Where We Are Going

I have been thinking about this in various forms for awhile. Maybe the world will go all Mad Max and we will be killing each other over cans of dog food but almost surely not. Maybe there will be a massive long term global economic implosion brought on first by the total collapse of the Euro Zone then hyperinflation in America and the total collapse of the US Dollar. I hesitate to try and quantify this one. It is more likely than a Mad Max scenario but less likely than say higher taxes, increased crime, inflation of significant but not hyper levels and a generally bad economy for some time to come.

I have been thinking about positive things an individual can do to improve their situation. Also real world quantifiable stuff that is likely to affect us. Of course common sense stuff like having food, water, arms and savings applies but I talk enough about those.

I am seriously concerned about the long term prospects of those in the 40-60 age range. My Grandparents (more or less the "greatest generation" did pretty well for retirement. Most of them spent a long time at one job and got a defined benefits retirement which coupled with social security and various personal savings left them comfortable. They generally bought, stayed in and paid off modest homes and were pretty good savers. I fear that my parents generation (the Baby Boomers) are in a far worse spot.

They generally do not stay for their whole working life with one company. Few companies offer a lot in the way of retirement anyway these days. The only folks offering defined benefits plans (great for the worker, bad for the company) are a few huge corporations, union jobs and government at various levels. Unfortunately this generation seem to have saved like they had a defined benefits style retirement coming when in reality they sometimes had a 401k match. Thanks to modern health care they are going to live for a long time.

Where my grandparents generally bought one house, paid it off and stayed in it they move a few times, often up sizing and or using their equity like a Visa card. Instead of a paid off home at retirement age Boomers often have a relatively expensive not paid off house. I watch the financial adviser shows and laugh my head off when somebody wants to retire and still has a mortgage or two. How the heck do they think that will work.

Even if they want to just continue working that might not be an option. Workers in their mid to late 50's are in a rough spot. They are generally expensive to employ as they have a lot of experience at something. Also as their experience is pretty specific they can have a hard time finding a new job. Plus their health care costs are higher and they are sick more often. The old back up plan of just working a couple more years to help the retirement numbers is not something that should be counted on. Many organizations have a strong incentive to replace them with younger less expensive workers.

So I fear many in my parents generation may economically need to work past when they would want to retire but be unable to do so. That means a lot of folks are going to be hosed. If I was a 50 something I would be doing the math to see where I was for retirement without social security. Without some X factor the best I can see (from the retiree perspective) is them getting paid in increasingly less valuable dollars based on progressively more and more cooked CPI numbers.

One interesting thing is that people did not used to really "retire" but they also lived far shorter lives and were part of a 3 generation household with a fairly large degree of self sufficiency and low taxation. People were usually pretty healthy, got sick and then died. Thanks to modern medicine people live far longer than a hundred years ago. However we haven't really been able to extend the plateau of "good years" much. 

As a young person I see a lot of families becoming 3 generation households. I will likely be one of them but not for economic reasons. Young people might want to have an informal talk with their parents about this. If just to see if they should look at tacking on another bedroom to their house.

For us younger folks I think it is going to be a crazy decade or two. The only good thing for us is that we are young and have the ability to ride something out and recover afterwords. I see the scenario for low skill "blue collar" workers as particularly bleak. These folks are either going to need to either change paths or reside themselves to a life which is below the "middle class".

As for my generation. I think that for us the differences in outcomes based on choices of jobs and money management will be the starkest since the Great Depression. Those who get marketable skills will be in a decent place. Cash talks in a bad economy. However people who decide to have 2 expensive cars with loans to match and a credit card bill that costs a buck and a half to ship then buy a house with a payment that is 40% of their pre tax income will fail miserably. Wages will not necessarily grow at old rates. Relying on home equity growing fast and forever to bail them out won't work either. As people change jobs at least a few times in a working life those with payments to the hilt will have issues.

Those who stay out of debt and live within their means will do OK. They always have and always will if just relative to the situation. It is probably going to be a wild ride but those with  available resources will be able to best position themselves for it. Folks with payments up to their eyeballs don't have many available resources. Good choices beget more good things and bad choices beget more bad things.

If nothing else those spare resources can be put toward building a bedroom for the parents.