At age 30, Bryan Short has, by any standard, achieved professional success since graduating from Boston College and law school at the College of William and Mary. Yet despite his job as a Washington mergers-and-acquisitions lawyer, he’s nowhere near as financially secure as he expected to be by now.
He and his wife own one car and rent a 500-square-foot studio apartment. More than one-third of his take-home pay is gobbled up by repayment of college and law-school debt. Children are unaffordable right now. And retirement savings? They’ve barely begun.
“Despite being what most would consider clearly upper-middle class, highly educated and almost assuredly on no one’s pity party list, I can assure you we live an extremely modest life,” says Short, whose wife, Regina, is pursuing an MBA at Johns Hopkins University.
For years, experts have warned that too many of the USA’s 79 million baby boomers aren’t financially ready for their coming retirements. Yet, if the boomers have had it hard, it’s nothing compared with those next in line: Generation X ”” people such as the Shorts…
sigh. No one wants to move to a lower-cost area, thinking that where the big bucks are spent (New York, LA, Washington DC) they will make big bucks.
I made a choice, which is why I took a good paying (won’t get rich, though) job with a small county library system.
Lawyers (also doctors, accountants, etc.) can make good pay almost anywhere, but they have to make sure they can afford to live in the area in which they practice.
Jim Elliott
Well, yeah. Private undergrad, law school (even if public, still $44k a year for out of state), and private grad school aren’t cheap. DC is an expensive place to live. But you recoup the expenses through higher pay later on. Sounds like some friends of my parents who were pretty strapped for cash through their 30’s, but are fairly wealthy today in their early 60’s. It’s called investment in human capital. It’s something we’re considering, as my fiancee and I consider law school for her or an MBA for me, or getting a house and starting a family. It’s a tough call, but one you have to make.
Call me cynical, but I have yet to meet a large company that invests in any human capital. No matter how long you are there, they will cut you loose if they think they don’t have enough money. Or you look at them funny.
A corporation exists to make money and employees just get in the way…they cost too much and so forth.
Having moved from DC to the midwest, I would disagree. Start up costs matter. I make twice as much in the midwest than I did in DC and have about 2/3 the living expenses.
My children will be attending University of Missouri. Private colleges are nice, but they are not worth the price. Further, once you leave the costs folks do not notice a difference between Bryn Mawr (my sister’s school) or Northwestern Med and Ozark Christian College and Missouri Southern.
I also agree with Dumb Ox that outside the public sector, longevity and loyalty matters very little. Older workers are expensive, and unless they are bringing in more revenue, their salaries will _not_ increase. Therefore getting the best deal while young matters also.
“Debt-Squeezed Gen X Saves Little”
It’s all the fault of the Baby Boomers. They did it. They made us do it.
That was “once you leave the ‘coasts'” as in the West and East coasts, not the “costs”.
As to Irenaeus, do I detect a hint of defensiveness? Cheer up Irenaeus. I too am a boomer and I think that there is plenty of blame to go around. The blame begins with (alas) our heroes the “Greatest Generation” who began the gigantic expansion of the welfare state, but who did not have the courage to pay costs up front. It continued with the “Silent Generation” who took us off the Gold Standard in order to issue debt to maintain this gigantic expansion of benefits. It continues with our generation whose size will require us to either repudiate the debt (including our long expected benefits), or to force crippling taxes on future generations to pay for the debt, or to hyperinflate the currency to pay off the debt in debased dollars.
Gen X is merely the generation who will pay most dearly for the choices made by the three generations that preceeded them.
I do not see an alternative to these three options. Of the three, I solemnly believe that a nations’ first duty is to future generations not those of us whose course is more than half run. Therefore I personally favor option one as being least harmful to posterity than the others.
Nobody has a “right” to not have to work for a living, whether we have “saved for retirement” or not. The whole concept of “retirement” is a modern vanity that no generation prior to WWII enjoyed, and that no society outside the US and Western Europe has every heard of. Why should we have a “right” to retire? Our greatgrandfathers expected to work until they died, and I expect to do so also.
What we do have is a right to our lives and our liberty, and to the pursuit of happiness. Our right to life does not include the right to enslave other generations to pay our living expenses. It simply means that we have the right to not have our lives taken from us by violence without cause.
