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Gen X Cautionary Path to Retirement

4/29/2013

Putting the garden in Garden State

After the Baby Boomer generation, the next group that is typically studied is Generation X, comprised of those born between 1965 and 1976. Humans landed and walked on the moon for the first time during this period, starting with Neil Armstrong and Buzz Aldrin on Apollo 11 in July 1969. Toward the tail end of Generation X, the American Bicentennial would be celebrated and technology firms named Microsoft and Apple would be founded. The Beatles would break up and reemerge as successful solo artists. The Yankees would return to be one of the top teams in baseball. In the 1980s and 1990s, Gen X would project a strong influence on popular culture, often highlighted by the TV show "Friends". So how is Gen X doing with its finances, including preparing for retirement?

According to MetLife's Mature Market Institute (MMI), it appears to be a mixed bag. Whether the glass is half empty or half full is up for debate.

65% of Gen X'ers are working full-time, as are their significant others; this suggests that significant numbers are not working full-time.
Only 2 in 5 are still in the same career as when they started working.
Most would like to retire at age 62 but don't expect to be able to until age 67.
Half are behind in saving for retirement, with women more so than men.
7 in 10 are not confident that Social Seccurity will be able to provide full benefits.
More than 8 in 10 are homeowners, but about 1 in 6 owe more on their mortgage than the value of their home.
About 3 out of every 4 are raising children, while about 2 in 10 are caring for older family members.

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Health & Retirement Plan Coverage Studied

4/22/2013

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New Jersey sky at sunset

The Bureau of Labor Statistics (BLS), part of the U.S. Department of Labor, has released data showing the prevalence of coverage under both health plans and retirement plans for employees in the private sector. In the past, the BLS has tended to look at each type of coverage individually. Depending upon how demographic groups are broken down, there are some interesting differences in coverage. For purposes of the BLS analysis, the figures look at retirement and health plans made available by employers, not whether the employees actually chose to be covered under them. Here are some highlights:

70% of all workers are covered by a health plan, 65% by a retirement plan, and 58% by both.
76% of management employees are covered by both, versus 30% of service employees.
Higher-paid workers are covered by both to a significantly greater extent than lower-paid workers.
71% of full-time workers are covered by both, as compared to 20% of part-time workers.
91% of union workers receive both health and retirement plan coverage.
Large employers tend to offer both plans to a significantly greater degree than do small businesses.

One of the recurring themes of these blogs is that retirement savings does not occur in a vacuum. Recognizing the importance of health coverage for retirees in the context of future needs as well as more current financial challenges is critical to trying to find solutions to fill gaps in retirement savings.

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Historical Look at Pension Coverage

4/17/2013

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Cherry Blossoms in Washington, DC

1979 was a pretty good year if you were a Pittsburgh sports fan. The Steelers won the Super Bowl in January and the Pirates won the World Series in October. Willie Stargell was the MVP of the World Series, with the song "We Are Family" playing everywhere. 1979 also is a good starting point for looking at how the retirement space has changed over time. If you worked in the private sector that year, chances are more likely than not that you had a defined benefit (DB) plan rather than a defined contribution (DC) plan.

The Employee Benefit Research Institute (EBRI) has published data outlining just how much pension coverage has become DC-centric over 3+ decades. Interestingly, in both 1979 and 2011, an estimated 45% of all private-sector workers were covered by either a DB or DC plan. Over the years, the figure has remained relatively steady in the 45%-50% range. What is different is that of those who are covered by a retirement plan, there has been an almost complete transformation from DB to DC. For those participating in a retirement plan in 1979, 62% were in a DB plan, 16% in a DC plan, and 22% in both. By contrast, in 2011, 7% were in a DB plan, 69% in a DC plan, and 24% in both.

These days, many DC plans have added automated features to help participants save better. Some have suggested that this makes the DC plans more DB-like. With the well-documented struggles of participants to save, it will be interesting in the future to see if there is a move toward the center in terms of DB and DC coverage.

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Survey Finds Increased Financial Optimism

4/8/2013

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Statue of Liberty, Jersey City view

A recent survey by Fidelity Investments suggests that people are feeling more optimistic about their financial situations than they did five years ago. More than half who considered themselves scared or confused in 2008 now believe that they are confident or prepared. Among the primary reasons for this are increased retirement savings, decreased debt, the creation or build-up of emergency funds, and research into the availability of guaranteed income options. At the outset of the financial crisis, the average respondent lost 34% of household assets, 17% lost a job (sometimes both heads of household), and 35% sustained a large drop in income. The most common sources for guidance are financial professionals, a spouse, and online research. Many respondents believe in taking personal responsibility for saving, but large numbers also see it as a partnership with financial institutions, employers, and the government. Over two-thirds believe that the country is still in a recession, with about one in five thinking that it is over. If this optimism continues to take hold, it will be interesting to see for how long it holds. The annual Retirement Confidence Survey has seen historic low levels of confidence in recent years, as discussed in a recent post.

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Families Focus on Finances

4/1/2013

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Short-term: caterpillar. Long-term: butterfly.

According to a report from T. Rowe Price, both adults and children understand the importance of saving, but there is a tendency to focus on short-term goals, often at the expense of long-term needs. Among the highlights and concerns of The 5th Annual Parents, Kids & Money Survey:

50% of parents do not save regularly for retirement, 42% lack an emergency fund, 54% are without life insurance, and 74% do not have a current will.
Although 73% of parents regularly talk to their kids about money, most of the time it is with a short-term focus, such as back-to-school spending (62%), rather than long-term needs (39%). Some parents (14%) discourage their kids from having money conversations at all.
70% of children and 66% of parents believe that a good education is important for a better financial future, but only 41% are regularly saving for retirement. By contrast, 46% regularly save for vacation.
While 84% of kids think they will be financially independent of their parents by age 18-25, 18% of parents believe that their children will need to support them in retirement.
24% of kids believe that to reach the million dollar threshold that the survey suggests is needed for a secure retirement, they will need to become famous, versus 21% who believe they should invest in stocks and bonds.

Interestingly, gaining financial security by becoming famous may in some ways be closer to reality for the overwhelming majority of survey respondents. According to data from the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI), the average account balance is in the vicinity of $60,000. Only 7.5% have balances above $200,000, let alone $1,000,000. Even for those employees in their 50's and 60's who have been with their employer for 30+ years, the average balance is only around $200,000, not particularly close to the million dollar threshold.

As suggested in earlier posts, the remedy would appear to lie in recognizing that neither short-term nor long-term savings occur in a vacuum. A good solution will recognize that finding the sweet spot for savings requires factoring in both goals. One without the other would appear to be unrealistic for most individuals and families.

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Gen X Cautionary Path to Retirement

Health & Retirement Plan Coverage Studied

Historical Look at Pension Coverage

Survey Finds Increased Financial Optimism

Families Focus on Finances

Blog Author - Ken Felsher

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