What Color Is the Retirement Mood Ring?

By John Iekel • June 08, 2017 • 0 Comments
If you’re of a certain age, you may remember mood rings, the once-trendy jewelry whose gem changed color depending on one’s mood. So what color is the retirement readiness mood ring? Violet (happy), gray (anxious) or amber (nervous)? Recent studies and insights give us answers as varied as the spectrum.

Generation Gaps

Millennials — those born between 1980 and 1997 — expect to retire earlier than any other western market globally, but they don’t think they are going to live as long as Boomers or Gen X.

According to HSBC’s “Future of Retirement” research, now in its 14th edition and drawn from a survey of more than 18,000 people across 16 countries to understand trends and key issues associated with retirement, Millennials expect to retire at age 58, Generation X at 63 and Baby Boomers at 65. However, despite widespread expectations of an expansion in longevity, Millennials only expect to live to age 80, while Generation Xers expect to live to 87 and Baby Boomers to 86. If those expectations match reality, that would mean expected retirements of 22, 24 and 21 years respectively.

Those expectations notwithstanding, in terms of life expectancy and retirement planning, 65% of people — and 62% of Millennials themselves — believe the Millennial generation will live much longer and will need to support themselves for longer.

On average, Millennials started saving for retirement at age 26, though one in five have not yet started saving for retirement. On the other hand, that’s not too far off the patterns found in two elder cohorts: 19% of Gen X and 17% of Baby Boomers. Still, 80% of U.S. Millennials have already started saving for their retirement, with another three quarters (75%) citing plans to cut expenses to save more for retirement.

With 76% of Millennials concerned about running out of money affecting their retirement, 75% are prepared to cut back on their present expenses in order to save (higher than the global average of 65%), compared to 72% of Gen Xers and 57% of Baby Boomers. Seventy-three percent of Millennials see saving as a difficult but necessary task (compared to 70% of Gen Xers and 65% of Baby Boomers).

The most recent Workplace Benefits Report by Bank of America Merrill Lynch, conducted by Boston Research Technologies on behalf of Bank of America Merrill Lynch from Sept. 22, 2016 to Oct. 7, 2016, with a national sample of 1,242 employees, concurs regarding these concerns of Millennials. It shows that younger employees devote even more time per week on personal financial matters, with 60% spending an average of four hours — twice as much as Generation X and four times as much as Baby Boomers.

There is some difference across generations in terms of financial risk aversion, HSBC found. Forty-seven percent of Millennials (who arguably have a longer time horizon) say they are very willing to make risky investments to ensure their financial stability, well more than Gen Xers (27%) or Baby Boomers (13%).

Almost half of the U.S. Millennials surveyed are willing to take on more risk in their investments to generate wealth. The study also found that investment appetite across other generations is stark. Only 27% of Gen Xers and 13% of Baby Boomers are willing to take on the same risk profile. Moreover, they are “yearning to learn,” with nearly two-thirds (63%) of Millennials actively seeking information to guide their financial decisions, compared to Gen Xers (49%) and Baby Boomers (34%).

Sixty-three percent of Millennials actively seek information to guide their financial decisions, compared to 49% of Gen Xers and 34% of Baby Boomers.

Fifty-six percent of people believe that Millennials have experienced weaker economic growth than previous generations (compared to the global average of 53%), while 57% agree that Millennials are paying for the economic consequences of older generations, such as the global financial crisis and rising national debt.

However, 55% of people say that Millennials don’t know how good they have it, enjoying a better quality of life than any generation before them.

Only 9% of people think Millennials are in the best position for a comfortable retirement, compared to 38% who think Baby Boomers are.

Student Loan Debt

If some in the younger generations are concerned about having enough money in the distant future and are delaying setting money aside, student loan debt may be at least one reason.

A recent study by Prudential on student loan debt says that student loan debt is putting many Americans’ financial wellness, including saving enough for retirement, in jeopardy. “Many college graduates who took out student loans say that debt has caused them to delay or forego saving for retirement, building emergency savings or buying a home,” says the study, which also notes that 73% of graduates wish they were saving more for retirement.

The Bottom Line

The Bank of America Merrill Lynch study says that an indirect result of employees’ financial concerns is that they are bringing their worries to work while “on the clock.” Forty-three percent of respondents indicated they spend more than three hours a week on personal financial matters.

These concerns are spilling over to other areas of the workplace as well, with nearly 6 in 10 respondents reporting that financial concerns have a negative impact on their health, leading to increased health care costs, absenteeism and lost productivity.

How Did Your Garden Grow?

There may be some concerns, stresses and mindsets that are unique to younger generations, but United Income found that their older counterparts have their own, according to Fox Business.

The study says that optimism about financial health is in inverse proportion to advance in age, and that one consequence is that many older people reduce their spending. Nonetheless, the United Income study says that the average retiree is accumulating wealth, a phenomenon that depends in part on how they built their retirement savings. Those who did so through savings or owning a home, said the study, were more likely to see their retirement savings grow; the savings of those who struggled in the effort during their time in the workforce were more likely to stay to same or shrink.

The Longer View

Some of those who have a rosier view of their financial prospects in retirement take a long view about how they receive their funds, Vice President of Institutional Income Annuities at MetLife Roberta Rafaloff told attendees at a June 1 session of the Spark Institute’s Retirement Industry Conference held at National Harbor, MD outside Washington, DC.

Rafaloff said that in her firm’s study of plan participants, nearly all of those who chose annuities rather than lump sums were glad they did so — and many of those who took lump sums regretted the decision.

She said that plan sponsors take a longer view, and that in a recent lifetime income poll of 212 plan sponsors, the vast majority expressed support for arrangements in which participants receive regular payments from their retirement accounts rather than lump sums.

And the plan sponsors told MetLife that they support helping participants make more informed choices. Nearly all — 96% — said they support lifetime income disclosure in defined contribution plan benefit statements that show what a lump sum would equate to in regular payments. “I think it’s critically important,” said Rafaloff.