What I meant in terms of human capital, is investing in yourself and your own education. Getting an MBA is an investment, just as buying stocks. It has costs (both economic and opporunity) just like anything else, which need to be weighed on an individual basis.
Oh I agree with Andrew. Education is a useful investment of capital. However I disagree that there is a significant difference in the value of certain degrees and certain colleges.
Law is highly competitive, and the premium on Harvard and Yale is probably worth it, particularly if you wish to work for a high powered law firm in DC or New York.
Medicine is less competitive, and I can promise you that there is no difference in salary between graduates of the University of Arkansas Medical School and those of Harvard Medical School. There is a gigantic difference in price, however.
Most other degrees are less competitive still, and some degrees for example a degree in Art History, Theatre, Literature, French and any number of other majors are quite valueless in the real world. These simply note that the holder of the degree possesses minimal educational attainments and can read, write, perform simple calculations and manage a computer (what the high school degree used to signify before it was debased). Therefore, if one insists on engaging in these majors (for love of the subject matter or because one hopes to be the next Brooke Shields, then, for those of us who are not independantly wealthy, it would be best to do so as cheaply as possible.
Alternately one might simply use the capital that one is considering spending on an education (between 50 and 150,000) in other revenue generating enterprises. For example, one can by a laundromat or dry cleaning enterprise for under 100,000 and generate revenues in the 70,000 range from these (depending on area and work ethic). One could learn plumbing for less than 30,000 and after an apprenticeship make rather more than one’s family physician. One can learn to scuba dive and weld, and repair oil rigs and transatlantic cable while working less than 6 months a year and making over 100,000.
Education is an outstanding investment. (Far better than stocks). However the modern US university may not be the best place to acquire that education.
Saint Dumb Ox,
I used to work for a company that was big on investing in human capital The idea went out of style in the ’90s. It seemed almost overnight the employees went from being viewed as an asset to be developed to an expense to be reduced as much as possible.
Andrew717,
Realize that while the investment in your own career developement won’t loose value thru inflation, as stocks do, it is vital to keep your skills up-to-date thru continuing education to maintain your employability value. I saw too many co-workers who thought once they got their degree, they were set. Once they reached a certain salary level, the company axed them and hired new grads with fresh knowledge. The ones
that continued adding to their knowledge, their skills and most importantly their visibility in the industry continued to be employed by somebody,
not necessarily their first company.
just my 2cents, spend it wisely.
Marie
“As to Irenaeus, do I detect a hint of defensiveness? Cheer up Irenaeus. I too am a boomer and I think that there is plenty of blame to go around” —Clueless [#7]
Shari: You detect some playful tweaking of Gen X (and perhaps by extension, Gen Y) commenters who complain that that the Baby Boomers caused all their troubles. But I don’t feel defensive: I’ve saved 20-25% of my income for the past two decades, and I’ve helped my country avoid some grievously expensive mistakes.
I also. But if you (like myself) have been saving in your 401k, be advised that on paper we are both saving 0% of our income. 401ks, IRAs, real estate are not counted as “savings”. Only bank savings account are called “savings”. If 401ks/IRAs/Roths/real estate were counted as “savings” then it would be clear that the Boomers, contrary to popular opinion, actually have been saving about as much as earlier generations.
It is useful to perpetuate the myth of Boomer profligacy, however. This is why when taxes are increased the Boomers (who actually have been saving massive amounts in their 401ks) will be blamed for having “speculated” in stocks and real estate rather than “virtuously” saving for their retirement. In the meantime income taxes will rise (presumably to pay for us shiftless Boomers) and (surprise) this will result in those pre-tax 401ks generating far more taxes to the government than they would have, had they been invested in other entities. At that time, the stock market will begin its inevitable decline (you can’t sell stock unless someone in the smaller GenX or Millenium generation has funds to buy it) so we will (assuming we still have our assets in 401ks) be taxed more on a declining investment.
So yes, we Boomers will pay dearly also for this 401k/IRA ponzi scheme that we were told was the “right way to save for retirement”.
Having said that, however, I still think that it would be best for the country as a whole to repudiate the debt, and to accept the (quite dreadful) consequences that will ensue, then to insist that future generations take on a unpayable burden of debt or to accept hyperinflation (which will crush both the poor, the old, and middle class savers).
