If you are a member of this country's emerging demographic blip — sometimes referred to as Generation X, but perhaps better described as the New Power Generation — you are in line for some major opportunities, as well as some frustrating challenges.
The good news: You are on the verge of becoming the darlings of the job market. Sure, positions may be a bit tight today. However, as Baby Boomers begin slowing down and herding toward the signs marked "retirement pasture straight ahead," their corner offices and board rooms will be yours.
The bad news: Those same aging Baby Boomers will need retirement benefits, health care and nursing homes in unprecedented numbers as they age into the high-priced, high-maintenance category. The financial burden can be onerous.
To get some idea just how big a burden you will be asked to shoulder, look at the changing ratios of workers to recipients in the Social Security system. When Social Security was initially established, many workers provided benefits for a few retirees. Well, that was then. This is now:
- In 1940, the ratio of people working (and supporting the system) to people receiving benefits under Social Security was 42 to 1.
- By 1960, that ratio was 5 workers for every recipient.
- By 2000, it had dropped to 3 to 1.
- By the year 2044, it is projected to be as low as 2 to 1.1
Recommendations: If you're a member of this New Power Generation, you are accustomed to relying on yourself. Now is the time to begin providing for your own future. Consider the following for your long-term financial security and that of your family:
- Continue learning. Education is the single best investment in your own economic well-being. The direct link between education and earning power is well documented. A person with a high school diploma earns, on average, $24,572 a year. A bachelor's degree nearly doubles income potential, to $45,600. A Masters degree raises it even further, to $55,600, while a professional degree kicks it over $100,000.2
- View Social Security as a bonus. In spite of all the hand-wringing and lamentations from Washington, the system is not likely to go bankrupt. However, as a political football, it is unreliable. Plus, benefits are not going to keep you in the lap of luxury, unless you figure you can live well on $874 a month. As of January 2002, that is the size of the average estimated Social Security monthly benefit check.3
- Start building your own stash now. Take advantage of compound interest and time to stockpile money for the future. Begin by maxing out contributions to employer-sponsored 401(k) plans. Do the same with your IRAs. Finally, consider annuities, which, like 401(k) plans and IRAs, offer tax deferral on growth.
- Get good advice. We live in tricky financial times. In recent years, with the stock market resembling a roller coaster, many people lost in months nest eggs that took them years to accumulate. While there are no guarantees, it does take good information to make good decisions.
1 "What is the Approximate Ratio of Workers to Beneficiaries?" The Office of Policy, Social Security Administration (June 18, 2001), at www.ssa.gov/.
2 "Mean Annual Earnings by Level of Education, 1999," U.S. Census Bureau, 2001, at http://infoplease.com/ipa/A0883617.html and "Employment by Occupation, 2000," U.S. Labor Department, at www.bls.gov/emp/emptab6.htm.
3 "Fact Sheet Social Security: 2002 Social Security Changes," The Social Security Administration, at www.ssa.gov/cola/cola2002.htm.
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