That was a key conclusion of a new Hewitt Associates research report, which examined how baby boomers (Ages 42 to 59), Generation X (Ages 26 – 41), and Generation Y (Ages 18 – 25) regard the coming challenges of financing their Golden Years.
“The workplace is changing and the availability of pension plans and employer subsidized retiree medical benefits are less of a reality – particularly for those generations that are farthest from retirement,” Hewitt wrote. “All generations need to honestly evaluate how much of the retirement equation falls to them, and many may find that they need to significantly increase their retirement saving, plan to work in retirement, or even delay retirement in order to maintain their preretirement standard of living.”
Because they have the challenge of helping to educate workers across a wide age spectrum, Hewitt cautioned, plan sponsors now more than ever must tailor not only the message but its delivery to smaller employee subsets.
“Younger workers may prefer to receive their communications electronically, whereas older workers may prefer a more high-touch approach, particularly if they are close to retirement,” the Hewitt report said. “Younger workers may gravitate toward turnkey solutions out of a desire for simplicity and because they lack financial savvy, whereas older workers with greater investment knowledge and more complex investment needs may require highly tailored and flexible investment support.
Examining each of the three age groups, Hewitt said:
class=”NormalDS”> According to Hewitt, the Baby Boomers are the mostly likely to be 401(k) plan participants than their younger colleagues and to contribute more. Yet many in this age group still aren’t saving very much (median plan balance of $44,330) because of the press of current expenses (67%) and emergencies (47%). But, at least retirement savings is on their minds; 81% reported thinking about the issue at least some of the time, Hewitt said.
class=”NormalDS”>Hewitt said that boomers will also have to grapple with the issue of how to disburse their retirement savings, once they stop work. Most (91%) of Baby Boomers plan to support themselves during retirement through their company-sponsored retirement savings plan while most (91%) also expect to rely on other investments and about three-quarters expect to receive income from a pension (73%) and/or from Social Security (78%).
Meanwhile, among the next age group down, over one-third (37%) of Generation Xers are not saving in their 401(k) plan, and when they do save, their rate of contribution is lower than Baby Boomers (7.2% versus 8.5% respectively). Generation Xers are more likely to admit that they are not saving enough than are Generation Y workers. They are also less likely to say that actively managing their retirement account is not a priority (14%). However, they are more likely than any other generation to say that saving for their children is a priority that gets in the way of retirement saving (53%). Saving for a home purchase is also more likely to get in the way of retirement saving for this generation than for Baby Boomers (31% and 15% respectively).
Like Baby Boomers, Generation Xers expect to rely on their employer-sponsored savings plan in retirement, with 93% noting this as a source of potential income. Even more – 96% – believe they will support themselves through other investments in retirement. Fewer Generation Xers expect to rely on a pension plan or Social Security than Baby Boomers. Still the majority do view these as sources of retirement income (66% and 60% respectively).
Only 31% of Generation Y employees who are eligible to participate in their employer-sponsored 401(k) do so. The average Generation Y participant contributes just 5.6% of pay – less than is required to obtain the common full company match of $0.50 cents on the dollar up to 6% of pay. Not only is the typical Generation Y worker less likely to invest in the 401(k) plan, he or she is also unlikely to save outside of the plan: only 10% of Generation Y workers say they have an IRA (compared to 39% of Baby Boomers and 31% of Generation Xers). More than a quarter (28%) of Generation Y workers don’t know if they are saving enough in their plan. And 63% say they don’t have enough information and really don’t know what to do to actively manage their retirement account.
Lack of urgency and other priorities top the list of things that get in the way of the typical Generation Y worker’s efforts to save for retirement. More than three quarters (78%) of Generation Y workers say that day-to-day needs provide an obstacle to retirement saving, and 61% say that lifestyle purchases do. Generation Y workers are more likely to put off saving because they believe they have more important goals (28%) compared to other generations, and they are more likely to say that they are not in a situation to save for retirement (36%). The typical Generation Y worker who is not saving in his or her 401(k) plan is projected to replace just 43% of income in retirement (without a defined benefit plan).
Nonetheless, this generation is more likely than the others to believe that it will maintain its preretirement standard of living in retirement (89%), suggesting that distant proximity results in greater confidence. Indeed, many Generation Y workers believe that retirement will be funded by savings they put away at a later date (81%). Unsurprisingly, fewer in this generation believe they will fund retirement through pension income or through Social Security – although the majority are still expecting income from theses sources (64% and 57%, respectively). Like Baby Boomers and Generation Xers, almost all Generation Y workers believe they will fund retirement through their company-sponsored retirement savings plan (92%).
All three generations struggle with finding enough time to actively manage their retirement account, and have concerns about stock market volatility. Generation Y most commonly notes that active management of their retirement account is prevented by lack of information and knowledge. This is also high on the list for Generation X and Baby Boomers, however Generation Y is more likely than others to admit that retirement saving is just not a priority for them.
A majority of workers in all three generations find that other financial obligations rank higher in priority than contributing to the retirement savings plan. Generation Y is materially more likely than Generation X or the Baby Boomers to say that they are not in a situation to save for retirement. Meanwhile, Generation X and the Baby Boomers are materially more likely to cite worries about the market as deterrents to higher contribution levels.