine if I had been able to save and invest over the past 20+ years. I would have three times what I have now.

Oh, I am up 13% on investments for the year in some pretty conservative stuff and with some fat losses in some individual stocks. Not too bad for a down year.

 

[grumpy]

soup,

I agree that you can't count on outsized housing or market gains and probably not on the current level of social security benefits, but all is not lost. Let me give you an example from the pre-baby boom generation (for want of a better term). My father was born in 1912. He retired in 1980. My mother never worked outside the home. The stock market, during the years when he had anything to invest was pretty weak. His very small house was only worth $110K when he sold it in 1998. Yes, he did have social security and a modest pension but he did not have the opportunity for tax deferred investing in 401(k) and IRA's while he was still working. My parents were extremely frugal. On Dad's modest salary they managed to put my sister and me through college, and save enough to have a decent retirement including spending the winter months in Florida. They also helped fund their four grandchildren's college costs. When they could no longer live independently they were able to afford a very nice continuing care community where they both lived until they passed away at age 89. They even managed to leave a modest inheritance to me and my sister.

They did all of this by saving every nickle and dime they could. We never lacked for necessities, but we also never had any extras.

You have to make choices. You can buy a house that is less than you think you can "afford" and save the difference. You can skip the fancy vacations and instead, put the money into your IRA or 401(k). The fact that you are thinking about these issues at a young age means that you have plenty of time for the magic of compounding to work for you. Try not to be discouraged. Good luck.

Grumpy

 

[Nords]

So if we can't count on these sources, what will be the tide that lifts the boats of my generation (those of us currently in our 20s)? Just by happenstance of being born 30 years later, have we missed out on the boom years? Will the today's "average" (i.e. non-ER focused) 24-year old have to work until he is 75?  And even for those of us who are thinking about ER, will we face an uphill struggle to get to ER, compared to all the advantages the baby boomers had?

Geez, Soup, try to have a happy new year.

When I started working the Cold War was going to drive all the world's governments into bankruptcy, Social Security was on the verge of collapse, interest rates were in the high double digits, no one could afford to buy grocery meat let alone a house, and all my high-school friends were seeking advanced degrees (a euphemism for "unemployed").  Carter was destroying the country, Iran was holding Americans hostage, and AIDS was scaring the heck out of everyone.

Then suddenly everything got better and the NASDAQ shot to 5000.  

Same for you.  There will be periods of stock-market underperformance.  (Similar to 1966-82, although I don't cover that entire period.)  There will also be periods of socko performance as well as sectors that outperform.  Your trick is to stay in the market with a diversified portfolio and just let history "doom" you to repetition.

Real estate will get cheap (in some areas it already is) and will be outlandishly expensive in others.  Some REITS will do well with rental property and others with commercial property.  International REITs will gain in popularity, so you don't have to depend on the U.S. market.

Some commodities will outperform.  Goldbugs will be everywhere for the next 20 years, just as they have been for the last 100.

Social Security will "suffer" from years of Congressional gridlock.  Somewhere during that time it will be realized that all the Boomers who didn't save anything during the last four decades are still working and still paying into the system.  Revised projections will show that SS is actually running a surplus and you'll be forced to accept a 10% increase in your distributions.  You're welcome!

The harder you work the luckier you will get.  If your investments are on your mind right now, then work for a diversified asset allocation, go aggressive, and go long-- you have three or four decades to let compounding do its stuff.

If buying a home is important to you, then start researching your neighborhoods of choice and spend a few Sunday afternoons at open houses.  You'll learn more, you'll meet a lot of interesting realtors who'll want to deliver weekly breathless updates, and you'll inevitably stumble across a below-market bargain.  

As for SS... not much you can do there.  Just keep socking it away in your own tax-deferred plans and make your own pension.  Bunches of airline & steel WWII & Boomer employees USED to be receiving pensions, too!

Of course the alternative to this is that you'll be slaving away in a cubicle for another five or six decades, and then you'll die.  But perhaps there's a brighter perspective to all of this, and it'll occur for your generation with about the same frequency that it's occurred for the last three or four generations...

 

[Jay_Gatsby]

I think Soupcxan is right, but perhaps he's being a bit hard on the Boomer generation. Many members of Gen X and Gen Y that I've met want to lay the blame at the feet of the Boomer generation when faced with the high cost of real estate, lackluster stock market performance, rising healthcare costs, and the possibility that Social Security will be depleted by the time they reach retirement. Let's take each of these in turn:

Real estate -- There's no question that real estate has appreciated substantially in the past 5-10 years. However, I don't think that's anyone's "fault". Rather, it's a result of a unique combination of factors that haven't existed in several decades. Likewise, most Boomers bought houses back in the 70s and 80s, and therefore aren't the cause of rising prices, but they have benefited from such appreciation if they decided to sell in the past couple of years. When rates rise, prices will come down.

