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Hey, Generation X,...

Hey, Generation X, What Are You Doing About Retirement?

When I daydream about retirement, it is in a cottage by the ocean. A tranquil existence spent walking the beaches, coffee at the local coffee shop, casual dinners out at the local tavern. Summer days spent on the front porch reading, winter days spent near the fireplace reading. Being that I know I will have a mental need to continue to be active, I picture myself as a consultant in my field, my hours, my life … the ability to work when I want and play when I want. Just my Beau and I  ...  and all those visiting grandkids that I hope will be by often for visits. (Between us, we have five, yes five, sons … there should be a gaggle of grandchildren in our future.)

“In 1978, when Congress amended the Internal Revenue Code to include Section 401(k), it envisioned the provision mainly as a way for workers to supplement their companies’ traditional defined-benefit pension plans and Social Security. (Secondarily, it also was a nifty hideaway where highly paid executives could shelter income from taxes.)” -Tim Rutten

Of course that is just my daydream … and it was a daydream that I worked hard throughout my life to obtain. I went to work at 18 years old and, from 1989 to 2000, I paid into a 401k. From 1989 to 2000 when I took time-off to stay home with my 2 sons and finish my Bachelor degree (during that “time-off” I was earning $1000/month babysitting 2 neighborhood children to the tune of 55 hours per week). I managed to amass about $125,000. Now you must know that in early1987, at the age of 19, I was earning $11,440 per year and by the time I left that employment in 2000, at the age of 32, I was earning only $42,000 per year. (You now know why I went back to school and earned an MBA) During that time, I was on track to retire with a nice nest egg.

“Companies seized the opportunity to abandon their defined-benefit pension plans. Today, more than 60 percent of all U.S. workers rely on 401(K)s as their primary retirement fund. They’re not eager to “choose” their own retirement program, nor are they enthusiastic “owners” of American business. They’re draftees. Essentially, millions of us have been conscripted into the equities markets, where we have helped fuel stock prices and provided a bonanza for the financial services companies that manage and sell investment funds.” -Tim Rutten

Then came the market crash of 2001 and I saw my nest egg cut in half. But hey, I was young (thirty-three years old), my degree would provide more earning potential … I did not worry.

In 2004, with my newly earned BA, I went back to work and enrolled in Graduate school. Being that I was removed from the workforce for almost four years and I was trying to change industries, I ended up working for a small family-owned company that did not offer a retirement plan. I rolled my old 401k into an IRA and started to invest. Good strategy  ... for about 4 months when my husband was laid off.

The good news, my IRA was starting to recoup some of the losses of 2001 but I could no longer afford to invest, as my paycheck was suddenly the sole family support. Again, I assumed it was only temporary, my husband would find a job, and hey, I was young (thirty-six years old) … my MBA would soon provide more earning potential … I did not worry.

The bad news, my husband decided that he no longer wanted to have a “traditional” job. Traditional job is defined as a job where the employer requires you to be in attendance for “X” number of hours per week and produce some sort of work product. In exchange, said employer would provide medical benefits, maybe a retirement plan with investment matching, and you can expect to receive a steady paycheck every two weeks. You know, a J.O.B!

Nope, my husband wanted to putter around the garage and see if he could eek a living out of his “hobby.” I was still responsible for supporting the entire household and he put all his “earnings” into his own bank account. I did not have the extra money to put into my IRA.

In 2007, we separated and in 2009, we divorced (shock, surprise) … oh and the housing market crashed, and the stock market crashed, and my IRA crashed … and during the divorce negotiations when I was trying to secure my half of the remaining martial assets valued at about $100,000 after all the market crashing … divorce in California is largely an equation for those who cannot agree on asset splits. My husband was in a better bargaining position than I and planned to use it to the fullest extent of the equation. Between a “back injury”; that may cause him to be permanently disabled (if I continued to pursue my share of the assets), that being out of the workforce for a number of years, his age and the current market conditions made him nearly unemployable (so I would need to pay top-dollar spousal and child support for the maximum number of years if I continued to pursue my share of the marital assets). Essentially, after I did the math, he walked away with all the assets and I agreed to take on the marital debt. (In the end, I saved about $80,000 over the course of ten years not adjusted for inflation.)

So, now I am forty-one years old … with about $8,000 in an IRA, no saving-savings as paying off the divorce debt (my goal is four years) and raising two sons is taking the majority of my disposable income.

But hey, I am (sort of still) young, I have an MBA and maybe, some day, the baby boomers will retire which will open up many senior management positions for employment. I still have my retirement daydream … but for the first time, I am concerned about my prospects.

So what brought this musing on? I was thinking about all the people I know who, during this Great Recession, have emptied their 401k’s, have no equity or are severely upside down in their houses, have no credit … and for some, no jobs.

“Millions of others have been forced to make early, so-called hardship withdrawals from their accounts because they’ve lost their jobs or healthcare or are facing foreclosure. The 10 percent early withdrawal penalty is a catastrophic expense in such a context. Millions more have taken loans from their 401(k)s to meet pressing debts or expenses, like college tuition. Not only are those workers missing out on any available appreciation in their investment, but—in a time of rising unemployment—they’re running a terrible risk. If you lose your job, you must immediately repay the entire balance on any outstanding loan from your 401(k). If you can’t, you’re liable not only for income tax on the unpaid balance but also the additional 10 percent penalty for early withdrawal from the 401(k).”-Tim Rutten

I felt compelled to tell you my story, as I am a product of the first generation where the 401k is to be the primary retirement source, not a supplemental retirement source. I was lucky enough to begin my working career with a company that encouraged saving for retirement. I did everything right and I have very little to show for it.

401k/IRA’s are designed for long term investments, decades of investment. My first two decades are now wiped out … and I am assuming there are many, many people who are like me. I have twenty years to go and who knows what I will have for retirement. Factor in the rising cost of medical premiums and it is very, very scary out there for the Gen X crowd.
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