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Retirement through the Generations

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Americans’ expectations about when they will retire, and how they will pay for it, vary significantly depending upon their age, according to new research from the Transamerica Center for Retirement Studies.

The center polled more than 4,500 working Americans in early 2015 for its 16th Annual Transamerica Retirement Survey of Workers. To compare their views and practices, the center segmented those polled into five age groups: those in their 20s, 30s, 40s, 50s, and 60 and older.

The survey found that the older workers are, the more likely they are saving for retirement. Among workers in their 60s, more than four in five—81 percent—are stockpiling money for the day they retire. By contrast, only 67 percent of those in their 20s are saving for retirement.

More diligent saving doesn’t necessarily translate into expectations of an earlier retirement, however. Only 18 percent of those in the 60-and-older crowd expect to retire at or before the age of 65. By contrast, 57 percent of those in their 20s expect to retire by age 65.

A skeptical observer might detect some overconfidence on the part of the younger generation. But Catherine Collinson, president of the Transamerica Institute and the Transamerica Center for Retirement Studies, says survey data overall indicate that 20-somethings are more appropriately characterized as “committed, cautious and concerned.”

Collinson presented the findings of the survey at the 2016 SVIA Spring Seminar. Looking more closely at the 20-somethings category, she said 37 percent concede they know nothing about basic asset allocation principles. A quarter of them are invested in low-risk, low-return investments that may be too conservative given their long investment horizon. About four-in-five (81 percent) are concerned that Social Security will not be there for them when they get ready to retire. That isn’t irrational, Collinson said, given that the Social Security Administration’s 2015 annual report projects that the Social Security trust funds will be depleted by 2034, well before most of today’s 20-somethings will retire.

The survey found that 76 percent of 30-somethings are saving for retirement. Among those participating in a 401(k) or similar workplace retirement plan, 30 percent are contributing more than 10 percent of their salary. Collinson called workers in this age group strong savers, but weak planners. Although 87 percent say they prefer to make their own decisions about their retirement investments, 57 percent concede they guess at their retirement savings needs, and 68 percent say they don’t know as much as they should about retirement investing.

Collinson said she worries most about those in their 40s, who make up “the critical mass” of Generation X. “They were hit really hard by the Great Recession, and 27 percent have not yet begun to recover from it or feel they may never recover,” she said. “Only 10 percent are very confident they will be able to fully retire with a comfortable lifestyle.”

Collinson called 40-somethings “financially frazzled but focused.” While 76 percent are saving for retirement, 22 percent list paying off credit card or consumer debt as their greatest financial priority. Nearly a quarter of those participating in a 401(k) or similar plan have taken a loan or early withdrawal from it. Some 40-somethings are already in life’s “sandwich years,” too, Collinson noted, meaning they’re taking care of both younger and older generations, often before taking care of themselves.

“All these factors are making things even more difficult for 40-somethings,” Collinson said. “As an industry, the most important thing we can do is start with a vote of confidence. [We can tell them] you’ve still got 20 years—a couple of decades—to plan and save and get back on track. You still have time to change your retirement outcome. However, you can’t afford to wait any longer.” Procrastination, she said, is the enemy of 40-somethings.

Fifty-somethings can see retirement on the horizon and are actively planning for it. Eighty percent are saving for retirement, and 37 percent say it is their top financial priority. Still, Collinson said, there is reason for 50-somethings to be concerned about their prospects. The median household in this age group has only $117,000 in savings, which for many will not prove sufficient to support a retirement that could last 20 or 30 years. Indeed, 42 percent of those in their 50s say they expect their standard of living to decrease when they retire, and 59 percent say they plan to work past the age of 65—or not retire at all.

“Working longer is a logical practical solution, but life can get in the way,” Collinson cautioned. She said it’s important for workers in this age group to take a hard look at their savings and income needs, develop a pre and post-retirement strategy for managing their financial needs, create a backup plan in case health or some other event causes an earlier than expected retirement, and work with a financial planner.

What about 60-somethings, the age group for whom retirement is just around the bend? “Baby boomers have rewritten the rules at every stage of life, and retirement is no different,” Collinson said. A stunning 82 percent of 60-somethings expect to work past age 65 or already are doing so, or do not plan to retire at all. More than half (52 percent) plan to work at least part-time in retirement, easing into a phased retirement in which they pursue work that is either more satisfying or less demanding, or both. One possible problem with that scenario, Collinson said, is that while 73 percent of 60-somethings think this transition will take place at their current employer, very few employers actually have practices in place to facilitate any sort of phased retirement.

“This is a huge societal opportunity,” Collinson said. She added that the retirement industry could help by working with employers to create phased retirement programs.

Employers can help American workers better prepare for retirement, she concluded, by encouraging participation in existing retirement plans, structuring matching contribution formulas to promote higher salary deferrals, and discouraging loans and withdrawals from retirement accounts. Collinson also encouraged employers to offer retirement education offerings that are easy to understand and help pre-retirees plan their transition into retirement. Employers also can promote incentives to save such as the Saver’s Credit and catch-up contributions. She also urged retirement plan sponsors to extend eligibility for their plans to part-time workers.