Stock market -- There's no question that the stock market took a substantial hit in 2000-2002, and has only begun to recover in the past year or so. Members of Gen X who put money in the market during the past 10 years have seen one heck of a rollercoaster ride. The positive for Gen X, as compared to Boomers, is that they didn't have a lifetime of savings to lose in the stock market and have decades to recover from any losses. Many Boomers lost 50% of their portfolios (some even more when their long-time employer went bankrupt), and may have to extend their retirements by 10 years (or perhaps never retire).

Healthcare -- People get old. There's no way around this fact. Will Gen X and Gen Y have to pay for Boomer healthcare? Probably. But future generations will have to pay for the healthcare of Gen X and Gen Y. Such is the way of the Ponzi scheme.

Social Security -- there will be an eventual fix for this, if one is even needed (no one knows for sure). Ultimately, with life expectancies increasing, I don't think there's much of a way to get around raising the age when people can begin to receive it. If this happens within the next several years, Boomers are going to be the ones that will complain loudly that the Government has broken its "promise" to them. What many Boomers need to understand is that Social Security is not an "entitlement" in the strict sense of the word (up there with life, liberty and the pursuit of happiness), but rather a safety net.

 

[cute fuzzy bunny]

May I speak for all baby boomers who did well in the bull market?

HA HA!

Sorry, I couldnt help myself...

 

[Danny]

...what will be the tide that lifts the boats of my generation (those of us currently in our 20s)? Just by happenstance of being born 30 years later, have we missed out on the boom years? Will the today's "average" (i.e. non-ER focused) 24-year old have to work until he is 75? And even for those of us who are thinking about ER, will we face an uphill struggle to get to ER, compared to all the advantages the baby boomers had?

Soup - You do have the advantage of starting when you're 24.
Nobody knows what the future will reveal.
We didn't know what we were getting into.
Just because we lived through a time where there were outside returns doesn't mean everyone got them.
Some of us were lucky and some of us were good investors. 8)
Warren Buffet was able to be hugely successful way before the outside returns arrived.
Put your nose to the grindstone, live below your means, become a smart investor, read everything you can by WB and enjoy your life!
In addition, it would help to marry up.

By the way, are your parents boomers? Could there be an inheritance in your future?

 

[brewer12345]

Soup, I'd agree that we have gotten the demographic shaft, to some extent. Having said that, the environment is not exactly terrible for those of us who are paying attention and saving our ducats. You'll probably be retired by 45 or earlier, if that's what you want. And there may be an unexpected demograhic boost down the road: the echo boomers.

 

[Andre1969]

My Mom and stepdad are boomers...Mom's almost 57 and my stepdad's 53. They're what I'd call comfortable. Not super-rich, but not destitute either. They'll be okay in their retirement. However, as for those three sources?

1) Stock Market: Nope. My Mom and stepdad were pretty conservative most of their lives, and didn't really start investing in riskier stuff until the late 90's. Which means that at this point they're probably still in the red there.

2) Real estate returns: To an extent, perhaps. They bought a house back in 1989 for around $120,000. It's in a fairly remote area though where prices really haven't shot up so much as in more suburban areas, so it might be worth $300K, tops. Not a bad chunk of change, but not enough to make them super-rich either. Plus they took out equity and refinanced several times. However, a few years back they bought a house in Florida, using equity from the house up here as a down payment. They're renting it out now, and plan on moving down there when Mom retires. They don't know what they're going to do with the house up here, though.

3) Social Security: Not a penny. My Mom went into the government at a really young age, so she doesn't have enough quarters in to be eligible. As for my stepdad, he might have enough quarters in, but he's been in a gov't job for years now too, and didn't make much when he was in private industry, so I doubt he's going to get much.

I'd say the two biggest things that helped my Mom and stepdad out were:

A) generous retirement plans. Mom's going to retire with 40 years in the gov't, and will have a pretty sweet package. I'm not sure about my stepdad, but I know he'll be okay. And combined they'll be just fine.

