Sixty-six percent of Americans own cell phones and, by the end of the year, nearly 25 percent of families will be watching a high-definition TV. When you read statistics like this, it’s only natural to contemplate how fortunate we are to live in a prosperous country where we can drive sport utility vehicles with heated seats and retrieve e-mail on electronic devices that are lighter than a peach pit. But the sort of statistics that point to our ability and desire to own cool stuff also hint at something more ominous about our financial priorities. While 67 percent of American households have connected their TVs to cable, only 41 percent of families have an individual retirement account. In tax year 2004, only 17 percent of families bothered to contribute to their IRAs. Meanwhile, 52 percent of workers, according to the annual Retirement Confidence Survey, have saved less than $25,000.
Cycle of spending
Americans’ desire for the good life has grown beyond their ability to pay for it, and the real estate market is a good place to witness the phenomenon. It wasn’t that many years ago when the average house was about 1,600 square feet. But those are practically dollhouse proportions compared with what the National Association of Home Builders says is the typical size of a new home today—more than 2,300 square feet.
What’s wrong with this sort of “affluenza”? Nothing, if it doesn’t trap you in the direct path of the financial buzz saw that awaits many Americans as they head toward retirement. When people get accustomed to a cycle of spending, they too often neglect saving. A huge house is going to generate higher property taxes, obscene utility costs, bigger insurance bills, more visits from repairmen, extra trips to Home Depot, and cash—or plastic—to buy furniture and other stuff to fill up the rooms.
A trip to nearly any grocery store provides overwhelming evidence that Americans are happily paying outrageous prices for convenience. In produce departments, for instance, you’ll find large areas now devoted to such things as bags of celery sticks, pre-washed lettuce mixes, sliced apples, pineapple spears and cut watermelon and cantaloupe. You can even buy a cellophane-wrapped package containing one small chopped onion. The cost: $2.49.
Perhaps people are spending carelessly because they hold skewed ideas of what it takes to live comfortably in retirement. In the latest annual Retirement Confidence Survey, which is released by the Employee Benefit Research Institute, 32 percent of Americans think they can retire with less than $250,000. Dream on. Plenty of Americans believe they don’t have to save because they are holed up in their own Fort Knox.
But Henry K. Hebeler, author of J.K. Lasser’s Your Winning Retirement Plan and the founder of www.analyzenow.com, insists that the theory that homeowners don’t have to save when housing prices are escalating is as bogus as the excuse we heard during the feverish rise of the dot-coms. Back then, some experts encouraged un-checked consumerism by suggesting that people didn’t need to save because Wall Street’s fangs had been pulled and our investments were growing on autopilot. “Then the market fell and we didn’t hear from these economists again until the recent escalation of home prices,” Hebeler says.
If you aren’t where you want to be financially, there are ways to play catch-up. Stop buying stuff with credit cards. Examine how you can curb your consumption—in big and small ways. You can start by peeling your own carrots. If you know you’ll need cash from your house to support your retirement, it’s best to downsize now rather than wait. For free retirement planning tools, visit www.analyzenow.com.