PS to #11: Here’s a small sample of what I’m referring to. And this is just one comment from one commenter. There is much more from many others.
Sick & Tired of Nuance Says:
August 26th, 2006 at 8:58 pm
About two-thirds of boomers have not saved enough to retire and nearly half have no significant savings at all. As a Baby Buster/Gen-Xer and former latch key child of parents who divorced, I’d just like to say… GEE, THANKS A LOT! Despite inheriting the Great Society with its confiscatory taxes from the Boomers, I have more in my retirement nest egg now than my parents did when they retired. I’m still wondering when the Boomers are going to grow up.
What’s left to say except, hey Boomers…lots of luck with that retirement thing.
The Federal Reserve Bank of San Francisco has this informative discussion of savings rates:
http://www.frbsf.org/publications/economics/letter/2005/el2005-30.html
These charts and tables from the Commerce Department’s Bureau of Economic Analysis (BEA) are also interesting:
http://www.bea.gov/national/nipaweb/Nipa-Frb.asp
The BEA uses a different definition of savings for its “National Income and Product Accounts” (labeled here as NIPA) than the Federal Reserve does for its “Flow of Funds Accounts” (labeled here as FFA). (Which underscores, BTW, that there is no massive government conspiracy here: there are honest, conscientiously grappling with a difficult subject.)
Clueless and Dumb Ox – I don’t share your view of large companies. I work for one (one of the largest) and they invest in training, development, and cultivation of employees at all levels. Certainly it’s not universal, but it happens. Also, Clueless, I don’t think your discussion of the value of education is complete. Some majors include more intellectual “umph” than others, but some schools carry more brand recognition and offer greater relationship capital. At an undergraduate level, paying more for Harvard or Stanford may not make sense in terms of what you learn, but certainly tends to pay off in terms of who you meet (and in some cases how grad schools evaluate you; some good studies done on this by economists). There are also field-specific considerations: if you want to be a law professor, having a JD from Harvard or Yale matters a great deal (not impossible from other places, just a lot less likely). You are right about no one having the right not to work. Amen.
One interesting note from the story: the writers notes Regina is pursuing an MBA at Johns Hopkins. This isn’t the value signal one might assume. The program for years was run out of their Continuing Studies division, and it does not give access to the normal list of banks, consultancies, etc, that top-shelf MBA graduates seek. Nowhere close to the same elite status as J Hopkins enjoys in medicine, science, or international affairs.
The Commerce Dept calculates the personal savings rate simply by taking one’s disposable income (income after taxes are paid) and subtractracting spending. Actual savings, most notably retirement savings in 401(k) plans and IRA’s, are not counted as savings in this statistic.
Having said that, I think there is a reason why it makes the Government feel better to keep telling us that we need to save more in our 401ks and IRAs. Pretax savings when taxes are at a historical low (remember they have been as high as 90%, and were 70% recently) is very good for governments and very bad for individuals.
We will end by paying 10 times as much over a 20 year withdrawal of our 401ks/IRAs to the US than we “saved” by a pretax mechanism.
http://www.bawldguy.com/beware-the-trojan-horse-401ks-iras-learn-now-or-pay-later/
http://www.bitsofnews.com/content/view/7938/
The above explains my view of why 401ks are a bad idea for individuals, but a great for governments who wish to keep their expenditures high.
“‘I have nothing much to give to you young fellows,’ [Bilbo] said to Merry and Pippin, ‘except good advice.’ And when he had given them a fair sample of this, [he gave gifts more immediately gratifying]”
—JRR Tolkein, The Return of the King
At the risk of sounding like Bilbo or Polonius, I would urge Gen Y readers to be careful about debt; take full advantage of any available employer-sponsored retirement plans; and if you have additional money to save for retirement (as distinguished from house-buying or your children’s education), consider putting it into a tax-efficient, broad-based stock index fund like these:
— https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT ($3000 initial investment; low capital gains until you sell your shares)
— https://personal.vanguard.com/us/funds/snapshot?FundId=0101&FundIntExt=INT ($10,000 initial investment; no capital gains until you sell your shares)
Clueless [#16] disregards the effect of “inside build-up” in a tax-deferred retirement account: the fact that the return on your investments compounds tax-free. Although you must pay taxes (at ordinary-income rates) when you withdraw money, you will have a much larger amount to withdraw.
