The Retirement Problem & This Generation’s Economic Dilemma
ERIN N. SIMON
Inspired In-Spirit Publications
April 13, 2020
The economy’s impact on retirement can be the effects of lower investment returns. Lower returns in investments, means more money needs to be invested, in order to yield a decent return. God forbid there be a stock market slump, like now, prior to impending retirement. This can have a long term effects on your ability to retire. There is also one other staggering reason, I believe Americans fail to save for retirement. The American culture is not to save, it’s to consume.
In terms of the economy’s direct involvement in the hindrance in saving for retirement, there is a significant impact being felt on those who are already financially struggling. In 2013, it has been reported that 28% of those unable to save, cannot, due to unemployment. The Director of the CFA (Consumer Federation of America) stated, “Many households, particularly those with low and moderate incomes, have not started to recover substantially. Millions of families have been unable to make progress, especially in their savings” (Brandon, 2013).
Understanding how the economy affects us, as African Americans, is imperative on the impact on savings. Many African Americans who are already struggling, simply don’t have anything to put towards retirement savings. The Wall Street Journal posted an article, which explicitly defined, just how bad the disparity of wealth is for our community.
“Over the past 30 years, they have found the average wealth of white families has grown by 84 percent, three times as fast as the rate for African American families, and 1.2 times the growth rate for Latino families. To put that in dollar terms, if the past 30 years were to repeat, whites would see their wealth increase about $18,000 a year on average, while the Latino household wealth would increase an average of $2,250 a year, and wealth for African Americans would grow by just $750 annually (Davidson, 2016).”
The economy’s impact on retirement can be the effects of lower investment returns. Lower returns in investments mean more money needs to be invested, in order to yield a decent return. God forbid there be a stock market slump, prior to impending retirement, which can have a long term effect well into retirement.
Wellesley College Economists, Courtney Coile and Philip Levine have explained in their research that, “Retirement income increases when there is a run-up in stock prices in the years prior to retirement. IF S&P 500 returns are 100 percentage points higher, during the five year period when a worker is between 55 & 60, retirement income is estimated to be about 22 percent or $1,750 higher annually between 70 and 79. Workers who reach the retirement age when the stock market is declining will need to cut their retirement standard of living or delay retirement (Brandon, 2010)”.
This generation is at a severe economic disadvantage. The economy is not as stable as the economy our parents benefitted from. Fewer people work at a corporation from day one, until retirement. Layoffs are more prevalent, corporations are outsourcing jobs, and unemployment is the highest for our community. Not to mention, a college degree doesn’t guarantee anything but a lifetime of debt. It surely doesn’t guarantee a job that will properly compensate for the degreed job seeker. This generation is unable to operate, in the traditional ways of our parents, in saving for retirement.
Can these issues be remedied? The answer is, yes. Understanding the economy and its role in our financial future, as well as your own role, can assist in avoiding the pitfalls in inadequate retirement planning.
What does that mean for us, the African American community, which is most affected from these economic ailments? It means that this generation, moving forward, needs to take a different approach than our parents/grandparents. We need to be willing to think outside of the box. Believe it or not, they are small adjustments to the way we already live.
Now, that we understand the times, the economy’s role in future financial planning, and our own responsibility of future planning, we can brainstorm alternatives. These alternatives will allow us to come out on top and not sacrifice a better quality of life. This is especially after a lifetime of hard work, sacrifice, blood, sweat, and tears.
We know that debt and income have strong correlations to one another. You don’t need a chart to understand that the less debt you have in your retirement years, the more disposable income will be available.
Creating disposable income, means coming away from the consumer culture of America. Living within your means and not subscribing to every single new technological advance that presents itself, can save you money.
1. Not getting a new iPhone or Samsung Galaxy, every time it releases a new model, can be a huge savings. The additional income can be invested in your wealth management portfolio or simply not accruing new debt. Keep in mind, that your new upgrade isn’t free. It’s financing the $500-$1000 phone over a period of 12, 18, or 24 months. If you need a new phone, consider shopping around for a refurbished phone which is less expensive. Also, do your best to take care of your devices. Purchasing a $20 case, may save you from having to replace an expensive phone.
2. Paying a small monthly payment to Netflix, Hulu Plus, or other On Demand Television Streaming, can also save your household money. Cable can be anywhere from $85-$185/ month (individually priced premium channels), where Netflix only costs between $9-$13 per month. This is a savings of $912-$2,064 annually, which can be invested into something more substantial, like starting or maintaining your own business.
3. It’s known that paying on your student loans, while in school will decrease the interest payment, as well as payments made post graduation. In this day and age, considering a trade, may be even more lucrative than $50,000 in debt while working a job that only pays $34,000 a year.
4. Financing a $21,000 car, depreciates in value immediately. Interest payments balloon your payments to almost $31,000 including the big down payment you have to put down if your credit needs work. Consider purchasing a car cash for $6000 - $9,000. It may be more cost effective. For some people, this your tax return with a mix of savings added. Not having a car note, offers you more disposable income, lower insurance rates, and money for maintenance.
5. Lastly and a more extreme way to save money is to move to a city or country which has a significantly lower cost of living! We moved to Mexico and have reaped the benefits of high volume saving due to the extremely low cost of living and ended up only acquiring a much better lifestyle in the process!
This means additional income to INVEST in more substantial endeavors. It also means pushing your ego to the side and purchasing something practical that may not be a fancy. You will ACTUALLY be wealthier, instead of having the appearance of wealth, but drowning in debt.
Living conservatively now, will allow for comfortable living, later. This is the true intended trade off and opportunity cost, of answering this generation’s retirement dilemma, with alternative options. Those reading this discussion shall prayerfully change the paradigm in which they live, in order to live better, later. Let them be reminded, that the most important thing, they can leave behind after retirement, is an inheritance for their children. Once we live for the bigger picture, then and only then, can we begin to prevail against the disparity in wealth we suffer from in America.
ERIN N. SIMON is a writer, blogger, and visionary in raising the conscious level within her Community. One of her passions is to create a Black Media that truly matters, is promotable, and shared with as many people as possible. In 2013, She and her husband started Inspired, In-Spirit Transformation. They have recently started a Publishing Company called Inspired, In-Spirit Publishing which have multiple published books on their shelves, four of which are Erin's; Interruption: Shae's Search, Interruption: Interlude & The Series Finale Interruption: Alter Ego, & Undercover & Under The Covers: Starring Detective Aja Anderson. Her husband has a company known as GS Investments in which financial freedom is gained one investment at a time. She currently resides in Mexico City with her husband and four handsome sons...