Cross Generational Retirement Strategies
Nine Interesting Statistics you can learn from
On my drive to work I listen to an AM talk radio/news show daily. During some recent broadcasts they have been talking about the recent market turmoil and also retirement preparedness. Many of the usual headlines like ‘Millennials are not saving’ or ‘Baby Boomers unprepared for retirement.’
I started surfing the ole’ inner-web for some recent research studies to either confirm or refute the news headlines. What I found was sort of a mixed bag of confirmations and also some repudiations of common news headlines.
NOTE – I am only referring to one long running study of American worker attitudes on retirement. The 18th Annual Transamerica Retirement Survey. The data I located goes back to 2007. This is important, since the “Great Recession” took place in 2008.
I started by taking a look at three generations and how they all viewed things. Millennials (1979-2000), Generation X (Gen Xers) (1964-1978) and Baby Boomers (1946-1964). Take into account the following:
Baby Boomers. First generation post-World War II. Came of age in the 1960’s and 1970’s. Approximately August 1959 (30 years) the DJIA Index got back to pre-Great Depression level. They entered the workforce during the 1970’s during high inflation.
Gen Xers. Children of the boomers. Came of age in the 1980’s and 1990’s. They started entering the workforce as the DJIA Index hit new lows (1982). Too young to be directly impacted by Black Monday 1987 when the DJIA Index lost 22.61% in one day.
Millennials. Children of the Gen Xers. Younger of these came of age early 2000’s, most still coming of age as of 2018. Too young to be directly impacted by the 2000 Tech Bubble and 2008 Financial Crisis.
I want to start with three high level overviews by generation.
I was surprised by one result. Only 38% expect social security to be their primary source of retirement income. Not sure why I had this perception, however, if I was asked to guess I would have said that a much higher percentage, like 75%, would have thought this.
All the other results I was not surprised or shocked – that is what my perception is based on what I have read and heard.
OK, so technically I am a Gen Xer based on the birth years I noted. However, sometimes I relate a lot closer to the Baby Boomer’s in a lot of areas.
Again, I was only surprised by one result. That only 39% stated they had not been impacted and/or fully recovered from the 2008 Great Recession (aka financial crisis). I may be basing this on my personal experience, however, I would have thought a lot higher percentage would have recovered by now.
All the other results I was not surprised or shocked – that is what my perception is based on what I have read and heard.
Our two sons are Millennials. They are on the very young side (eg born later in the span of years) comparatively.
This is the one generation where I had multiple surprises to the results. First, 71% are already saving. Based on all the negative media reporting, I would have guessed maybe one-third (33%). Second, though 71% are saving, 1-in-4 don’t have a clue about their investments! Third, 44% are saying they expect social security to their primary retirement income source. Yikes!
I noticed what I would say are significant differences between the generations. Here are nine interesting statistics you can learn from:
One. Millennials started saving earlier (Age 24 vs. Age 30 for Gen Xers) AND Millennials are saving more of their salary (10% vs. 8% for Gen Xers).
So much for the media headlines that Millennials are not saving, in fact, they are saving at an earlier age AND at a higher percentage of their salary. Maybe it’s the Gen Xers that should be worried about their savings rate!
While I am FI, I am not FIRE (though I will talk about the RE part soon). I know those younger whipper snappers (man that sounds so much like my dad it scares me) think retirement is some far off thing. However, if you subscribe to the RE part of FIRE, you will need to reset your mindset and increase the participation rate and also the savings rate.
In fact, since 2007, the savings for all generations has increased. Now, take into account that in October 2007 the DJIA was 16,855 and in October 2018 it was 25,116 (and it bottomed out during the Great Recession in February 2019 at 8,419). Not adjusting for inflation the DJIA is up 49% from 2007 to 2018 and from the Great Recession low point it is up 198%!
Another item I find interesting is the grey section of the bar charts. The top savers with more than $250,000 has grown as a total group and now represent 21% of Millennials, 29% of Gen Xers and 42 percent of Baby Boomers. I may be jumping to a conclusion prematurely, however, I would say this is due to the increase in the market and not due to increased savings rates.
Check out our Savings rate and FIRE Prowess Score in my ESI Millionaire Interview # 97.
Many employers now a days do automatic enrollment in their 401K programs. This means an employee must fill out paperwork to Opt Out of the program. If your employer does not automatically enroll you make sure you enroll.
Don’t forget step two of enrollment – Set aside a percentage of your own salary in the plan. If your company matches 401K amounts, at least set that amount aside yourself to maximize the company match.
Two. Every generation says traveling is their top goal in retirement.
But….those travel plans may need to be put on hold.
Three. The top fears across all generations is outliving savings/investments, social security and healthcare.
Though not surprisingly, Millennials, who are further from retirement, weight these lower.
Millennials may be either idealistic or optimistic compared to the Gen Xers and Boomers. Boomers are already living in retirement mode (many anyway) and Gen Xers are closer to retirement and looking at their parent’s experiences. In some cases Gen Xers are caring for their parents now!
I am not surprised by this. I read and hear these concerns all the time.
For Boomers – if you are already retired or close to it – Come up with specific spending amounts that you then use to project out.
