No matter what generation of workforce you’re in - Baby Boomer, Gen-Xers or Millennials - when it comes to retirement all three want to ensure they will not run out of money before they run out of life! However, each generation has their own perspective on retirement goals, challenges and attainment of a sound retirement. According to TransAmerica Center for Retirement Studies (“TCRS”), “Baby Boomer, Generation X, and Millennials face unique circumstances as well as common challenges in achieving long-term financial security.”
Let’s meet these three generations!
Baby Boomers, described by TCRS as the “trailblazers of the New Retirement,” and having “re-rewritten social rules at every stage of their life,” are faced with a shift in retirement plans halfway through their careers. They are now “trailblazing” a new retirement landscape. The shift from defined-benefit plans, which provides guaranteed lifetime income, to defined-contribution plan 401(k)s or similar plans which allows them to save money for retirement pre-tax with a possible match from the employer. However, this offers no guarantees of lifetime income and has created a retirement sustainability challenge.
Time has not been a friend of this generation and they do not have thirty or forty years to save in their 401(k) plans, thus their estimated median savings of $147,000 is certainly not enough to retire on. These and other circumstances have not laid the necessary foundation for a successful retirement forcing 54% of this generation to work past their retirement age. In addition, 38% of Baby Boomers will rely on social security as their primary source of retirement income. To resolve a short-fall in their retirement savings, this generation is working longer and retiring older to meet their retirement goals.
Generation-Xers (“Gen-Xers”) entered the work force in the 1980s when the landscape of retirement plans was changing from defined benefit plans to 401(k)s or similar plans. They are the first generation to have access to 401(k) plans for most of their working life. So, time is their friend since they have over 30-to-40 years to accumulate wealth for their retirement savings. TCRS’s study found among those that are offered a 401(k) or similar plan, “77% of Gen-Xers are saving for retirement with median starting age of 28 and median contribution rate of 7% of their annual income.” Even with their high participation rate, they are unfortunately taking advantage of plan features such as loans or early withdrawals which negatively impact their retirement savings. This group is also entering its “sandwich years”: raising children, looking after aging parents while also managing their jobs. Their focus is on immediate needs, near-term risks and their children’s futures. Therefore, saving for retirement has taken a back seat and they plan to begin their savings when retirement years are closer on the horizon. The study further indicates this generation, “is behind on their retirement savings.” Their clock is ticking, but they still have time to catch-up and significantly improve their retirement savings by starting now.
Millennials, also known as the digital do-it-yourself generation of super savers, are considered the youngest and largest generation in the labor force (numbering 83.2 million). Millennials take their retirement benefits very seriously. Consider among those offered a 401(k) or similar plan, 72% are participating in their plan at a median starting age of 22 and the median contribution rate is 7%. In addition, 55% of millennials expect to self-fund their retirement through 401(k)s, 403(b)s, IRAs or other types of saving and investments. TCRS’s study found even though this generation is starting to save at a younger age they need to learn more about investing. However, their unprecedented enthusiasm for educating themselves on how to achieve their retirement goals will undoubtedly play an important factor in assisting them in their savings quest.
Since the shift from defined benefit plan to the defined contribution plans, Gen-Xers and millennials have started to save earlier. However, according to the US Labor Department 70 percent of American employees have access to an employer-provided retirement plan. Of the 70 percent, 77 percent of these employees enroll. Consequently, only 54 percent of all American employees have employer-provided retirement accounts. The other 46 percent of American employees either have no retirement account or participate in traditional individual retirement accounts (IRAs). Thus, the prospect of a secure retirement future for a large percentage of Americans does not look promising.
Despite the unique circumstances each generation faces, everyone has or will experience the “dollar dilemma.” Seth D. Harris, with Jackson National Retirement Planning division, describes the “dollar dilemma” as deciding what to do with each paycheck:
- where should the money go?
- immediate needs, like mortgage or rent, food, clothes, transportation, health care or supporting an elder relative or an unemployed adult child?
- college-savings funds for children?
- a “rainy day” fund in case of a job loss, health crisis or other emergency?
- or should it be set aside in a retirement account.
As a result, baby boomers and Gen-Xers seem to delay and then accelerate retirement savings once retirement appears a closer reality. Let’s hope millennials learn from the last two generations’ experiences.
If you do not want worry about your retirement years. Act! Figure out your retirement expenses and set your retirement goals. Ideally, you want to weigh all your options: retirement benefits, retirement savings and sources of income. Also, make reasonable assumptions about your longevity, health and family history. Preparing for retirement may seem overwhelming so take one step at a time to secure your financial future. Success in retirement savings is about managing spending and savings behavior. Seek assistance from a financial adviser and begin constructing a retirement financial plan fit for you.