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The Profligate American Baby Boomers.

by wchurchill Fri Feb 17th, 2006 at 01:37:37 PM EST

This story is a light read, yet has some interesting facts, and interesting information regarding the calculation of American savings rates: Americans' Debt: Worse Than You Think?  In some ways I hate to further expose the profligacy of my generation, but here it is.

But Americans may be saving even less than the government reports.

<snip>

But the government doesn't figure housing expenses into the spending-saving calculation since it views housing as an investment.

That's problematic, according to Paul Kasriel, director of economic research at Northern Trust in Chicago. "I see a lot of people buying houses that seem to have a very large consumption element to them -- like granite kitchen countertops and the huge increase in square footage per person."

Interesting, since so much of our spending is on our homes.
So Kasriel does his own calculation of the savings rate. He subtracts not only outlays on goods and services, but also spending on a line item called "residential investment." It represents the value-added in housing,,,

<snip>

According to Kasriel's calculation, last year Americans spent approximately $472 billion more than they earned after taxes -- a negative savings rate of 5.2 percent. That spending is double the previous year -- and a record high.

<snip>

"What's amazing is that my generation, the rapidly aging Baby Boomers, are entering their prime saving years," Kasriel says.


Thankfully, there is some countervailing data and views.

Others economists disagree. They argue that retirees typically spend from their savings, which skews the savings rate lower. They point out that the government's calculation doesn't account for the rise in real estate values (and home equity). And while it captures things like 401(k)s and Individual Retirement Account contributions, the calculation doesn't include the capital gains on these accounts.
This however is a key point.  After all, many babyboomers have been in savings plans for 25+ years (401k's).  The impact of annual investments, not taxed when the original investment is made; matched by the employer and also not taxed; compounding over many years; and the earnings on the matched investment also not taxed; in a stock market that over this long of a period has soared;;;;;;all this means some of these accounts even for average wage earners and below (if they were left untouched) will be worth a million+.

All in all, IMHO, a good, yet short article.  Worth reading.

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Thanks for this wchurchill, unfortunately I'm pretty ignorant about various bits of getting old in the US.

Questions:

What is the withdrawal scheme for 401k's? (i.e. is it any time, or over a certain age?)

Are there restrictions on rate of withdrawal?

by Metatone (metatone [a|t] gmail (dot) com) on Fri Feb 17th, 2006 at 03:46:12 PM EST
I must admit I'm not there yet and don't understand the details like I should.  I think it's along the following lines though--you can start taking it out after 62, and you must start taking it out by 70.  I believe you can set a dollar amount or a percentage--though at 70 I think you must start taking 10% per year.

This is the concept anyway,,,but perhaps someone with more knowledge can correct the specifics if I'm wrong.

by wchurchill on Fri Feb 17th, 2006 at 06:32:14 PM EST
[ Parent ]
You know, I'm getting tired of "profligate American Baby Boomers" stories, many of them written by profligate American Baby Boomers of the upper middle class.

Most of us aren't.  If we haven't saved as we should, maybe we have overconsumed, or maybe we've been paying for health insurance, high housing costs, high college tuitions for children, and now high nursing home costs for our parents.  And maybe some of us didn't knuckle down for 30 years at the same awful job, so we might get cheated out of our pension thanks to mendacious corporations, their lobbyists and pet congresspeople.

And maybe some of us are feathering our nests because we intend to stay in them for the rest of our lives.
It's hard to get comfortable in an investment: it has no pillows, and the roof leaks.

       

"The end of all intelligent analysis is to clear the way for synthesis." H.G. Wells "It's not dark yet, but it's getting there." Bob Dylan

by Captain Future (captainfuture is at sbcglobal dot net) on Fri Feb 17th, 2006 at 04:11:57 PM EST
the article is of course entitled "Americans' Debt: Worse Than You Think? ".  I was just attempting to be a little snarky, but perhaps it's an issue that deserves more serious treatment--because as you point out, the exigencies of life have prevented many from being as well prepared as they would like.  and really, I don't know if our generation is much different than others.  note the comment by rdf further down.
by wchurchill on Fri Feb 17th, 2006 at 06:12:12 PM EST
[ Parent ]
Properly structured 401(k) and similar plans can be converted to annuities when one retires. Unfortunately many plans are just tax deferred mutual funds and don't have a real retirement withdrawal option. So to get an annuity one would need to role the funds over into a traditional insurance company that would create the annuity. Since this requires a fair amount of personal initiative most people don't do this and put their retirement savings at risk. Either they withdraw too much, too fast, or they leave the funds in instruments which are too risky.

As for profligate baby boomers: I just got back from visiting my son and his early 30's friends. I didn't see any signs that they are more aware of need to spend less and save more. They understand the issues in principal, but their actions indicate a strong pattern of spending for fairly frivolous items. Being all highly educated and having high paying jobs they may not be typical, but the rampant consumerism seems unabated in the younger generations.


Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Feb 17th, 2006 at 04:39:51 PM EST


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