The PEW study on Retirement Security across Generations gives us a good picture of how ready different generational segments are for retirement—based on where they are now. Last time, we talked about how much better off early birth spectrum Boomers are than any other generation, either before or after them.
We have to also think about these statistics in the context of what was going on in the marketplace and the economy at different stages of life for each of the generational segments. We saw that early Boomers were behind the GI and Silent generations in their savings accumulation by their 30’s and 40’s. But they quickly caught up because they participated in two market manias—the dot-com mania of the late 1990’s and the housing market mania of the mid-2000’s.
The Gen-Xer’s were in their 20’s and 30’s during the dot-com bubble. For other generations, this would have been a time when careers and family were just getting started. Gen-Xer’s thrived during the dot.com era, starting many of those businesses themselves or job-hopping from one start up to another during that era. The era of career tracking and moving up the ladder at a single company was officially over.
But Gen-Xer’s were still too young to have accumulated the level of wealth stability they needed to ensure what we would call a comfortable retirement. This is the generation that has been the least well positioned at points of market crisis. Much of what they accumulated during the dot.com bubble was lost when that bubble burst. They rebuilt to a point during the mortgage bubble but not enough to shield them from the 2008 crisis.
The PEW study says that all the generational segments in the study accumulated median wealth from 1989 to 2007. Early Gen-Xer’s are now in their late 40’s. Later Gen-Xer’s may have finished paying down their student loans only a few years ago.
Add to these the facts that only 18% of high net worth investors today have planned for the long-term healthcare of their parents. As their Boomer parents age and require more care, this could become a huge factor in the quality of retirement Gen-Xer’s may expect.
The PEW study says that Gen-Xer’s were hit the hardest by the Great Recession. Add that to the prospect of possibly having to care for their parents just as they approach their retirement years and the picture can seem pretty dismal.
Debt levels for late Boomers and Gen-Xer’s are also a significant factor. In 2010, Gen-Xer’s had an average of $80,000 in debt. Gen-Xer’s are in a time of their lives when they are purchasing homes, paying off student loans, and beginning families. Over the next decade, they’ll be sending their kids to college.
And when you look at a graph of retirement income replacement rates from the PEW study, it makes you want to throw up your hands and give up!
These studies only highlight the bad news for Gen-Xer’s. So what’s the upside here? The Gen-X generation still has time. And the markets have been making new highs. They’re approaching the height of their earning power. And they’re being smart about creating financial plans and preparing to care for their parents. A Bank of America study in 2012 showed that 40% of Gen-Xer’s had put such plans into place. This study looked specifically at Gen-Xer’s. The 18% figure quoted earlier is from a US Trust study of high net worth investors.
Hopefully, the realization is emerging that although these studies give us great information, we have to use that information within the context of your individual circumstances. Studies are also a great incentive to review those circumstances and see if you are on track to meet your goals. The world is changing faster than ever. More than ever, it’s important to stay on top of your financial and wealth management strategies. We can help you do just that.
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Us Trust 2013 Insights on Wealth and Worth http://www.managersofwealth.com/article/12848/hnw-investors-refocus-on-growth-but-overlook-family-health-and-retirement-risks
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