The baby boomer generation is in the throes of retirement and Generation X is only steps behind. According to a new study on how baby boomers and Generation X (Gen X) are facing their financial future from Allianz Life Insurance Company of North America, more than eight in 10 from both generations said they feel that a retirement starting at age 65 spent “doing exactly what you want” is now unrealistic.
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The study of 2000 Americans, including 1,000 baby boomers (ages 49-67) and 1,000 Gen Xers (ages 35-48) found that Gen X respondents were much more hopeless about their ability to achieve retirement goals and about their overall financial situation than were their boomer counterparts.
“It’s been widely reported that baby boomers are worried about their retirement, but the financial planning and retirement concerns of Generation X have gotten less attention,” said Katie Libbe, Allianz Life vice president of Consumer Insights. “While our study confirms that many boomers still lack confidence about their future, it reveals alarming realities about the significant angst and pessimism Gen X feels regarding the current and future state of their finances. They’re the next generation that’s quickly approaching retirement and their hands-off approach to planning and preparation is alarming.”
Libbe discussed with me these additional findings from the study for those baby boomer and Gen Xers concerned about their financial future:
Boomer: How did the 2008 crash effect the way both generations currently manage their finances?
Libbe: The Allianz Life Generations Apart study examined the current attitudes and opinions of both baby boomers and Generation X about managing their finances and saving for retirement. There is no doubt that the 2008 crash had a significant effect on the pessimism we saw in the survey, especially the fact that an overwhelming amount of both generations (84%) said they believe the traditional idea of retirement – playing golf every day, lounging on the beach and doing whatever you want – is now a romantic fantasy. Although both generations experienced the crash, it had a more dramatic impact on Gen X as they were in their prime earning years during that period. In addition, many Gen Xers bought their homes during the housing bubble and now find themselves in a difficult situation when it comes to mortgage debt. Student loan debt is also a bigger concern for Gen Xers trying to save for retirement as more Gen Xers took out loans to pay for their education than previous generations.
Boomer: Why is Gen X seen as the disadvantaged generation compared to baby boomers?
Libbe: Generally, both generations feel that they had it tougher, but when you get to specifics like keeping a job, saving money and planning for retirement, boomers actually agree that Gen X has had a harder time. Being closer to retirement, baby boomers have had more opportunity to save and deal with the challenging economic conditions of the last 10-15 years. For many Gen Xers, going through the 2008 crash and also the “tech wreck” of 2000 during this period really limited their ability to save for the future in any meaningful way. In addition, debt management seems to be a more significant issue for Gen Xers due to mortgage and student loan debt, but also because of the way they use credit and the changing nature of peoples’ relationship with debt in general.
Boomer: The study examined generational attitudes and opinions toward debt. Is this a new way of life in 2015?
Libbe: Attitudes toward debt definitely seem to be changing as more Gen Xers regard credit cards as survival tools and are subsequently burdened with significant credit card debt that has simply become a way of life. Because of this new relationship with being in debt, Gen Xers are spending more and aren’t saving as much for retirement. More than two thirds of Gen Xers agreed with the idea that supposed targets for how much money you need to accumulate in order to retire are way out of reach versus less than half of boomers. As a result, Gen Xers aren't even bothering to picture what retirement will look like for them because so many don't believe they'll actually be able to retire. It’s clear that Gen Xers need to change their thinking about how they use credit. Too often, people spend differently with credit since the actual transfer of funds is not immediate. Gen Xers need to take a stand and start making sure their spending habits align with their overall financial plan.
Boomer: What concerned you most about the attitudes both generations have toward their financial future?
Libbe: The biggest concern identified in the Generations Apart study was the gap between the worry both generations say they have about their financial futures and what they plan to do about addressing those concerns. Although boomers and Gen Xers admitted to getting “bogged down with uncertainty when planning for retirement” and believing it is “useless to plan for retirement when everything is so uncertain,” both generations are surprisingly relaxed about planning for their financial futures. More than half of each generation agreed with the statement “when it comes to retirement, I just have this feeling that everything’s going to work out.” Furthermore, a larger percentage of Gen X respondents think they will “just figure it (retirement) out when I get there” (46% versus 36% of boomers). This disconnect between planning and expectations from both generations is troubling and a clear indication that they need more resources and support from the financial services industry to help them reframe their retirement goals to be more realistic and achievable.
Boomer: What financial planning strategies should both boomers and Gen Xers consider to get back on track to a more secure retirement?
Libbe: For boomers who are behind on retirement savings, it really depends on how close they are to their goal retirement age. If they are still 10-15 years out, they should focus on hitting their savings maximums (a good rule of thumb is 15%) within their 401(k) and other retirement accounts. For those less than 10 years from starting retirement, they should start looking into how they will turn savings into retirement income and consider protecting a portion of their nest egg through guaranteed income products. Boomers who are 65+ and would like to retire soon should focus on asset allocation to ensure their retirement portfolio is age/risk appropriate, and also determine how taxes and Social Security fit into their overall retirement plan.
The good news for those hopeless Gen Xers who feel they’ll never be able to retire is they still have time. Most are still in a position to work, save more and enjoy the effects of compounding until the date they retire. Even a modest amount saved on a monthly basis can grow substantially over the course of 20 years. Gen Xers need to disregard doubt and dive head first into the planning process. An effective way to do this is by taking inventory of spending habits to determine where to make changes. Even a week’s worth of detailed information about spending can be extremely enlightening and help that troubled Gen Xer understand the specifics of their financial situation and start taking steps to building more financial stability. They should also be mindful about their use of credit and avoid accumulating any new debt.