Generation Y slacking on Savings?
Posted: January 4th, 2011 | Author: Joe | Filed under: Retirement | Tags: 401(k), Retirement, Saving | No Comments »
Gen Y often gets a bad rap from Boomers and Gen X-ers for being entitlement minded and lacking ambition. I suppose it’s due at least in some part to the natural tendencies of each generation thinking the next has it easier than they had it, but if this article from The Street is any indication, Gen Y is not on track to show they’re any better at saving for retirement than previous generations.
According to the study, 80% of Generation Y workers (defined by the study as roughly 18-30 year-olds) will fall short of having sufficient funds for retirement by the time they get their last paycheck.
“After factoring in inflation and post retirement medical costs, its researchers project Generation Y workers will need to save 18.7 times their final pay in retirement resources — including Social Security, employer-provided defined benefit and defined contribution plans and employee savings — to maintain their current standard of living in retirement.”
I think there’s a lot of truth at the heart of the study, but not just for Gen Y-ers, but there are also a host of assumptions at play here too – most of which make the picture even more bleak!
For example, does anyone really expect Generation Y members to be able to collect Social Security by the time they retire? If the system isn’t completely bankrupt by that time, it will likely be reduced to something akin to retirement welfare – providing simple subsistence to those below the poverty line who never saved anything for retirement. Like many of Generation X, Generation Y retirees will face saving for their own retirement in their private accounts (401ks, etc..) while funding the retirement of others through the social security tax.
Another point that isn’t made clear in the article is how the unemployed factored into the results. A large portion of the nearly 10% unemployed are in this generation.
The article goes on to point out that 41% of workers with access to 401k plans do not save enough to get the company match (free money people!) I think this highlights another underlying problem – younger workers lack a saving mindset.
It’s not a Gen Y thing, I can remember when I got my first real job out of college and was making what was big money to me at the time, I didn’t think anything about retirement savings. My parents never talked to me about such abstract things, and it seemed a lifetime away at the time. Fortunately, I had a manager who took me aside and told me – in no uncertain term- that I was going to set aside at least 10% of my salary and increase that by 1% every year.
Thanks to her, I had 6 figures in my 401k by the time I was 35.
I didn’t fully understand the Importance of what she did for me until many years, and a few jobs later, but I see the difference it made in my life and I wonder how many in my generation and others never had the same kind of retirement guardian angel I had.
One thing is clear, without sufficient savings rate the standard of living for Gen X and Gen Y retirees will be significantly lower than previous generations.
