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    Bankers to US Millennials: You'll Be Working Until the Day You Die

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    Ivan Danilov

    Despite the stock market hitting all-time highs and an improving economy, a record number of retirement-age Americans are unable to call it a day.

    The policies that have helped to make America's wealthy even more money have also made millions of Americans too poor to retire. The problem of insufficient retirement funds isn't only a problem affecting the elderly. As Credit Suisse Global Wealth Report puts it, "millennials are not only likely to experience greater challenges in building their wealth over time, but also greater wealth inequality than previous generations."   In essence, it all boils down to a trifecta of factors making normal retirement a pipe-dream for both the old and the young alike: ultra-easy monetary policy of the Federal Reserve, stagnating wages and the advent of widespread automation.

    Appallingly, there are some people in the financial industry who view this situation as a boon for the stock market. According to Federated Investors portfolio manager Steve Chiavarone, "millennials are entering the workforce, but their wages are going to be under pressure their whole career." He also told CNBC that, "they won't make enough money to pay down their debt, fund their life and fund retirement where there is no pension. So, they're going to need equities." Making millennials gamble away their hard earned cash in the stock market, because they have no other chance to pay their debt or fund their retirement, sounds like a winning strategy for the richest 10% of Americans who already own 80% of the stock market value, and will therefore benefit even more from a prolonged bull market in equities.

    Workers build the roof of a single axel towable Pioneer traditional recreational vehicle at the Thor Industries Heartland RV Assembly Plant in Elkhart, Indiana, U.S. on June 13, 2017
    © REUTERS / Joshua Lott/File Photo
    Workers build the roof of a single axel towable Pioneer traditional recreational vehicle at the Thor Industries Heartland RV Assembly Plant in Elkhart, Indiana, U.S. on June 13, 2017

    READ MORE: US Baby Boomers Earned 20% More Than Millenials, a Study Finds

    The financial crisis broke and then reversed the multi-decade trend of increasing wealth for the under 40s. Now it's the younger generation that is doing worse than their parents. According to the Credit Suisse report, millennials have less money than their parents used to have when they were young, and they are also less likely to own a home. Needless to say, millennials are not saving enough for retirement, a fact unsurprising given that a third of millennials expect to work till they hit 70, and one in eight believe they'll have to work until they die.

    Although Janet Yellen, the outgoing chairman of the Fed, is being portrayed as a "populist" by the MSM, her policies made saving for retirement a senseless endeavor. Potential retirees often decide that they are unable to live off the interest rate on their savings, like the previous generations did. In order to increase their income, they have to take on more risk by investing in long-maturity bonds, junk bonds, preferred stocks and other complicated instruments.

    However, taking more risk a bad idea for someone no longer active in the job market. Ultra-low interest rates have also wreaked havoc on pension funds. According to a 2017 Hoover Institution report, the total amount of unfunded future liabilities of American pension funds sits at a staggering $3.846 trillion, or 2.8 times more than the value reflected in official government estimates. Millions of Americans, who believe that their pension will be their saving grace for retirement, are in for a serious disappointment.

    Millennials have it even worse than the older generations because most of them don't have any savings, and are unlikely to accumulate substantial savings in the future due to their student debts and high housing prices. According to a recent GOBankingRates survey, 67 percent of "young millennials" have less than $1,000 in their savings accounts and 46 percent have $0. Other generations could bet on salary increases during their working years, but that is not the case anymore. According to the Phillips Curve, one of the fundamental models of Neo-Keynesian economics, as unemployment drops, employers are forced to offer higher wages to attract workers.

    READ MORE: US Foreign Trade to Benefit on Fed Outlook as Dollar Slides

    However, it seems that the Federal Reserve strategy, which is based on this model, is not working anymore. Sluggish wage growth is set to become a perennial economic problem for the US and the rest of the Western world, and it's about to get worse, not better. Widespread robotization will destroy millions of jobs across the globe. Finding a well-payed job may become quite challenging. In fact, finding any kind of job could be a real challenge. According to a 2013 study by Oxford researchers Carl Benedikt Frey and Michael A Osborne, at least 47 percent of all US jobs are under threat from automation or computerization.

    A high-throughput screening robot in NCATS’ laboratories
    A high-throughput screening robot in NCATS’ laboratories

    A universal basic income may solve some of the problems brought on by mass robotization, but it will make the next generations of Americans wholly dependent on government largess. This may sound like a good idea when the economy is strong, but such dependency brings some serious and unwanted risks in times of economic stress and political turmoil. Some financiers believe that a good individual risk policy is to invest in stocks of companies that will benefit most from mass robotization. Josh Brown, a financial consultant at Ritholtz Wealth Management, advises his clients to "just own the damn robots," but few Americans have the money to do it.

    A more permanent solution requires a massive change of governmental policy. The White House, working together with the Congress and the Federal Reserve, can deflate the housing bubble, wipe out student debt and make savings attractive again by normalizing interest rates. However, such a revolution is unlikely to happen because there is no lobby in Washington for the average American, and that's something that isn't going to change anytime soon.

    The views expressed in this article are solely those of the author and do not necessarily reflect the official position of Sputnik.


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