Why you can't fix retirement without fixing wages

A Boston College professor took to Politico on Thursday with advice for younger workers concerned about their future financial prospects: Millennials needn't worry about retirement, Alicia Munnell, 75, writes, as long as they "are willing and able to work longer than their parents and grandparents did."

It may not be surprising that younger Americans, who will largely be responsible for cleaning up the financial wreckage the boomers are leaving behind, are not particularly enthusiastic at the prospect of working longer and harder for the same quality of life enjoyed by previous generations.

Munnell focuses on some of the proximate causes of millennials' financial difficulties, such as the Great Recession and the dot-com bubble: "Millennials entered the labor market during tough times. Most turned 21 between 2002 and 2012, which meant that they were graduating from college during a period that included both the bursting of the dot.com bubble and the Great Recession."

In Munnell's telling, these job difficulties, coupled with rising student loan burdens, are making it harder for millennials to sock away cash for retirement. The "good news," as she calls it, is that retirement is a long way off and that simply by working into their 70s, millennials will be able to make up a lot of lost ground.

But as a number of federal data sources show, the financial challenges younger workers face are the culmination of decades of economic trends that show little sign of reversing. Wages are a major factor: Between 1989 and 2016, the median income of houses headed by people younger than 35 increased by 4 percent. Prices, meanwhile, nearly doubled over that same period.

While typical household expenditures have more than doubled, in other words, wages have barely gone up at all. As a result, households have to take on more debt to make ends meet.

You might counter that millennials can deal with flat wages and rising costs simply by being more frugal: If stuff costs more, buy less stuff. But that's incredibly difficult to do, because prices are rising fastest for the things that are absolute necessities: Health care. Food. Housing. Things you literally need to survive.

So as younger households spend more money on the necessities of life, their ability to invest and accumulate assets declines. You can see this happening in the chart below.

In real terms, median household debt for the under-35 cohort nearly doubled from 1989 to 2016, from $21,300 to $39,200. The value of wealth owned by those households, meanwhile, declined.

Again, this all ties back to rising prices and flat wages. From a retirement standpoint, these trends are going to hit the youngest workers the hardest: The longer you're able to save, the more money you're able to earn through the magic of compound interest. If you have to defer savings to make ends meet, your long-term net worth will suffer.

But the really interesting thing here is that all workers, not just young ones, are being affected by these trends. Overall compensation has been largely stagnant since the 1970s, even as productivity and prices have increased. As a result, median household debt has roughly doubled since 1989.

Millennials' economic difficulties, in other words, are just the tip of an economywide wage crisis. By asking Millennials to work to age 70 you're treating the symptom, not the underlying disease.

From a political standpoint this makes a certain amount of sense: Selling American elites, who tend to be older and wealthier, on the notion that the young just need to work harder is easy.

But the idea that workers urgently deserve an across-the-board pay raise - a raise that would come, often, from higher payments from those same older and wealthier people - is a much tougher sell.