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Many worry about attaining middle-class, saving for retirement

McClatchy-Tribune Information Services

May 9, 2016


PITTSBURGH — As a first generation college graduate, 24-year-old Ciera Young has wondered whether her bachelor’s degree gives her an edge or puts her at a disadvantage when she considers that she has no savings, no car and is obligated to repay student debt while trying to get a foothold in the job sector.

"Sometimes I wonder what all these sacrifices are for," she said. "I’m not trying to drive a Bentley. I just want to feel everyday that I can breathe with ease, that I can take care of my bills, and when I have kids ensure that I leave them a lot better off than when I started and how my parents started.

"There should be progress, and it’s just kind of scary that things could be going backwards."

After graduating from Pittsburgh’s Chatham University in 2014 with a major in cultural studies and a minor in film, Young — a native of Columbus, Ohio, who has remained in Pittsburgh — served one year in the volunteer service program AmeriCorps. She is currently working at the Women and Girls Foundation as a Coro Fellow in public affairs, which is a nine-month program that pays a monthly stipend of $1,300.

She joined the "Fight for $15 Minimum Wage Movement," because she is worried about how the rising cost of living will affect her if she is unable to find employment or earn enough to sustain a middle-class lifestyle.

Although Young is still at the starting gate of her career, she is feeling some of the same anxiety shared by people more than twice her age who are worried — even terrified — that the rising cost of living will sabotage their retirement plans.

According to a new study on Americans’ perception about inflation by Minneapolis-based Allianz Life Insurance Co. of North America, nearly half of Americans (47 percent) report being very concerned about the rising cost of living. Another 11 percent said they were "terrified" that they won’t be able to pay for essential needs because of the rising cost of living.

The concern was even greater among households with lower earnings — less than $50,000 a year — with 65 percent noting they are either "very worried" or "panicked."

"This study highlights the potential psychological and fiscal impact of inflation on a person’s financial strategy," said Katie Libbe, vice president of consumer insights at Allianz Life. "As consumers move into retirement, they will not only need to consider how to make their income last for 30 years or more, but also how it can cover rising costs driven by inflation.

"I think Americans are smart to be worried about the effect inflation will have on their retirement, but many people are estimating future inflation rates to be higher than the historical average," she said.

While the 20-year average inflation rate runs about 2.2 percent, survey respondents were predicting it will run between 3 percent and 10 percent each year during their retirement.

Some of the anxiety may stem from the fact that the Social Security Administration has announced that it will not provide a cost-of-living adjustment in 2016.

Social Security benefits are subject each year to the adjustment, which is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. Since the COLA first affects benefits paid after Jan. 1, Social Security needs to have figures available before the end of the year. Any adjustment for Jan. 1, 2016, is based on the increase in CPI for the third quarter of 2015 over the third quarter of 2014.

Since the most recent index was below its level from the previous year, the Social Security Administration cannot provide any cost-of-living adjustment for 2016. This is the third time since the automatic provisions were introduced that no cost of living adjustment will be paid.

"The absence of a COLA in 2016 is likely to reignite the debate over whether the government is using the most appropriate index to adjust Social Security benefits," said researchers at the Center for Retirement Research at Boston College.

"For a long time, critics have contended that the CPI-W understates inflation for the elderly because it does not reflect their spending patterns," the report said, adding that the index does not reflect how large a share of senior citizens’ budgets go for medical care, where prices have been rising rapidly.

Longer average life spans and rising health care costs could cause more retirees to outlive their savings. Fidelity Investments estimates couples who retire at age 65 will spend $245,000 on health care during their retirement. That assumes that a man will live to be 85 and a woman 87.

Bud Kahn, president and founder of Wealth Management Strategies in suburban Pittsburgh, said the worry that many Americans have concerning slow wage growth and the rising cost of living is warranted because of the trade-offs people are forced to make.

"Do they save for retirement? Or do they pay their deductible on high deductible health care plans people have now?" he said. "What will families need to sacrifice to educate their children? People are doing the best they can. They are working through a very difficult situation.

"One solution is for people to focus on what they can control," Kahn said. "They can’t control the lack of wage growth. But they can control their habits, which include saving and foregoing current consumption. That may reduce some anxiety because they are taking control of their own future."

Giving up on the dream?

For the millennial generation, it can be especially difficult to save for the future at a time when many college graduates find it difficult to find jobs and those who do are often under-employed while managing debt.

Citizens Bank reported that college graduates aged 35 and under with student loans are now spending about 18 percent of their current salaries on student loan payments, and 60 percent expect to be paying student debt well into their 40s.

For Young, who is the first in her family to go down the college path, earning a bachelor’s degree represents a milestone for her family and community that the American Dream is possible.

"On Saturdays and Sundays, my dad and my brother and I would go on joy rides to the neighboring suburban community of Bexley, Ohio," she said. "He told us if we go to college, this is the lifestyle we can have. Now I’m worried it might not come true."