B) Help from my grandparents. Both financial (cash to get us through rough patches, letting us rent a second house that they own dirt cheap, etc)

I think today's generations do have more obstacles than the baby boomers did. However, the biggest setbacks to FI/RE are still the things life throws at you (or that you inflict upon yourself), like a bad marriage, divorce, illness, lawsuits, injury, over-spending, etc.

 

[Cut-Throat]

So if we can't count on these sources, what will be the tide that lifts the boats of my generation (those of us currently in our 20s)? Just by happenstance of being born 30 years later, have we missed out on the boom years? Will the today's "average" (i.e. non-ER focused) 24-year old have to work until he is 75? And even for those of us who are thinking about ER, will we face an uphill struggle to get to ER, compared to all the advantages the baby boomers had?

Aren't you lucky that you were not born in Africa to a family that does not have enough to eat?

 

[Jay_Gatsby]

However, the biggest setbacks to FI/RE are still the things life throws at you (or that you inflict upon yourself), like a bad marriage, divorce, illness, lawsuits, injury, over-spending, etc.

If people are wise enough keep this in mind at all times, they'll be fine regardless of what generation they are.

 

[Martha]

As Nords says, there are always ups and downs. I graduated into the 1970s. My town suffered from the collapse of the steel industry, going from a population of over 100,000 to less than 80,000. In the early 80s I spent a good portion of my time foreclosing mortgages. Tough times.

 

[MasterBlaster]

Well I'll throw in my two cents here:

Real Estate 1): If you need someone to blame for high real estate prices blame Alan Greenspan for low interest rates. The boomers had little to do with it other than getting caught in the uptick. For most boomers that own a home rising home values do nothing for you other than to increase your property taxes. If you need a place to live and don't plan on selling then the value of your home is irrelevant.

Real Estate 2) For many boomers the net effect of rising real estate prices is to allow them to take out more loans. They buy junk they don't need and then must pay it back one day at their own peril. One could argue that for many people that already have a home that rising home prices are counter-productive.

Real Estate 3); My house is worth around 4 times what I paid for it. However salaries for people that do what I do have more than doubled. In addition, interest rates are about half of what I originally took out in a loan to buy my house. Looking at cash flow on my house, taking into account increased salaries and decreased interest rates I'd say that people buying a house are in a better position today than when I bought. These are the good ole' days !

Social Security): I am so disgusted with our politicians from both parties for not addressing this issue. What are they waiting for ? I have low expectations for the outcome. So maybe the OP has a point. Who knows what will happen to SS, however there will always be something from SS for those in need. Others will get the opportunity to gripe alot.

generous pensions): Well If I ever collect on my pension that is promised it will help somewhat. There is a cost to sticking around a company to collect a pension though, and that cost is a lower salary. I wonder now if I would've been better off by jumping around more keeping my salary at the top of my peers and investing the difference. I suspect that the net outcome would have been similar but I would lock in that nestegg. Wondering about the sureness of a promised pension is a crappy position to be in. So just maybe the OP is in a better position than the boomers ever were providing the OP doesn't spend all of their salary.

Stock Market): Well as I see it stock market values (based on Price-to-earnings) are better than they've been in years. Would you rather buy when prices are higher ?

 

[Lazarus]

Well If I ever collect on my pension that is promised it will help somewhat. There is a cost to sticking around a company to collect a pension though, and that cost is a lower salary. I wonder now if I would've been better off by jumping around more keeping my salary at the top of my peers and investing the difference. I suspect that the net outcome would have been similar but I would lock in that nestegg. Wondering about the sureness of a promised pension is a crappy position to be in.

Yep, much better to own the assets than own a promise. Many companys don't ever get around to keeping the promise to pay the pension. Then you have worked for a lower salary for nothing. Worse, you may have counted on a pension and not made other investments.

Younger people counting on Social Security are making the same mistake.

 

[acg]

Aren't you lucky that you were not born in Africa to a family that does not have enough to eat?

Just FIRE'd at 48 and relocating to AZ. Checking out the entire state (was up in Lake Havasu CA border town reeking with affluence with all the McMansions (second homes) with 6 car garages plus the RV/bus garage!)...now down on the Mexican border...a much different picture...the border patrol and influx of Mexican immigrants living on nothing. (and now we talk of building a wall!) The one thing they do understand is family values with lotsa little mouths to feed.

You have to create your own boom years. MSNBC poll today shows 47% believe 2006 will be more prosperous, while 53% do not. You have the advantage of time. Start early and stick with it. Respect the value of a dollar. Work hard the first half of your life...make as much money as you can...the second half...give it all away!

