Take a 30-year-old earning $30,000. He or she would only have $216,000 in a 401(k) at age 67, assuming he or she was saving 3 percent of salary, the company was providing a 1.5 percent match and their investments were returning 7 percent per year, according to Vanguard.
So, the sad truth is that nine of 10 American baby boomers have less than $250,000 saved for retirement, a 2005 survey commissioned by Merrill Lynch found. As we've seen, that isn't enough. And if you're hoping for a pension, well, good luck, because half of working Americans don't have a pension plan and even if you do, you can't count on it being there later because corporate America has been shifting away from pension promises. As Americans, we've got to take personal responsibility for our financial future and that of our families.
I thought: "This would be a great lesson on why we need a national pension system." But, no; that is not the point the writer, Jennifer Openshaw, could think to make. Instead, she said "buy real estate" because
"it's tangible and, as an investor, you can enjoy both the appreciation and the income generated as rents rise in the future. Plus, you get the power of leverage with your money -- something you don't get with many other investments -- meaning you might put only 20 percent down but you enjoy appreciation on the entire value of the home."
This is a common theme in financial "self-help" books; but really now, how many people can afford a second home on $30,000 per year? How many people can afford their first home on $30,000 per year? What if the home loses value? (You can read about that problem over at The Housing Bubble Blog and Calculated Risk Blog.) These "financial gurus" never seem to talk about that.
She also talks about the need to have adequate health care insurance.
What is it about these financial gurus and the disconnect between the examples they give of the financial situations of the people they use as examples and the solutions they give? They always seem to give millionaire answers to people with immediate cash-flow hundredaire problems. The problem isn't just that Americans are using too many credit cards (although that is a component of the problem); the problem is also that the working class is not being compensated based on their productivity and sharing in the profits thereof.
The answer actually is pretty obvious: pressure businesses to raise their employees pay so they can save adequately and raise taxes on the wealthiest to pay for the social services and programs that the working class is going to need.