Are Millennials Better Prepared for Retirement Than Baby Boomers and Generation X?

Are Millennials Better Prepared for Retirement Than Baby Boomers and Generation X? Episode 254 – Which generation—baby boomers, gen X or millennials—is better prepared for retirement? The answer may surprise you. More SML Planning Minute Podcast Episodes Transcript of Podcast Episode 254 Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, are millennials better prepared for retirement than Baby Boomers and Generation X? A new survey by The Vanguard Group, the mutual fund giant based in Malvern, PA, has concluded that, “For most income cohorts, millennials and Generation X enjoy a brighter retirement outlook than boomers.”[1] How is this even possible? This certainly runs contrary to many popular narratives, especially when it comes to Millennials.  “Millennials are still significantly behind in amassing wealth,” NPR claimed in a 2021 Planet Money newsletter.[2]  And, according to a recent article in The Atlantic, “The once-optimistic children of the 1980s and early ’90s are now wheezing under the burden of college debt, too poor to buy houses or start families, sucker punched by a hostile economy.”[3] Could all these experts be wrong? The Vanguard study looked at what they call the “sustainable replacement rate by generation and income,” in other words, the projected highest level of consumption one can maintain in retirement as a percentage of their pre-retirement income. The study compared early Millennials (ages 37 to 41) to Generation X (ages 49 to 53) and late Baby Boomers (ages 61 to 65). It’s perhaps no surprise that for lower income people, defined as a median income of $22,000, the replacement rate is low across the board. This makes sense: the lower your income, the less likely you are to have something left over to save for retirement. But at higher income levels, the millennial advantage becomes clear: for a median income of $70,000, the replacement rate is 66 percent for millennials, compared to 53 percent for Gen X and 51 percent for Boomers. It became even more pronounced when they looked at the 95th percentile: 85 percent for millennials, 75 percent for Gen X, and 63 percent for Boomers. So, what could possibly explain all this? Perhaps it’s the changes to 401(k) enrollment policies that have taken place over the last few years. Nowadays, contribution to a 401(k) is the default option for most new employees. A portion of their paycheck will automatically go into their 401(k) unless they opt out. A 401(k) is far from the perfect retirement plan, and there are other options that may be better for some people. For one thing, the money is 100 percent taxable when it comes out. For another, it is perhaps too easy to treat your 401(k) like an emergency fund and withdraw some or all of the money prematurely. Still, for many Americans, it represents the only real savings they have. This is because the money appears in the account before they get the chance to spend it. Could it be that millennials are being unfairly maligned for their lack of financial savvy? Sure seems that way. [1] Fu Tan, Fiona Greig, Andrew S. Clarke, Kevin Khang, Kate McKinnon, and Victoria Zhang. “Retirement Outlook: A national perspective on retirement readiness.’’ Vanguard Research. https://corporate.vanguard.com/content/dam/corp/research/pdf/the_vanguard_retirement_outlook.pdf  (accessed October 12, 2023). [2] Rosalsky, Greg.. “There Is Growing Segregation In Millennial Wealth.” Planet Money, National Public Radio. https://www.npr.org/sections/money/2021/04/27/990770599/there-is-growing-segregation-in-millennial-wealth (Accessed October 13, 2023). [3] Twenge, Jean M. “The Myth of the Broke Millennial.” The Atlantic Magazine. https://www.theatlantic.com/magazine/archive/2023/05/millennial-generation-financial-issues-income-homeowners/673485/  (accessed October 13, 2023). More SML Planning Minute Podcast Episodes This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information. The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation. To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time. The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state. SubscribeApple PodcastsSpotifyAndroidPandoraby EmailTuneInDeezerRSSMore Subscribe Options