Retirees are not spending enough, younger generations are not saving enough

Ukrainian Credit Union.

Ben Steverman in his recent article on Bloomberg.com provided an amazing picture of how many U.S. retirees are spending less, continuing to save and becoming richer than any generation of seniors before, while younger generations aren’t saving enough as their income slips further behind previous generations’ income.

Because many retirees are living too frugally, they are entering their 80s richer than they were in their 60s and 70s. Average estates of those who died between 2010 to 2012 in the US were 130% higher than for those who died between 2000 to 2002.

The major reason for this is not even a desire to leave an inheritance or worries about future medical needs, but rather an ungrounded fear they would run out of cash too early.

Perhaps the biggest problem arising from this is that the economy is not getting the much needed spending boost which is adding to the problems of younger generations. The article provides the information by the National Bureau of Economic Research that the typical American male, who entered the workforce in 1983, earned up to 19 percent less over his lifetime compared with one who started working in 1967. That study states that the stagnation of median lifetime income is likely to continue.

Similar conclusions can be made for Canada. According to Statistics Canada, median net worth grew the fastest for the 65 and older age group between 1999 and 2012, by 70%. At the same time, the net worth of the group under 35 virtually stagnated and grew by less than 9% over those 13 years. To fix the situation, experts are talking about teaching the retirees to spend more while choosing investment products that generate income and that could be spent without creating too much risk. The income generated would resemble paycheques, while the lower risk would provide some peace of mind. Annuities and bond-ladders are examples of such investment products.

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