A bird in the hand is worth 2 in the bush. Be careful not to sacrifice the meaningful and really important stuff along the way. Enjoy the journey...Life is not about the destination...we will all get there soon enuf!

 

[uncledrz]

Soup

Its new year, be happy!

Sure assets are priced high now. If you rely only on assets you'll have to save/invest more, maybe another 1-2% of your income.

But if you have education and drive, this is a land of enormous opportunity.

We have world leadership in many industries, some of which will be protected for along time to come (who make the subs, tanks, etc) by government fiat and others that will have an advantage because of name and heft (microsoft, McD's, chase). While there will certainly be job shifts, if the government doesn't kill the goose that lays the golden egg, they'll be plenty of gold in the future.

As to those old folks, with all that money, they'll be spending it. More probable than not, spending more than they take in. So if you are in health care, wealth management, travel, entertainment, housing, transportation, etc there is a lot of money coming into play, and the very people who are now retiring are not going to be working at those jobs, means a shortage of the skilled people, means wages go up for those with needed skills, means you'll have more money to spend and invest, means if you live/spend/save/invest wisely you'll be able to retire on the beach drinking fooly drinks with umbrellas in them and enjoying the sunset yourself!, Whew!.

There's a great life out there.

Uncledrz

 

[Jay_Gatsby]

Having read a few of the replies to this thread, I'm now inclined to think that Soup's complaint might not actually be about "missing the boom years", but rather more along the lines of Gen X/Y not being able to enjoy the same (or better) lifestyle of our parents. At the very least, Soup might be complaining that Gen X/Y aren't able to enjoy the same (or better) lifestyle as when their members were growing up.

The problem with both complaints is that they don't take into account the sacrifices Boomers had to make in order to enjoy their current lifestyles and provide comfortable lifestyles to their children (Gen X/Y) during their formative years. Boomers probably exhibited the same type of ignorance when dealing with the boom years enjoyed by their parents (i.e. the post-WWII U.S. economy) when the 1970s economy took a dive.

 

[Sisyphus]

Just a few pesos to throw in here as a member of "gen x".

I DO think that every generation ends up having a better and more properous life than the one before. Almost every generation doubts that at some point, but it is a long standing pattern. "Success" varies among members of that group for various reasons, though.

For example -- my parents, who are both boomers, will retire comfortably with no problem in the next few years. I DO remember as a child, however, riding in old cars with holes in the floorboards and eating SPAM, hot dogs, or mac 'n cheese for many, many meals. In contrast, I remember going to visit family friends who drove new cars, had big houses, etc. Now those friends have another 20 years of work ahead of them while my parents are preparing to retire and enjoy life.

Like with ANY generation, those who save aggressively will prosper in the end. Those who spend more than they make will work until they are physically unable to or die. As genX-ers, we have access to many benefits that our parents never did... 401K, Roth IRA, etc. etc. To say we missed "the boom" is to be focusing on things from the wrong perspective, IMO.

Soup... I think you should compare your current lifestyle to that of your parents when they were your age. I'm betting they weren't driving new cars and sitting on piles of cash. During that time they were looking at a world and future that mimics today's environment in so many ways that it's almost scary. (Gas shortages, wars, disease, fear of the U.S. being surpassed by other nations, etc.)

Hang in there, soup. We're buying cheap whether you believe it or not.

 

[Cut-Throat]

Social Security): I am so disgusted with our politicians from both parties for not addressing this issue. What are they waiting for ? I have low expectations for the outcome. So maybe the OP has a point. Who knows what will happen to SS, however there will always be something from SS for those in need. Others will get the opportunity to gripe alot.

MB,

Why are you so worried about a government program that is currently running a surpluss? - It is not even projected to be running short until 2038, and that is with all the folks walking out of their jobs on their 62nd birthday.

Why not worry about something that is real today. Like the $500 billion dollar deficit? Also Medicare poses a greater risk of driving the government funds in the red faster than SS. - When Bill Clinton was talking about the Health Care crisis in 1994, the massive Health Care Industry took his programs and 'convinced' the voting public that the Health care industry knew best and government should stay out of it.

GWB must have had a powerful effect on you last year when he told you that S.S. was a problem. But that is when he had delusions of granduer of a Legacy that involved the dismantling of the New Deal Programs. Just look at the facts!

 

[MasterBlaster]

CT:

You've made your point (again).

What do you say we move on.

