Retirement Readiness: How Gen X and Gen Y Really Picture Their Futures

By Molly TriffinRetirement PlanningLearnVest

Pop quiz! Who’s most worried about retirement: a) baby boomers, b) Gen Xers or c) Millennials?

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You’re probably thinking boomers, seeing as their golden years are just around the corner.

But according to a new Merrill Edge survey, Gen Xers actually feel the most angst—74% of them expect to stress over money once they’re retired.

“The financial crisis unnerved people, but particularly younger folks, who didn’t have as much net worth,” says Stacey Decker, a Certified Financial Planner™ (CFP®) and financial solutions adviser at Merrill Edge.

Let’s look at some facts.

According to the U.S. Census Bureau, people between the ages of 35 and 44 lost 59% of their net worth during the last economic downturn, followed by those under 35, who experienced a 37% loss.

Gen X and Gen Y also bore the brunt of recession-triggered unemployment, making up 37% and 40% of jobless workers, respectively, according to a 2013 Georgetown University report—a situation that has put many of them seriously behind on saving for retirement.

“What stresses me out most is the unknown,” says 24-year-old Michelle Hewitt, an advertising account coordinator in Louisville, Ky. “How do I know saving 15% is really going to be enough?”

Decker says that Hewitt’s concerns are valid—and that she isn’t alone in her thinking. “People understand that they can’t necessarily rely on Social Security and a pension [as income sources in retirement anymore],” Decker notes.

In fact, a 2014 TransAmerica survey revealed that more than eight out of 10 Gen Xers and Millennials worry that Social Security will be nonexistent by the time they retire.

There’s also the issue of spiking health care costs—a concern for both generations.

A recent poll by Ameriprise Financial found that 75% of Gen Xers are concerned about rising medical expenses—and 63% anticipate having to shell out big bucks for their own long-term care.

“If the average lifespan is 80 and you plan for that but then end up living until 95, that’s 15 years of possibly being a financial burden on your family,” says Robyn Lytle, a 31-year-old business owner based in Chicago.

With stats like these coming out seemingly on a weekly basis, we decided to take a deep-dive look at the true state of retirement readiness for Gen X and Gen Y—from their distinct nest egg savings habits to their collective dreams for their golden years.

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A Look at Gen X Retirement Readiness

How They’re Saving for Retirement: They may be known as the slacker generation, but Gen Xers are actually pretty on the ball when it comes to investing for the future.

According to the Ameriprise survey, 76% of them started saving for retirement in their twenties. And, today, eight out of 10 are actively contributing to a 401(k), while seven out of 10 are socking money away in an IRA.

The question is whether they’re stashing away enough.

Between mortgage and car payments, child care costs, and lifestyle creep, Gen X has a lot of competing goals to juggle and prioritize … all at once.

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“Members of Gen X are likely to have owned a home during the recent downturn and to have held investments affected by the dot-com crash of 2000 and the 2008 recession,” says Natalie Taylor, a CFP® with LearnVest Financial Planning. “They’ve been through some difficult economic times.”

And it doesn’t help that many people in this demographic are also helping out their financially strapped parents, earning them another less-than-desirable label—the sandwich generation.

Fact: A 2013 study by the Pew Research Center found that over 30% of Americans with parents aged 65 or older are providing economic support to them.

All of this collective cash output has the potential to take a financial toll: Among those polled by Pew who are caring for both a child and a parent, only 28% can say they live comfortably.

Their Dreams for Retirement: Gen X doesn’t envision passing the time playing sudoku and catching Wheel of Fortune marathons.

“They expect to redefine retirement,” says Marcy Keckler, a CFP® and VP of financial advice strategy at Ameriprise. “They don’t have an on/off switch from working—instead, they anticipate a gradual evolution into a different kind of job.”

On that point, the Ameriprise survey found that 73% of Gen Xers plan to pick up part-time, seasonal or consulting work in retirement—to pay the bills and flex their mental muscles.

Take Derek Handova, 48, a senior content marketing writer in San Mateo, Calif., who plans to retire around age 75, says, “I think I will always be working to some extent because I need to keep busy.”

And like most of his peers, Handova doesn’t have his eye on putting down retirement roots in a classic hub like Florida, perhaps because Gen X prioritizes mental stimulation and physical activity, Keckler suggests.

According to the Ameriprise survey, 80% of people in this demo want to travel once they reach AARP status, half emphasize staying in shape, and 36% want to engage in meaningful volunteer work.

“I plan to go to some low-cost location, like the Philippines or Costa Rica,” Handova says, “where I can participate in tennis, bodysurfing and other sun-drenched sports.”

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A Look at Gen Y Retirement Readiness

How They’re Saving for Retirement: In areas ranging from relationships to careers, Millennials have a rep for being commitment-phobes—and that applies to their savings, too.

Only 57% of those who have access to a 401(k) are taking full advantage of an employer match, according to Keckler. Furthermore, TransAmerica’s survey reveals that 20% of those with a retirement plan have already taken out a loan or early withdrawal from it.

What’s more, new data from the Indexed Annuity Leadership Council shows that 37% of Millennials had zero retirement savings, thanks in large part to overwhelming student loan debt.

According to Bloomberg, the average student loan balance has spiked by 74% in the past decade, from $15,000 per person in 2004 to $27,000 in 2014, based on Federal Reserve Bank of New York data.

At 34, Patrick Duggan is at the older end of the Millennial spectrum, yet he exemplifies the generation’s challenges. A marketing director at a nonprofit in Oakland, Calif., he lived paycheck to paycheck throughout his twenties and didn’t feel financially stable enough to sock away for retirement until he hit 30.

