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Holiday Eggnog Debates: "You're young, don't worry about investing"

Everything you need to know to destroy your broke drunk uncle.

Broke people love to provide financial advice at holiday parties.

They typically are leasing a middle-tier sports car or low-tier BMW, bring up "hot stocks", and are counting on a big inheritance to pay off the massive amount of debt they have accumulated.

Their volume increases with every drink and they actively seek to assert their "expert" wisdom into any conversation.

The typical strategy used by your Broke Uncle Drunk is to ask, and then answer, a question about a money topic and then finish their lecture with a "but you're young, don't worry about investing [saving, money, retirement] yet".

As you sit there desperately wishing for another drink this winter holiday, I will assume that the following is running through your head.

I assume that you are taking the stance that investing early on in life is very important, that paying off debt is key to financial freedom, and that social security is unlikely to exist upon your retirement.

Broke Uncle Drunk will likely take the stance that you should enjoy your 20s/30s and can invest later without repercussions, that debt is not actually a bad thing (you need that overpriced education, you can get a better credit score, you can use it as "leverage"), and that social security will provide plenty of income for you when you retire.

Let's work through the debate.

YOU: "Investing at a young age is important"

Broke Uncle Drunk: "You don't need to worry about investing, just enjoy your 20s/30s"


The best way to handle this debate is to understand where Xers are at financially and how they got there.

Gen Xers by and large are never going to retire.

The average Xer household only has only $66,000 in their retirement accounts and did not start saving until they were 30 years old (the median).

FYI: Experts believe you need to have approximately $1 million in savings/investments to feasibly retire (which equates to an expected $40,000/year in earnings).

How long will it take for Xers to go from $66,000 to $1 million?

If we assume a 7% average stock market return, investing:

$1 today = $4 in 20 years/$8 in 30 years

$10 = $40 in 20 years/$80 in 30 years

$100 = $400 in 20 years/$800 in 30 years

$1,000 = $4,000 in 20 years/$8,000 in 30 years

The easy way to think about it is - every dollar invested today will be worth 4 times as much in 20 years or 8 times as much in 30 years.

Using these same parameters, basic math dictates that saving $1,000/month ($12,000/year) leads to you becoming a millionaire in 30 years.

So basically it will take the average Xer an additional 30 years of work/investing $1,000 a month to retire.

Not great, but doable.

Well, doable after they pay off their debt (the highest of any generation).

On average Gen Xers maintain a debt balance of $150,000.

Of this, $9,096 is credit card debt.

With average credit card APRs sitting at 23%, Gen Xers are paying approximately $2,000 every year in credit card interest alone.

Additionally, Gen Xers have not had success paying off their student debt.

Gen Xers are responsible for the largest portion of outstanding student loans at $557 billion (despite 2 decades of payments) and have, on average, $39,584 balance remaining.

Clearly, this debt has reduced disposable income available to invest for retirement substantially.

Overpriced college educations, credit scores and "leveraging", apparently, are also not very helpful when it comes to basic math & retirement planning.

But at least the Xers have social security checks to rescue them from a lifetime of bad financial decisions?

Per Forbes, the social security pot of money is expected to run out by 2034.

So like 14 years from now.

As the Xer's were born from 1965 to 1980, they are currently aged 40 to 55.

The irony is that by the time they reach the full benefit retirement age of 67, social security will be gone (unless the age is increased/benefits are decreased).

Disregarding this likely reality for a moment, the average social security check is $1,503/month, with a maximum up to $3,011/month.

The calculation for the security check is based on each individuals 35 prior years of work with a minimum of 10-years of work needed to qualify at all.

So although this social security income (if it still exists beyond 2034) will provide very needed support for Xers, it is unlikely to support their $150,000 in debt and general living expenses by itself.

In conclusion, Xers have so kindly shown the millennial generation exactly what not to do.

Investing as early as possible is crucial to take advantage of long term compounding. Paying off debt quickly is a necessary component to freeing up wealth to invest. And counting on government support is setting yourself up for a world of disappointment.

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