By Jared Chausow
By Katie Toth
By Elizabeth Flock
By Albert Samaha
By Anna Merlan
By Jon Campbell
By Jon Campbell
By Albert Samaha
W.'s plan involves diverting payroll taxes of current workers into private accounts. Using these personal investment portfolios, the workers will then try to beat the market. Taking these taxes out will mean a cut in future guaranteed benefits from the government. Independent analysts estimate that this approach will reduce federal revenue by up to $2 trillion in the next decade, a loss that will be made up in the short term by borrowing even more on top of the nation's already record deficits, and emptying the Social Security "trust fund" even faster.
Against this uncertain backdrop, the first of the baby boomers will retire in 2008. Their working lives have been marked by record-high divorce rates, the epidemic of downsizing, relentlessly rising bankruptcy rates, the explosive growth of household debt, and current savings rates at the levels of the Great Depression. Their adult children in Generation Debt are understandably nervous about their parents' securityand by extension, their own.
Jacob Hall, not his real name, has changed his entire life course because of his parents' financial situation. The 25-year-old graduated from a prestigious university, where he studied engineering and neuroscience. But instead of exploring either of his passionsa Ph.D. in neuroscience or photography and fine artshe moved across the country to take a job in finance that pays over $100,000 a year. "There's a lot of things that I would probably be doing instead of working in New York on Wall Street if I didn't feel the imminency of a large financial crisis in my family in the near future," he says. "My parents have not been out of heavy debt for most of my life. I feel an immediate need to make money now. I don't want to be in a position where I can't help them."
Jacob's fears are well-founded. His parents are 65 and 61. They once owned a successful business together, but it fell on hard times, and they divorced and dissolved the company 10 years ago. Since then, his father has become "like a gambler," Jacob says, speculating in real estate, and has amassed a staggering $150,000 in credit card debt. His mother is also tens of thousands of dollars in debt. A few weeks ago she called Jacob in a panic because she could not make the mortgage payment on her house. He will try to lend her the money to renovate it so she can either repair or sell it.
Jacob's parents' situation may seem outrageous. But the situation he faces is a compressed version of what many people in our generation will come up against sooner or later. Collectively, the baby boomers will need millions more than they currently have saved in order to live comfortably and healthily through retirement.
More than two-thirds of retirees right now rely mainly on Social Security for their living expenses. Private pensions are drying up, just when baby boomers need them. Of those currently aged 45 to 54, according to the nonpartisan Employee Benefit Research Institute, 39 percent have saved less than $50,000 for retirement. This amount will pay out less than $4,000 a year. Who will make up the shortfall? Probably not the government.
And needless to say, not every member of our generation is as well set up as Jacob to shoulder the burden of an indigent elderly population. Astra Halk, 34, worries about her parents, who are 59 and 61. Her mother, divorced and remarried, is living off her husband's severance pay; he was downsized from a middle-management job shortly after 9-11. They are also raising an adopted child. Her father earns around $15 an hour, lives in a rented house, and drives a car that's over 10 years old. He is devoted to his bicycle and has taken several spills. Astra, meanwhile, is a currently unemployed legal secretary and musician who didn't graduate from college.
"Financially I'm barely getting by on my own. If need be I would go wherever they were to take care of them, but I can't help them with money," she says. "I'm not really sure what they're doing to plan for retirement. I don't talk too much about financial stuff with them. I know none of them are counting on Social Security right now."