Retirement Preparedness: A Wake-Up Call for Generation X Investors
March 11, 2011Talking with a group of pre-retirees, one of the people in the room (a born entertainer) used Styrofoam coffee cups as visual aids to illustrate his point. We were talking about incomes and expenses during retirement, and he broke out into a comedy routine/illustration of his financial life. He filled a big pitcher with water and filled the first cup, broke out a Sharpie and labeled it “Pension.” He had been an employee of the phone company for 40 years and has a very solid pension income. The next cup he labeled “Social Security” and he filled that cup about ¾ full. The 3rd cup he put a few drops of water into and labeled it “Investments.” He said the 401(k) plan arrived a little too late in his career and he had not participated until the last several years of his career, plus he had a number of children that all went to college which left his personal savings and investment balances rather low.
That was a good illustration of his income, but his expense illustration was even more entertaining. He had a ball point pen in his pocket and with the tip it poked a small hole in the Social Security cup and said that was for taxes. But as water would flow out he would refill it with more water and said that it was just a minor drip and could be fixed with chewing gum or duct tape. Guess what? He had both and filled the hole. He said that was simply recognizing that a problem existed and fixed it by having taxes withheld from his payments – he was able to self-correct. For his pension cup, he used the same pen and bore a sizeable hole to illustrate his monthly costs of healthcare, utilities, property taxes, insurances, gasoline, food, etc. and said that his cup filled up fast but emptied just as fast. Over the course of time he learned to live primarily on his pension income. He said that he’s in great shape financially, not poor, not rich, but comfortable and barring a major health related crisis, he should be able to “ride off into the sunset” just the way he wants to. His only worry is for his kids and grandkids. That’s when the entertainment went from comedy to horror.
His single biggest source of income was his pension. His son is in his mid-40’s and was downsized about a year ago and has not been able to find a job. Prior to that, he had not worked for a company that had a pension plan. He took the pension cup, crumbled it up and threw it in the trash. He then talked about Social Security. He asked the people in the room if they thought Social Security would be able to be as generous to his kids and grandkids as it was to him. The room consensus was that Social Security will be far different for future generations and will be far less reliable. He took the tape and gum off of the cup and let it empty out. Turned it on its side and said that the next generation won’t be able to count on it. That left his last cup, the one that he only put a few drops into, which were his personal savings and investments.
He got choked up when saying that his kids are going to have to do a far better job than he did of filling that cup because it needs to fill 2 or 3 cups worth of expenses. How can that happen today when houses cost so much? When school costs so much? When the same kinds of expenses he had in raising a family still exist? Gone are the generous pensions and reliable Social Security income. He held up that last cup, emptied the few drops inside, and said, “Does anyone here have faith that our kids’ generation will be able to save enough to fill 3 cups so that they end up better off than us?” The room was filled with people shaking their heads in silence. As a member of his son’s generation, a person who does not have a pension in my future and one who is unsure of what Social Security will look like in 20 years when I’m in the ballpark of my Social Security retirement age, I have never been so afraid of Styrofoam in my life.