I saw this interesting graphic on the rising costs of basic needs from Goldman Sachs. It prompted me to think about my life in retirement and what future spending patterns will look like for my kids.
Unless things change, this pattern will likely continue for the next couple of decades. Here are my five takeaways from this graphic.
- Based on the rising costs of home ownership and health care, particularly as life expectancies increase, a majority of Americans will likely outlive their retirement savings. This includes renters, who may spend an ever-increasing portion of their fixed retirement income on shelter.
- If you have college going kids or looking to pursue advanced degrees (e.g MBA), then expect to need a lot more money as the cost of public (and private colleges grow). With AI decimating white collar jobs, it may actually be worthwhile to look at trade jobs (electrician, plumber, HVAC technician, and carpenter) may offer more sustainable security. Pursuing these trade based vocations offers a strong career path while avoiding the financial burden of crippling student loan debt.
- Childcare costs are not likely to go down either over the next several years, particularly as low cost labor is limited into our country thanks to tougher immigration laws. My advice to my children is this: if they plan to start a family, they must budget this cost explicitly and ensure their finances allow them to live comfortably on one spouse’s salary in the event that one parent chooses or needs to stay home.
- Even though household median income has nearly doubled in the last 25 years, it feels like the American dream and home ownership is further away. This trend has been severely exacerbated by the rising inflation seen over the last few years, rapidly widening the gap between income and the cost of essential living expenses.
- The essential takeaway is that the fundamental rules of personal finance are now more critical than ever. To build financial resilience in this “New Economics of Retirement,” you must start saving early in retirement plans, consistently live within your budget, and aggressively take advantage of all available tax credits and deductions to maximize every dollar saved.