Retirement saving is often discussed as a problem for Americans,
but the severity of the problem varies greatly from one age group
to the next. The bad news is that Americans seem to be getting
worse at retirement saving with each generation.
study released last month
titled "Retirement Security Across Generations," the Pew Charitable
Trusts looked at savings rates across five groups:
- Depression babies (born between 1926 and 1935)
- War babies (1936 to 1945)
- Early baby boomers (1946 to 1955)
- Late baby boomers (1956 to 1965)
- Generation X (1966 to 1975)
The study found that Generation X is saving too slowly and
accumulating debt too quickly
to be on track for a comfortable retirement. If they are to turn
this around, they may want to heed some of the lessons suggested by
the Pew data:
Don't get sucked into a peer group standard.
The Pew report paints a picture of generations that have steadily
gotten worse at retirement saving since World War II. Based on
their projected incomes and rates of wealth accumulation, war
babies are on track to be able to replace 99 percent of their
income in retirement. That number drops to 82 percent for early
baby boomers, and then falls precipitously to 59 percent for late
boomers, and to 50 percent for Generation X. If you are in one of
those younger groups, don't base your retirement saving on the
savings rates of your peers, because they may not be
Early benchmarking is essential.
The Pew study compares different generations by looking at what
their financial status was at similar points in their lives. This
is how it is able to project that younger generations are on a
slower track for retirement saving, and this finding underscores
the importance of not only starting to save early in your career,
measuring your progress from the start
so you'll know where you stand.
Do some lifestyle planning.
If Generation X is only saving enough to replace 50 percent of
income, they are facing a severe drop-off in lifestyle when they
retire. To avoid such a shock, it may be necessary to sacrifice
some perks of your lifestyle now in order to afford a similar
lifestyle when you retire.
Don't compound a bad situation with bad
All the age groups covered by the Pew study suffered setbacks to
their median net worth in the Great Recession, but while early
baby boomers lost 28 percent and late boomers lost 25 percent
from 2007 to 2010, Generation X suffered a loss of 45 percent.
This suggests that they made a bad situation worse with bad
decisions, such as ill-timed investment sales or failing to
adjust their spending to declining income.
Debt undermines retirement savings.
It won't do you much good to accumulate retirement savings if you
accumulate large amounts of debt alongside those savings. In
savings account interest
rates so much lower than credit card rates, accumulating savings
and debt at the same time is an especially bad deal today. The
Pew study found that Generation X has more debt than any of the
previous generations, which is a big reason why that generation's
average net worth is lagging.
Naturally, younger generations tend to be less concerned with
retirement than older ones. But the Pew study suggests that younger
generations may have the most to worry about.