Generations are formed over time as groups of individuals who have experienced many of the same political events, as well as social and economic trends. As a result, certain character traits such as their financial outlooks may vary across different generations.
The most important difference among generations, with respect to their retirement saving habits, is that younger generations are consistently beginning to save at a younger age. Data on savings rates show that while both baby boomers and millennials average a 10% contribution rate to employer sponsored plans, 45% of baby boomers have little to no retirement savings 1. The most likely explanation may be that boomers began saving later in life. As boomers edge closer to their target retirement dates, however, many have started making larger contributions to retirement accounts as a result of their lack of preparation 2.
Perhaps given the fact that many in the younger generation are seeing their parents, and in some cases, their grandparents, continuing to work even later in life, a significant number of younger adults began contributing to their retirement plans as soon as they became full-time employees3. The age at which individuals have begun saving for retirement has fallen significantly over time; the median age that baby boomers started saving for retirement was 35, the median age for millennials to start saving is 224. Another factor that may have encouraged early saving is the millennials’ consideration of the trend toward an increase in life expectancy.
Another major factor that has likely influenced the shift in earlier saving among millennials is the growing concern about the future viability of Social Security. While data shows that there are individuals from each generation who plan to self-fund their retirement with no planned reliance on Social Security, only 46% of baby boomers planned on self-funding compared to the 70% of millennials who are planning to self-fund5.
Fast forward to 2025
In the year 2025 the baby boomer generation will begin the transition from being a part of the present to becoming a generation of the past. A significant number of boomers will be in the process of retiring and planning for the last leg of their financial lives. For some, this will be an easy transition; simply retiring from work and living on the savings they have accumulated throughout their lives. For others, perhaps the majority, a series of financial hurdles may be in the offing. With 45% of boomers having no retirement savings, affording a comfortable lifestyle, healthcare, and numerous other expenses associated with old age may be quite difficult6. As a result, studies have shown that boomers are extending their working years well into their late 60's and early 70's7, 8.
With respect to Generation X, the generation sandwiched between the boomers and the millennials, this group will likely begin to feel the financial strain of supporting their parents in their later years. Currently, 59% of boomers9 are relying heavily on Social Security as a main source of retirement funding, and 44% of the population aged 65 and over have a median debt of $24,50010. With such low levels of retirement savings, potentially diminishing Social Security funds, and moderate levels of debt, Gen X'ers will likely have to deal with some, if not all of their elderly parents’ financial needs. This further adds to the notion that younger generations will likely need to become even more savings conscious.
In 2025, millennials will be comprised of individuals primarily in their mid to late 30’s, and as we have discussed, they will be facing the financial burden of their aging parents who may not be able to fund their own retirements. Another generational characteristic that may become apparent to this group is an increased student debt burden resulting from the increasingly higher costs associated with higher education. Yet another incentive to start saving early.
Symmetry Partners, LLC, is an investment adviser registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. All data is from sources believed to be reliable, but cannot be guaranteed or warranted. No current or prospective client should assume that future performance of any specific investment, investment strategy, product, or non-investment related content made reference to directly or indirectly in this article will be profitable. As with any investment strategy, there is a possibility of profitability as well as loss. Please note that you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Symmetry Partners or your advisor. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.
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