_ _ _ _ _ _ _
BTW, if you invest in the “tax-managed” mutual fund I mentioned in #16, you pay taxes year by year on your dividends. But the fund is managed to avoid realizing capital gains—so that you pay no taxes on the appreciation of your shares until you sell them (and then, unlike an IRA, only at the capital-gains rate).
Of course, life is full of risks, and nervous Nellies would need to confront their fears before investing. But for money you won’t be spending for 15 years or more, a broad-based, low-overhead stock index fund makes sense. And you will incur neither the costs nor the worry of buying and selling individual stocks.
I mentioned specific funds in #17 because many people (including me, earlier in life) stay out of the stock market—and thus earn less than they could have on their savings—because they’re not sure what to buy.
I was fully invested in index funds throughout the long bull market (1991 when I first got out of fellowship through 1999. I got out six months before the tech crash, switching entirely to a US treasury fund. I then got back into index funds 2004 to July 2007. I then withdrew it all before the most recent downturn in August.
I will not be returning before 2016, and probably not before 2020.
There is a time for everything. Anyone who buys an index fund now, will see level or generally declining values (with the occasional bear market bounce) for the next 10 years. The reason I say this is not because I am a “nervous nellie”, Iraneous, but because it is mathamatically impossible for everybody to be “above average” at the same time. Stocks went up during the long bull market because all the Boomers (you and I included) were pouring their money into stock funds. Stocks will go down during the Boomer’s retirement because the boomers will be steadily withdrawing those same funds. You can’t sell a fund, unless there is somebody to buy it. Unless China’s billions decide to suddenly take an interest in US equities based in declining greenbacks, stocks must go down. As Warren Buffett once said, “the best way to make money is not to lose money.” Folks who were fully invested in 1929 took more than 20 years to recover their investment. So did those who were fully invested in 1969. Thus, if you are 20, it may be wise to invest in stocks (you will buy them cheap). It is madness and folly at 40. This is not fear. It is arithmatic. And arithmatic, Irenious, is something I have always been very good at.
The world goes through phases. We have been through a long period when paper assets were king. (By paper assets I mean paper money, CDs, stocks, bonds, etc.).
We are now (as Warren Buffett put it at a turning point).
As he said, ” I feel this is at least part of the reason behind the current commodity boom cycle. it is a era of asset rotation by dumping questionable paper assets and buying into real physical assets which people can see, feel, know and trust for certain their true values.”
I would not advise anybody to buy paper assets, certainly not those denominated in US dollars. I would buy real assets whether these are businesses (which is what Buffet is buying now), commodities, or even (despite the current real estate crash) land.
Personally I think a big problem is that too many students pay for their education w/student loans so they come out of school saddled w/huge debt to begin with. When I got my degree I took only a few classes at a time so I could afford to pay cash for my classes and still work to support myself. When I graduated, I owed nothing and was able to start life w/a clean slate. It was totally worth the extra time it took. And some might say, we’ll you can’t attend Harvard Law part time. Maybe so. But there area other law schools that you can attend part time. So go there. If you excel at what you do, work hard and be sure to keep current, you’ll be as successful and you want to be. Oh yeah, and live somewhere that’s not so high. I lived in Boston in the TWENTY years ago and had a one br apt that was 1/2 way below street level (like Laverne and Shirley). It was $800 per month which is more than my monthly mortgage was last year. Boston is nice, but one can make oneself a much better life elsewhere.
My 2 cents.
First, I don’t like hearing a lot of belly-aching from my generation (b. 1973). We all have challenges to deal with.
Second, don’t call things like art history non-competitive. The competition is ridiculous in most humanities fields because there are so few slots available. (I am a musician about to begin his DMA work…)
Third, I tire of “living standards” discussions. When I owned a house in the inner-burbs it owned me, my time, and money. When I sold it and moved into the city I got my time, freedom, and money back. I could care less that my parents had the home that they still live in by the time they were my age. I could care less that my dad retired at 59 and I’m looking at 70, because I picked something I love and have no desire whatsoever to stop doing it.
Randall
RE: “What we do have is a right to our lives and our liberty, and to the pursuit of happiness. Our right to life does not include the right to enslave other generations to pay our living expenses. It simply means that we have the right to not have our lives taken from us by violence without cause.”
Thank you, Clueless.