 

[Mr._johngalt]

I posted recently about the financial conditions of the last
four (4) generations in my family. There is no question that
we live way "higher on the hog" than my parents , or my grandparents, or my great grandparents. I guess I would have to
reject the theory about not living as well as your parent's generation, at least based on my tiny sample. In fact, thinking
about others where I know a bit about their finances vis-a-vis
their parents, all are doing/have done better. I can't think of even one exception.

JG

 

[Andre1969]

I can think of two examples of children not being as well-off as their parents...

1) My father. He had a promising start in his life, going to dental school and becoming a dental technician...he'd do stuff like bridge work, make false teeth, etc. However, holding down a job was a totally different story. He liked to slack off, drink, hang out with his buddies, and avoid responsibility and self-improvement almost any chance he got. He and my Mom split up in 1977, when I was 7, and he moved to Florida about a year later. He'd work sporadically, but still drank alot. Ultimately got one DWI too many and lost his car. Then he lost his job. Finally moved back up here in 1987, with my grandparents, and never left. He's about to turn 60 now, and has very little to his name that I know of. Still lives with Granddad, but now that Granddad's 91, that's probably a good thing!

2) My uncle (Mom's brother). He was a slacker, graduated high school by the skin of his teeth, etc. And was always getting in trouble. Not really BAD trouble, like robbery, murder, etc, but stuff like taking your older sister's car out for a joyride when you're only 15, skipping school, outrunning the local yokel cops in your GTO, but then being stupid enough to come back home through the same town only to get busted, etc. He went from job to job, doing mainly manual labor type stuff like construction, roofing, road work, etc. Ultimately got busted himself for a DWI, and lost his license. Then he needed a kidney transplant. Fortunately the company he was with had a very good insurance program. But that also ended up being a trap, because he stayed with that company for fear that if he switched jobs, the new insurance wouldn't pick up his pre-existing condition. So now I think he's pretty much stuck there until he turns 65 and can get Medicare. Nowadays he lives with my grandmother, but again, like my Dad, it's a mutually beneficial relationship. Grandmom's going to be 82 soon, can't drive, and has macular degeneration, so she probably couldn't make it on her own anymore, unless she was put in a small apartment where family members were constantly checking in on her.

But again, these two examples just underly my previous comment about how the things we do to ourselves (drinking, slacking off too much, bad attitude, divorce, etc) or the things that fate throws at us (kidney transplant, illness, etc) will often hold us back more than the job market, economy, ROI on investments, etc.

 

[omni550]

Andre1969,

Both of these people sound like they are exhibiting the behaviors of 'middle children'. As you are related to both individuals, do you know what their birth order is?

Alternatively, in the book "Millionaire Next Door" the authors talk about EOC (economic outpatient care). This is where families provide economically (either with cash, housing, etc.) for adult children (endlessly) in a manner so they really don't ever have to pull their own weight. I forget the exact statistic, but they said that more often than not, EOC recipients are males.

I've witnessed this kind of EOC enabling behavior in 3 or 4 families that I know, including one where the middle son (of 5) got a PhD in psychology and never worked a day in his life. His parents paid for his education, his apartment and food. Moreover, he never did lift a finger to help them as they got older. 

omni 

 

[SteveR]

I posted recently about the financial conditions of the last
four (4) generations in my family.  There is no question that
we live way "higher on the hog" than my parents , or my grandparents, or my great grandparents.  I guess I would have to
reject the theory about not living as well as your parent's generation, at least based on my tiny sample.  In fact, thinking
about others where I know a bit about their finances vis-a-vis
their parents, all are doing/have done better.  I can't think of even one exception.

JG

Same with me. I am much better off than my parents with a similar education. My gradndparents departed this world with about $10k in total assets after the house sale and auction of housefold goods. My other grandparents were sharecroppers and owned only the second hand furniture in their rented house and the clothes on their back. Their parents were dirt farmers and died with nothing but the family Bible.

My kids may or may not be better off than I am. Way too early to tell yet. My DW's family shows the same pattern; kids better off than parents. Of course these are small samples and there will always be exceptions. Two more generations down the road; who knows if the same trends will hold or not. I would like to think so as a big part of bringing up my kids was trying to be a role model for saving, investing and living within my means.

Drunks, dope heads, those mentally ill and those with other personality disorders (gamblers, abusers, and law breakers) will generally do less well in life. If you are going to compare generations you need to do so between similar potentials for acquiring and keeping wealth. Otherwise, it is an apples to oranges comparison.

 

[Mr._johngalt]

Drunks, dope heads, those mentally ill and those with other personality disorders (gamblers, abusers, and law breakers) will generally do less well in life. 

We didn't have any of those.

JG