The Errant Miscalculation of a Generation

Man’s desires are unlimited, as far as we can tell.  There’s always an upgrade or deluxe version of the latest doodads to chase after.  Some go after them with the stubborn resolve of a donkey going after a dangling carrot.  Others come up with resourceful ways to outflank their competitors.

Where money’s concerned, it doesn’t matter where an individual falls on the income scale…a little more is always yearned for.  A middle income earner may think a $10,000 raise would satisfy all their longings.  But after attaining this, they’ll come to find that another $10,000 is what’s really needed.  Similarly, for a successful business owner, if $1 million in profits is good…$2 million is better.

When it comes down to it, money is just a means to satisfy one’s desires.  But these desires amount to more than just stuff.  They also include experiences.

That’s why, time, above all, is the commodity par excellence.  One can always earn more money.  Once time is spent, it can never be regained.

Just ask 16th century Spanish explorer Juan Ponce de León.  Upon hearing legends of the mythical land of Bimini – and its fountain of youth – from the Arawak natives of present day Puerto Rico, he set off in search for it.  But instead of restored youth, he found Florida…and just eight years later he was dead.

“Myths and legends die hard in America,” observed Hunter S. Thompson.  From Ponce de León’s quest for the illusive fountain of youth to the present day college graduate’s quest for the American dream, Thompson’s insight has yet to be disproven.  No doubt, over the coming years, the retirement dreams of aging baby boomers will meet a similar fate.

Accumulating Time and Money

Most Americans prefer to spend their money the moment they receive it.  In fact, the personal savings rate is currently about 4.4 percent.  That means people blow the other 95.6 percent of their income on living and other expenses.

Yet, while most quickly consume their money, some sacrifice present consumption for greater security and future consumption.  Money, in addition to being property, represents time and the sacrifices made to earn it.  What this means is, saving money and accumulating capital today not only allows for future consumption, it allows for greater freedom in how one spends their future time.

Do you like getting crapped on by clients every day?  Do you like having to deal with new and unworkable processes handed down by corporate officers?  What about the barrage of emails invading your smart phone at all hours?

With enough accumulated capital you can free up your time for better, more enjoyable, uses.  You can tackle your own projects.  You can pursue your own adventures.  You can even daydream under the shade of an old oak tree, if you want.

Naturally, accumulating capital takes discipline and perseverance.  It takes prudence and self-restraint.  Yet no one likes the rigors of any of these moderations.  Plus, hasn’t the government been trusted to save your money for you?

Regrettably, this one assumption has led a great mass of people to stray off into the wilderness…

The Errant Miscalculation of a Generation

After working for 40-years – or more – baby boomers have no retirement savings to show for it.  According to the New York Times, “Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.”

By our back of the napkin calculation, that amounts to saving a tad more than $2 per day over a 40-year career.  Obviously, this is not nearly enough.  Still, what’s the problem?  Isn’t that what Social Security is for?

Wrong.  Unfortunately, Social Security won’t cut it…

“To maintain living standards into old age we need roughly 20 times our annual income in financial wealth.  If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security.  If you have an income-producing partner and a paid-off house, you need less.  This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.”

Could an entire generation have miscalculated more errantly?

The myth and legend that everyone’s entitled to a long and comfortable retirement courtesy of the government will die a hard death for most baby boomers.  It’s a mathematical fact.  Younger workers, if they can find a job, will have the opportunity to adjust their behavior…but only some will actually do so.

Sincerely,

MN Gordon
for Economic Prism

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