“My wife and I contribute as much as we can, but it only adds up to 5% of every paycheck. We’re putting another 5% into saving for a down payment on a home,” he says. “I don’t know how we’ll put aside more unless our next career steps yield substantial financial gains—and I’ll be 40 before my $500 monthly student loan payment is off my back. Retirement seems far off and hard to attain.”

Millennials’ penchant for job-hopping can also set their retirement savings back, since new employees often can’t contribute to a 401(k) for the first six months at a new gig. Switch jobs enough and those six-month hiatuses can add up.

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At the same time, almost half of Gen Yers had to swipe a credit card to pay for necessities like food and utilities—and more than a quarter missed a bill payment or got a call from a collector, according to a 2013 survey by the American Institute of CPAs.

Perhaps that’s why 43% of Millennials surveyed by Merrill Edge expect to receive financial help from loved ones when they’re in dentures and Depends. (Compare that with only 21% of Gen Xers!)

“Millennials are used to receiving funds from mom and dad,” Decker explains. “They are more unemployed, underemployed and indebted than any other generation.” He adds that since many of them weren’t asked to develop economic self-sufficiency early on, they’ve gotten accustomed to having a safety net.

Their Dreams for Retirement: Fewer Millennials (50%) than Gen Xers plan to work into retirement, according to the TransAmerica survey—and they don’t intend to wait until their 70s to live life to the fullest, either.

In fact, 60% of Millennials polled by TransAmerica hope to retire at age 65 or younger. And once they approach retirement age, 62% say that they’ll slowly transition into their golden years by logging fewer hours in a less demanding, more satisfying job.

Erin Millard, a 24-year-old content marketing manager in Charlotte, N.C., is one such Millennial.

“I would love to retire in my forties,” she says. “I’m perfectly happy with a low-maintenance lifestyle and don’t see that changing—the less income I need when I retire, the sooner it can happen! I just want to prioritize traveling and volunteering. My income in retirement would be based on a mix of passive income, occasional freelancing and eventually money from my IRA.”

Laurence Bradford, 25, a web consultant in Lehigh Valley, Pa., is more gung ho about continuing to work for decades because, she says, “I love what I do too much.” So unlike Gen Xers who may be delaying fulfilling work until retirement, she’s already following her passions.

It’s an attitude that is familiar to Taylor. “Meaningful work is a top priority for many of my Millennial clients,” she says. “They’re more likely to see their work and leisure as coexisting throughout their lives.”

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Gen X or Gen Y? 5 Ways to Boost Your Retirement Readiness

Fifty percent of Millennials and 39% of Gen Xers polled by Merrill Edge said they’d be embarrassed if close friends and family knew the true state of their finances—including nest egg savings.

But it’s possible to take better control of your retirement future—no matter how far behind you feel—starting with these nest egg-plumping steps.

1. Roll old 401(k)s into your current plan, so you know exactly how much you have saved.

“Consolidating 401(k)s accounts helps you keep track of your retirement balance and clearly see your asset allocation,” explains Taylor. “And staying on top of your investment mix on an ongoing basis is easier over the long haul if it’s simple.”

If a 401(k) plan isn’t an option for you, Taylor suggests rolling your accounts into an IRA fund, some of which have better investment selections and/or lower fees than 401(k)s.

2. Run your retirement numbers through a retirement calculator.

Not knowing how much you ultimately want to save is like taking a road trip without knowing where you’re headed—you need to have a destination, and a retirement calculator can help you plot it.

“You won’t know every turn, but you’ll be headed in the right direction,” Taylor says.

She admits the numbers can initially look a little scary—especially if you realize you need to sock away more than you’re currently saving. But that’s all the more reason to take action.

And be sure to revisit your numbers every year—as well as whenever your financial situation changes—so you can tweak your calculations to stay on track to meet your goals.

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3. Adjust your monthly retirement account contributions.

It’s important to increase your savings rate as you continue to approach retirement.

For starters, Taylor suggests taking full advantage of a 401(k) match, if offered by your employer, and aiming to up your savings by 1% every six months.

And every time you get a raise or move to a higher-paying job, put a portion of that increase toward your retirement savings.

Taylor says this move is helpful in two ways: It keeps your lifestyle from inflating too fast as your income increases, and it grows your portfolio.

4. Assess your investments.

Erring on the overly conservative side can be a flawed approach to retirement for members of Gen X and Gen Y, says Decker.

“You have plenty of time to ride through fluctuations in the market, and volatility can be your friend if harnessed correctly,” he explains.

“Investing according to your personal risk tolerance is key to maximizing your portfolio,” adds Taylor. “If you don’t, you’re more likely to make wrong decisions as the market fluctuates.”

For example, if your investments are more aggressive than you’re comfortable with, you’re more likely to sell when the market is down. And if they’re overly conservative, you’re likely to get too aggressive when the market is up.

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But if determining your ideal asset allocation feels like too much of a hassle and you want a more hands-off savings strategy, Taylor suggests a target date fund, which automatically balances your assets over time to become more conservative as you approach retirement.

You should also make sure you’re properly diversified.

“People’s portfolios tend to be less diversified when they first start out because they have a smaller sum of money to work with,” Keckler says. “But once you have a bigger pie to divide, you can get more meaningful exposure to different options.”

“If a portfolio isn’t appropriately diversified, you may be missing out on returns, which means you have to fund more of your retirement out of pocket,” Taylor explains.

5. Plan to rely on you (and only you) for retirement.

“Don’t count on a lump sum or family money to support you in retirement,” Decker warns.

Health issues might prevent you from working, and a rising life expectancy is diminishing older generations’ ability to leave a legacy.

An HSBC survey found that while 51% of workers expect to receive an inheritance (with two-thirds planning to use it to help fund retirement!), only 29% of people actually intend to leave assets to their offspring.

The only safety net you can truly rely on in retirement is your own savings, and while time is on your side, you want to get on them—pronto.

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LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.