Today’s commentary, while still being financial-oriented, is more of a reflection on a concern of mine that has been increasingly occupying my thoughts over the past couple of years.
To preface this discussion, please consider the following:
— Americans are net spenders, which means they tend to spend more than they make. At present, the amount of money Americans save in relation to their take-home pay is near an all- time low.
— A great number of large American corporation have stated publicly that their employee retirement funds are unfunded — they don’t have enough in the till to make good on their employee retirement promises.
— The U.S. government spends over $1 billion a day more than it takes in, not setting a good example for its citizens. In fact, I don’t recall President Bush ever vetoing a spending bill!
And in the hope of not sounding like a generalist or “old crank,” I look around me and all I see is young people driving fancy cars… living in homes with big mortgages. I see restaurants full… shopping malls already busy for the holiday season…
Where am I going with this? Simply, I don’t see how the great majority of young urban professionals will retire comfortably. Really, if I took a randomly selected group of 1,000 white- collar professionals in the 30-to-40 age group, how many would have solid retirement plans in place? Very few, I would estimate. But I’ll bet you they strive to make that BMW or mortgage payment on time each month.
The low interest rate payment scenario Greenspan created had a serious flaw. The easy money created an environment where it was easier to borrow (because rates were low) than save (because low interest rates brought in low saving yields).
In my opinion, the lack of savings that generally prevails today will come back to haunt not only the individuals that have not planned and saved for retirement, but also the economy in general. As the baby boomers’ disposal income declines as they near retirement, the spending will fall dramatically, not by choice but by necessity. And that doesn’t make for a healthy economy.