According to a national survey, only about one in three Americans have saved enough for retirement. But new research from the University of Georgia offers what might be a silver lining to the pessimist: Gen Xers seem no worse off than baby boomers.
That said, neither group appears to have saved enough to meet their retirement needs. And millennials are even further behind.
“The difference we’re seeing is due to age differences and the fact that Gen Xers aren’t as advanced in their careers as baby boomers are,” said Swarn Chatterjeecorresponding author of the study and professor in the financial planning program of the College of Family and Consumer Sciences.
“But when you look at how much generations should save based on what they have, while millennials are further behind, there’s not really a difference between Gen X and baby boomers in terms of trajectory. retirement planning and preparation.
The researchers developed a model that analyzes the readiness of individual respondents to the 2019 Consumer Finances Survey, a national dataset conducted by the Federal Reserve. This strategy allowed them to create a single retirement baseline for each of the more than 4,500 households in the dataset based on age, current income, expected retirement age, expected an individual’s lifestyle and money management strategies.
There is not much literature on the differences in the retirement readiness of Gen X and Millennials. Previous analyzes have largely focused on assets held across generations at a certain age, focused only on households closest to retirement or used subjective measures to assess retirement readiness, such as the degree of retirement readiness of individual respondents.
The present study meets participants where they are, so to speak.
The researchers’ new measure is based on the actual financial situation of each individual household, meaning they are compared to their own retirement expectation rather than a generalization for their entire generation.
Chatterjee and his colleagues then determined how close each household was to reaching their retirement goals and used that measure for comparison with those of other generations.
Over the past few decades, the American workforce has changed dramatically.
Previous generations, including many baby boomers, largely stayed in one or two companies for the duration of their careers. And these companies frequently offered retirement plans that guaranteed income to loyal employees after retirement.
These types of retirement plans are almost unheard of these days. As a result, millennials and Gen Xers end up changing jobs for better pay, benefits, or both.
Today, companies offer 401K plans where the employee pays and saves for themselves, often with a company contribution on top. But that means employees have to manage their own portfolio.
“There is concern that most people lack the financial knowledge to realize how much they need to save,” Chatterjee said. “And the majority of people underestimate their needs.”
Because people are living longer than previous generations, this means they will likely need more retirement funds to survive those past years.
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But all hope is not lost for younger generations with insufficient retirement savings, Chatterjee said.
They are still early in their careers and have more time to make up that difference in their wallets.
“There are things we can control and there are things we can’t control,” he said. “We cannot control what will happen in the economy in the future. But what we can control is our financial literacy.
From a policy perspective, this means creating more opportunities for younger generations to receive financial education. The challenge is that there aren’t enough affordable and accessible financial advisory services right now, Chatterjee said. This is something that policy makers will need to address to help individuals better plan for their future.
The study also found that factors such as obtaining a college education and willingness to make riskier investments earlier in an individual’s career can have a positive effect on their retirement planning.
Published in the International Journal of Financial Studies, the study’s first author is Jia Qi, a doctoral student at the College of Family and Consumer Sciences, and was co-authored by Yingyi Liu, a doctoral student at the College of Family and Consumer Sciences. family and consumption.
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