In its August report, the Employee Benefit Research Institute published new data on the account balances of America’s retirement savers, summarized in the chart below.  The results are, shall we say, disappointing.Giving American savers the benefit of the doubt, let’s ignore the bear-market-ravaged 2009 figures and focus instead on 2007.  After five full years of strong bull markets in virtually ALL asset classes, the average 45-54 year old had only $50,000 in his 401(k) retirement account.  55-64-year olds, having the benefit of another decade’s worth of saving, had managed to accumulate an average of $81,000.

There are a couple points worth making here.  First, this illustrates what HS Dent has been saying for years: Americans do not begin to seriously save for retirement until their late 40s to early 50s, when their children have begun to leave the nest.  The problem with this is obvious.  Waiting so late to save and invest, middle-aged investors miss out on two decades or more of compounding.   Try as you may, you cannot make up for two decades of lost compounding by saving more aggressively in your 50s.  The math just doesn’t work out.

Meanwhile, Deutsche Bank estimates that half of all American mortgages will be underwater on their mortgages by 2011, meaning that the house isn’t an asset at all, but a liability.

With little home equity and 401(k) balances embarrassingly small, the retiring Baby Boomers will have to depend on other savings they might have (which are also pitifully small) or, more likely, their Social Security checks or private pensions.  This doesn’t end well.

Charles Sizemore, CFACo-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

I rarely take the time to read the “Business Life” section of the Financial Times.  It’s the one section that I consider “soft” fluff journalism in a newspaper that usually prints high-quality “hard” news.   (I see little value in reading about water cooler etiquette, new standards of office political correctness, and the “next new thing” MBA buzzwords that sound remarkably similar to the previous batch of “next new thing” MBA buzzwords…I got more than enough of this drivel in grad school, thank you very much.)

At any rate, in scanning the section, I did come across an interesting and worthwhile article on the interaction in the workplace between the Baby Boomers and their children, the Echo Boomers (or Gen Y).   In “A to Z of Generation Y Attitudes,” Alison Maitland analyzes reports by the US Center for Work-Life Policy and London Business School titled “Bookend Generations” and “The Reflexive Generation,” respectively, and finds that the Echo Boomers, despite all of their supposed tech sophistication, are not too unlike the Baby Boomers.  Both generations tend to be rather unorthodox and free thinking relative to Generation X, the much smaller generation sandwiched between them.   The attitudes of Generation X tend to be more conventional, as their smaller numbers naturally make them more conformist.

In this sense, the coming years will be defined by “bookend” dynamics in which the both the older Boomers and the younger Echo Boomers will set the social and career standards with Gen X being lost in the middle.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The Wall Street Journal reported today that several high profile Baby Boomers are doing something that few in their generation have ever done: stepping back and considering the consequences of their actions: “Boomers to This Year’s Grads: We Are Really, Really Sorry.”

The Journal writes, “In 1969, baby boomers took podiums at college graduations around the country and pledged to redefine the world in their image. Forty years later, they have, and now they are apologizing for it. Their collective advice for the class of 2009: Don’t be like us.” Read the rest of this entry »