For Gen Xers – If you are 5-7 years away from retirement, I also suggest using specific spending amounts to use in your projections of retired life.
For Millennials – You have time, use some higher level estimate of expenses, like 75% to 100% of your current annual spending.
Four. A higher percentage (over one-third) of Millennials expect to retire before 65.
Millennials are apparently all FIRE’d up!
Almost two times as many Millennials say they will retire before 65, compared to Gen Xers and Boomers. I am not a statistician but this looks pretty statistically significant to me.
Boomers are/were the last generation where working for one employer 40 years and retiring with a pension was the thing. Long tenure with one (or two) employers was the value statement on a resume.
Gen Xers followed their Boomer parents. This generation still valued longer tenured employment, though maybe more employers. The biggest difference is that pensions started going away and 401K plans were introduced.
Millennials is were all bets were off. They look back at their parents and grandparents and said the hell with your way. They job hop and it is now a badge of honor to rack up numerous employers on a resume.
After I graduated from college I have only had two employers. Now, my first employer could technically be five employers due to mergers and acquisitions and name changes. Now when I look at job candidates ten years out of college I routinely see 3-4 employers already.
I always viewed moving up within my current employer as the way to higher pay and a better job. Maybe these Millennials have figured it out by jumping employers!
Five. All generations are looking at a “transitional” retirement by reducing hours or changing careers.
This is something fresh on my mind and my experience!
Since 2013 I had been considering looking at my career and future. I went back to get my MBA at age 49. I had been thinking about changing but then life got in the way. Mrs. r2e was diagnosed with cancer and I felt that even though I was not happy at my job I needed to stay because of the excellent healthcare benefits.
Then I was laid off in a reorganization. This was a blessing in disguise. I did not hesitate when I was offered a very good separation package (I could have taken a transfer). Our finances were in great shape so that was not a concern. Healthcare was a concern but if needed I could use COBRA insurance from my old employer for 18 months.
I decided that this was the time to make a change. Turns out I am part of the Gen X’r 16 percent that decided to work in a less demanding job that brings greater personal satisfaction.
Six. Financial priorities of spending vary across generations.
Building savings and saving for retirement are both tops for all generations. Kudos to you! There are some generational differences (Boomers save for retirement and Millennials build savings).
What alarms me personally are the percentages of paying off debt. In total, 59% of Boomers, 72% of Gen Xers and 67% of Millennials are paying off debt. Wow! Millennials pay off more on student loans, Gen Xers credit cards and everyone pays a mortgage!
Another interesting statistic is that every generation is worried about paying healthcare expenses, pretty much 25% across the board. This is a problem which the United States needs to figure out.
A lesson in this is to not take on debt or take on smart debt only. Live within your means to avoid debt. Sure you can go out Friday night and have a blast with friends wining and dining – just make sure you can afford it. I am not saying do not have fun, by all means, live it up while you are alive! Just don’t do it stupidly.
Seven. Debt is an issue across all generations.
No surprises to me based on what I hear and read.
Now I technically cannot say I have no debt. I do have a very small balance on our mortgage. However, our home is very modest, plus we live in an area where the cost of housing frankly is not expensive. I also did a shorter term (15 year) mortgage. I am fine with monthly payments and 3.6% interest as long as I can find investment returns above that.
As for credit card debt – I guess technically I am in debt every 30 day cycle! However, we ALWAYS pay off our credits 100% in full every month. Credit card debt is some of the worst debt out there (not including payday loans!). You have to manage your credit card debt wisely so you avoid getting slapped with insanely high interest charges.
Car loan? I used to have them but not any longer. I used to buy new cars since interest rates were 0% or something close to it. However, the last four cars we bought are all used cars and we paid cash. I got over the whole self-imposed stigma of a used car – what the hell does the guy on the road next to me care anyway?
It is a bit alarming that people carry so much debt. Between credit cards, home mortgages and car loan there are some big numbers there.
Eight. People are dipping into retirement funds early.
And they are dipping for some questionable reasons.
Really? Paying off debt, especially credit card debt, is the largest response rate to dipping into retirement savings? That just tells me that some have a hard time managing debt. If you have trouble with debt I highly suggest you get a budget in place and keep track of spending. You will be amazed at where your money goes and how easy it is to reduce spending.
I can appreciate the medical bills. 2018 was the first time EVER that the r2e household not only hit an individual deductible limit but we also hit the individual out of pocket maximum! Scarier still – that was only for two outpatient imaging studies and prescriptions.
Nine. Workers are not prepared for a financial emergency.
Don’t just contribute to your retirement investments. I suggest building up an emergency fund of cash first. Open up a dedicated bank account so it makes it harder to dip into for silly reasons.
There are varying opinions of how much you should have for an emergency fund. Early on in our lives I used a benchmark of three months of living expenses. As I got to the further along my career, I ramped it up to six months. I eventually settled in at twelve months of living expenses.
How much you set aside is a personal decision. Come up with some rationale to set a goal and then set up automatic deposits into your newly opened emergency account. Then, don’t touch it.
Are you similar to these averages? What will you change to achieve Financial Independence?