News
Gen X is the 401(k) ‘experimental generation’. See how this is happening.
Gen X has been the alpha tester of the 401(k) retirement system, and the dismal results are emerging.
Nearly half of Gen Xers say their retirement savings are behind, according to the recently launched Goldman Sachs Retirement Survey.
“Many Gen Xers started the transition to 401(k) plans late and have struggled to catch up,” Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, told Yahoo Finance.
Even now, half haven’t calculated the total amount of retirement savings they will need, how to save and invest to achieve that goal, or when they can afford to retire.
This is significant as the oldest of this cohort will turn 60 next year.
See more information: How much money should I have saved by age 50?
The ‘experimental generation’
In many ways, Generation X — those born between 1965 and 1980 — led our nation’s experiment in moving from a pension system to a 401(k) system, requiring individuals to save and prepare for their own retirement.
“They are the first generation to rely primarily on their own individual savings through 401(k)-like plans, and therefore we refer to them as the ‘401(k) experiment’ generation,” Ceder said.
Gen X is the first generation to rely primarily on their own individual savings through 401(k) plans. (Getty Creative) (Delmaine Donson via Getty Images)
More than two decades ago, many employers began moving away from traditional defined-benefit pensions and switching to 401(k) retirement plans, in which workers contribute a small amount to themselves in employer funds.
While pensions are still the norm for state and local public sector employers, they have virtually disappeared in the private sector.
Today, only 11% of private employers offer pensionscompared to 35% in the early 1990s. More than half of private sector employees have a 401(k) plan, according to the Bureau of Labor Statistics.
What’s behind Gen X’s slow savings rate? Credit card debt and existing loans, especially student loans, in addition to supporting family members financially, the research found.
And a big concern is that they may retire earlier than expected.
People often retire for reasons beyond their control, such as health and care needs and job loss, Ceder said.
“We are starting to see Generation X retiring earlyand, in many cases, for the same reasons. Retiring early sounds great, but to the extent that people aren’t financially prepared, it can have a big impact on the next decades of retirement,” he said.
The reality of Generation X has been increasingly noted in financial sector reports. For example, Gen Xers say they will need, on average, $1.56 million in savings to retire comfortably, but to date, they have saved just an average of $109,600. More than 1 in 3 Generation X workers dipped into their savings or took out a loan to pay monthly bills.
The story continues
Source: Goldman Sachs Retirement Research and Insights Report (Goldman Sachs Retirement Research and Insights Report)
What employers could do to help
Employers could help them catch up by providing professional financial counseling and planning services, an emergency savings account feature and a guaranteed income option for their retirement plans, according to the Goldman report.
“We learn from this generation’s experience with savings challenges, competing priorities, the impact of plan failures, financial education and more,” Ceder said.
Generations following this group are reaping the benefits, with more plans now offering improved options. These include automatic enrollment, professionally managed portfolios or target date funds as standard plan options and, more recently, automatic portability, he added.
Automatic enrollment and the emergence of target date funds are undoubtedly changing retirement planning for younger workers. According to Vanguard recordkeeping data, in 2006, 11% of plans offered automatic enrollment, but by the end of 2021, half had adopted the feature, and about three-quarters of Gen Z and millennials were in plans with automatic registration.
Millennials, born between 1981 and 1996, are most likely to report that their retirement savings are on track or ahead of schedule (69%) and just 28% believe they are behind schedule, according to the Goldman report.
Baby boomers who still work are also feeling the heat. Approximately half feel they don’t have enough to retire comfortably, are worried about the cost of health care in the future, and are therefore retiring later than previous retirees.
Half of baby boomers also plan to work part-time in retirement as a financial safety net, far more than Gen X and Gen Y.
See more information: Retirement Planning: A Step-by-Step Guide
Members of Generation Z – born between 1997 and 2012 – are already planning to retire considerably earlier than previous generations, according to a new report from Goldman Sachs Asset Management. (Getty Creative) (PeopleImages via Getty Images)
The optimism of youth
Generation Z – born between 1997 and 2012 – is already planning a much earlier retirement than previous generations.
They may be right. Many are off to a good start, with average retirement savings of about $29,000, according to Goldman.
This, however, does not change the playing field for the Gen X group. Time is of the essence – Gen Xers are in the second half of their careers.
“Retirement income, longevity riskand healthcare costs in retirement will be just some of the next challenges this generation will face,” Ceder said.
Kerry Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and author of 14 books, including “In control over 50: how to succeed in the new world of work” and “Never too old to get rich.” Follow her on X @kerryhannon.
Read the latest financial and business news from Yahoo Finance