Younger Demographics Winning Retirement Generational Divide

Millennials and Gen Z are often the subjects of much derision, some of it warranted and some of it unwarranted. To the credit of these younger demographics, they are serious about retirement and the related savings data backup that claim.

A new survey by Goldman Sachs Asset Management (GSAM) indicates Gen Z has median retirement savings of $29,000 – impressive when considering many members of that age bracket are still in high school or college and those that are in the workforce haven’t been there long. Extrapolating that $29,000 out, many Gen Zers are already better-positioned for retirement than older counterparts in Gen X and baby boomers that are still working.

Gen Z’s and millennials’ proactive attitudes toward retirement planning are beneficial on a number of fronts, including the point that many folks in these younger demographics are signaling a willingness to work with advisors to improve their retirement pictures. Importantly, that desire increases as they work longer and increase the dollars they allocate to retirement plans and the like.

On the other hand, the Goldman study confirms that there is an arguably burning need for Gen Xers and many boomers to work with advisors and those prospects shouldn’t delay finding an advisor. One of the big reasons for that need is how retirement savings options changed over the year.

Not All Good News About 401(k)s

It’s been about four decades since the 401(k) plan was born and over that time, private sector defined benefit pensions – the primary retirement vehicle for many old boomers and folks older than that – have steadily become harder to find. Younger boomers and Gen X being slow to embrace 401(k)s are among the reasons those groups are behind on retirement planning.

“Yet the 401(k) transition looms large for Gen X and working Baby Boomers, and many working Americans have taken a long time to adapt to the new retirement system – some too long,” according GSAM. “As a result, 45% of Gen X and working Baby Boomers report their savings are behind schedule, and the same percentages do not have personalized retirement plans. This means many may lack coherent strategies for how much to save, how to invest, and when they can afford to retire.”

Gen X is the first generation to be 401(k)-centric in terms of employer-sponsored private sector plans. As GSAM notes, that also means Gen X is the first generation that’s had to engage in the often difficult balancing act of saving for retirement while tending to other important obligations such as auto and student loans and rent/mortgages, among others.

Those challenges are apparent in terms of the breadth of retirement issues prioritized by Gen X. GSAM points out that 35% to 38% of Gen Xers are prioritizing guaranteed income, emergency savings and embracing professional advice/planning.

“In our view, the challenges this generation faces are the culmination of all the major challenges that should be addressed in the retirement system: services/features to address short-term financial needs, personalized planning and retirement income,” observes the asset manager.

Point is Gen X badly needs advisors and advisors can be a force for good with this demographic. It’s merely a matter of finding avenues to start these relationships.

Mind Millennials’ Financial Vortex Exposure

As I noted when covering GSAM’s 2023 Retirement Survey and Insights Report released last September, the firm coined the term “financial vortex”, which refers to competing financial priorities. While Gen X was perhaps the first demographic to be afflicted by this scenario in earnest, advisors should note that millennials are particularly vulnerable to it as well.

In addition to being concerned about consumer and student debt hindering their ability to accumulate strong retirement savings, millennials are worried that they might need to care for loved ones in old age or spend time out of the workforce – either of which could weigh on their retirement efforts. That millennials are cognizant of those issues is positive and that awareness lends itself to the generation’s willingness to work with financial professionals. Some are already doing just that and that could motivate their counterparts to follow suit.

“Our research highlights that having a personalized financial plan for retirement supports higher levels of confidence, less stress and a greater likelihood of retirement savings being on track,” concludes GSAM. “Millennials, more than any other generation, have a personalized plan for retirement (67%). And similar to Gen Zers, Millennials have a higher propensity to plan for other financial responsibilities, compared to Gen X and working Baby Boomers.”

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