131. Employers are racing to dump their pension plans
According to Axios, a perfect storm of circumstances, from lower interest rates to higher longevity rates, is prompting corporations like GE to off-load their pension plans for their employees to insurance companies or offering lump-sum payments to their workers.
People with either a defined benefit or a defined contribution plan from their employer should consider themselves lucky.
For the majority, many employees may not have any private pension plans to cover them when they go into retirement.
132. Employees’ investments are underperforming
Once upon a time, an investor earned 5% to 8% per annum interest in term or cash deposits. These rates were good for workers wanting or planning to retire.
In the new world, the going interest rate is only a quarter of that. For many, that simply wasn’t going to be enough especially when inflation rates are considered.
Very few investors or their financial advisers would have assumed a return anywhere near 2% when calculating the level of funds or savings required to support a comfortable retirement.
If investors want returns akin to what they have previously become accustomed to, they need to take on more risk or work longer. In some instances, they need to take on a lot more risk.
Unfortunately, this is not an option for most workers, especially when they are planning to retire soon. Worrying daily about the value of an investment portfolio is no way to spend their retirement.
Those who do have a retirement account are not saving very much. Many Americans are living paycheck to paycheck. According to CareerBuilder, three-quarters of workers are struggling to make ends meet.
Financial stress and unexpected expenses have many workers putting retirement on the back burner or not saving for retirement at all. Roughly one in three Americans have nothing saved for retirement, according to GOBankingRates.
133. Employees’ retirement plans are at risk
In 2000 (dotcom bubble) and 2008 (subprime mortgage crisis), retirement plans of savers took a big hit. Many lost their retirement savings and equity in their homes. As Robert Kiyosaki said, “savers are losers.”
Rather than saving money (which carries little or no risk), retirement plans are essentially investments that carry risk regardless of whether monies are invested in money markets, real estate, gold, oil, or commodities.
The stock market has three directions: up, d, and sideways. If investing in stocks or equities is part of an employee’s retirement plan, building wealth can feel slow especially when the market isn’t ascending in a nice, straight line. Retirement balances may even go backward from time to time. This is the worse position to be in when employees are about to retire as witnessed during the Global Financial Crisis of 2009.
Employees without investment experience would not know if the quality and returns of their retirement plans or mutual funds are poor or even mediocre. Financial education is therefore required to help workers navigate the myriad of confusing terms and high fees paid to fund managers and intermediaries.
134. Future employees are not earning as much
When the college or university students land their first jobs, they are most likely paid less than their parents. USA Today reported that Millennials earned 20% less than Baby Boomers did at the same stage of life.
The median incomes for younger groups are lower in 2016 than in 1966, according to Flowingdata. The change is most noticeable for those without a bachelor’s degree.
With the increasing costs of housing and daily expenses, it is no surprise that Millennials and Generation Ys are finding it difficult to save and invest. They also tend to stay longer in family homes just to make ends meet.
When it comes to employability, cost, and earning potential, a trade or an apprenticeship can often be a better choice or alternative than a college or university degree for some people. This also depends on the individual’s personality.
In Australia, News reported that the median annual starting salary for a new bachelor’s degree graduate younger than 25 and in their first full-time job was $54,000 in 2015. New electricians on award rates start on $56,000. Many in the construction industry can earn as much as $80,000 to $91,000 one year straight out of their apprenticeship.
Salaries for US trade school graduates aren’t that much of a drop-off compared to a four-year college degree. According to the National Center for Educational Statistics, technical and trade school jobs have a median annual salary of $35,720. This varies heavily based on industries and experience levels. Earnings for bachelor’s degree holders are predicted to be roughly $46,900, amounting to an annual difference of $11,180.
However, trade schools only take an average of two years to complete versus four years for colleges and universities. That amounts to an additional two years of income for trade school graduates or $71,440. Factoring in another $70,000 in costs for many students who take an extra year to graduate from college, trade school graduates can be over $140,000 ahead at the get-go.
The return on investment for graduating from a vocational college, trade or technical school is often very good since graduates are being taught marketable skills and relevant technical abilities that employers need instead of just theory and head knowledge. Given that time is money, why spend extra time in school, college or university when employees can get trained and start making money in a good career sooner? Without a degree like a bachelor’s, they are still able to out-earn many four-year college graduates.
To support this alternative approach to college and university education, economists at BERL crunched the numbers and found that people who get apprenticeships end up just as financially secure as their academic counterparts. They also have more of their earnings come sooner.
135. Employees are debt-laden until retirement
According to Forbes, more than 43 million Americans carry a total of $1.3 trillion in student loan debt with an average of $25,000 for public school graduates.
These student loan debts can hang around for a long time if not managed appropriately. According to the Huffington Post, nearly 70,000 Americans over the age of 50 are living in poverty as their social security benefits are cut to pay off student loan debts.
The Government Accountability Office found that about 114,000 student loan borrowers over fifty years old are losing out on a portion of their Social Security benefits because of an old student loan. The number of borrowers over age 65 facing this predicament has increased 540% over the last decade.
Older Americans who have been wrestling with student loans over the past five years have saved $182,000 less for retirement. This will result in a $1.3 trillion retirement savings gap by 2021, according to AARP’s 2017 Financial Innovation Frontiers study.
Some Americans still have mortgage debt lingering over their heads during retirement. They may have borrowed money against their homes to loan money to their children. The Consumer Financial Protection Bureau reported the percentage of those age 65 and older carrying mortgage debt has risen from 22% in 2001 to 30% in 2011.
The American Institute of CPAs revealed that 68% of adults with college loans or whose children have loans said that they regretted how they financed their or their children’s education.