> What's up with the American Financial Plan?_

There’s this growing sense of financial disillusionment among people my age. It’s something I’ve observed since the first time we were old enough to get a paycheck. In a nutshell: a lot of the systems that people have been told for decades to rely on seem increasingly… well, unreliable.

At first, whenever I tried thinking deeply about what “real” underlying reasons could exist to explain this disillusionment, I chalked it up to typical cynicism towards established systems, and general immaturity when it comes to understanding the complexities of finance in our society. Recently, though, I’ve finally been able to start putting into words some of my thoughts on the sources of financial anxiety plaguing the younger generation.

Quick disclaimer: I’m not a finance expert or economist. I’m a 22-year-old software engineer who’s had exposure to financial systems and engineering through my past work. I do think there’s value in sharing this perspective, especially given that, anecdotally, many of my peers have felt similar concerns.

Social Insecurity

In the 1950s, there were nearly 16 workers paying into Social Security for every retiree receiving benefits from the program. In 2023, that number was 2.7 workers per beneficiary. And that’s only projected to drop further (ssa.gov). Aging populations, as well as the simple fact that people just live longer, is a double whammy here, and are brutal for the sustainability of the program into the future.

Social Security isn’t an infinite pool. Somewhere, just around a decade from now, the system is projected to run out of funds completely! If (more likely, when) that happens, what is going to happen to millions of prospective retirees who have been contributing to, and counting on the program for decades?

It feels like social security has become a ponzi scheme (or maybe it always was), with the last train to leave the station rapidly approaching, leaving younger folks screwed.

401 not-ok

The 401(k) system has been touted as a way to take matters into your own hands (with some government-provided tax benefits), as an alternative / augmentation to social security. My thoughts start to get a lot more speculative here, and the system as a whole is a bit more messy to slog through. I still have some serious doubts about general faith in this system.

First: there’s the stock market itself. For decades, people have nearly taken for-granted that markets will continue to grow and outpace inflation. Not without good reason, of course, the historical returns have been pretty incredible. If you invested $100 in the S&P 500 at the beginning of 1950, you would have nearly $28,000, inflation-adjusted! That’s insane growth, right? Like, several thousand percent gains over 75 years. But how long can that continue?

I don’t think it’s a stretch to say that the United States is losing the kind of global economic dominance that it’s maintained since WWII, and recent isolationist policies don’t exactly inspire confidence that we’re going to continue to be the primary engine that drives global growth.

We’re also seeing some concerning concentration. The ten largest companies on the list of S&P 500 companies account for approximately 38% of the market capitalization of the index, with Nvidia (8.1%), Microsoft (7.3%), Apple (5.8%) being a serious chunk of the entire market. When you’re consolidating so much of the stock market into a handful of companies, combined with unpredictable political and economic policies, it doesn’t seem like as safe a bet as it may have seemed decades back.

Just recently the Trump administration signed an Executive Order to allow 401(k) investors to access “alternative assets”. What alternative assets? Among others, real estate, private equity, and of course, cryptocurrencies. I get that this sounds like more choice, which in a vacuum would be admirable, but the framing made me pretty suspicious — from my experience “democratizing access” can often be a euphemism for “let’s sell risky stuff to uninformed people”.

Private equity can be especially sinister here — these firms have been buying businesses and running many of them into the ground. Historically, these private markets have been risky because of a lack of liquidity (being able to sell an investment), and now they suddenly have access to a massive new pool of less-informed investors. Reminiscent of the second phase of a pump-and-dump scheme, where wealthy insiders, who had access to these investments first, have finished reaping the rewards and are ready to offload the (now higher-risk) investments onto the incoming wave of suckers. And guess who this benefits most? Not the 22-year-olds starting their careers.

The engines that powered that historical growth — population expansion, new industries flourishing, the world developing — are slowing down. We’re seeing population decline in major economies, anti-immigration policies despite needing more workers, and the fundamental drivers of that growth curve just aren’t there anymore.

Dead Money

What really irks me is that these systems have worked great for people who are currently approaching/at retirement age. They got to ride the 401(k) wave during its best decades, benefit from those incredible stock market returns, and they’ll probably get their full Social Security benefits.

The problem is that wealth is just sitting there, not circulating through the economy. When these folks pass away, they’re leaving money to their children — who are themselves approaching retirement age. So you have this situation where more and more people are entering retirement, less and less people are paying into Social Security, and all this accumulated wealth is basically locked up with people who have no immediate reason to spend it.

So then, what?

The systems previous generations relied on were built for a different economic reality — one with growing populations, expanding markets, and more predictable growth patterns. The same systems have been controlled by the segment of the population that benefits most from them, and have only become less fair over time. The financial advice we’re getting — “just put money in index funds and wait 40 years” — might not work in the world we’re inheriting. When you combine this with sky-high housing costs, persistent inflation, and geopolitical uncertainty, it all just feels like a lot of houses of a lot of cards.

I don’t have any easy solutions here, and that’s part of what makes this whole thing so frustrating. That being said, recognizing and proliferating awareness of these issues is something I can do (and you can too!). We need to get to the point where serious conversations about reforming these systems can start to happen.