Most Americans today will never be able to afford to retire. Period. Retirement was a concept basically created in the 1950s, and a number of factors have come together to end the dream for the great majority of Americans. The end of the dream in turn necessitates changes in how Americans live. These changes will affect the economy and politics. Arguably, they already are.
Here are some of the fundamentals:
- The average US household has $35,000 in funds at age 65.
- The average Social Security payment in 2016 is $1,341 per month.
- According to Fidelity Investments, the average couple will encounter $245,000 in out-of-pocket health care expenses after age 65.
- The Fidelity estimate excludes long term care/nursing home costs. According to Morningstar, we need to add 2.4 years of nursing home or long term care costs, at approximately $13,000 per month per person, to the Fidelity total. Subtracting what Medicare covers of nursing home expenses, that’s roughly $347,000 per person.
Basically, the average person needs upwards of $800,000 in liquid assets to retire. However, at age 65, the average American has $35,000 in savings.
It’s pretty easy to see that these numbers don’t work for most people. And that doesn’t consider the 10% of seniors who are caring for a grandchild.
So, how can the average person cope?
- They can work. However, that takes jobs away from younger workers. Job creation in the US isn’t strong enough to support both an influx of new high school and college grads and oldsters returning to work. However, in this competition, older workers are handicapped as large corporations don’t like to hire them. Seniors will return to the labor market at a much lower rate of pay than they had previously.
- They can die at an earlier age. In the US, low income males are doing that today, having lost 4 years of life expectancy since 2000.
- They can deplete assets and let state aid contribute to covering expenses. However, that means living one’s last years in extreme poverty. People with severe, terminal illnesses such as advanced cancer are often having to do this.
- They can move in with children. The incidence of multi-generational families is on the rise. That will change the kind of home buyers will want.
- They can move outside the US to where health care is much less costly. Central America is the destination of choice for emigres. The US government doesn’t publish statistics on citizens who live outside the country. Current third party estimates range from 3 million to 9 million, excluding military and diplomatic personnel and their families. All estimates agree that the number is increasing.
[NOTE TO POLITICIANS: More Mexicans are now leaving the US than entering, counting both those with and without documentation. Why is this a point of discussion this year?]
Several of these trends suggest that there may be another sell-off of single family homes in the future, with another round of declining home prices, underwater mortgages and foreclosures. Boomers will need money for health expenses.
The growing volume of available senior labor may put a cap on wage increases, and increase deflationary pressure.
The fundamental problem is that today’s Americans reached adulthood with certain expectations about how their life would be. Those expectations are being dashed, generating the anger that is playing out in the current election season. The disappointment and anger is still in its early stages, and may get much worse.
In this context, its rather amazing that so many people wanted to run for the Presidency this year. The next four years are likely to be traumatic, and the next chief executive is likely to leave office after one term as a much hated individual.