Four Generations Emerging From the Pandemic
Al Waller: Today, there are four generations in the workforce who are preparing for retirement – and each with a different set of expectations and planning-related assumptions.
Welcome back to ClearPath – Your Roadmap to Health and Wealth SM. I’m your host, Al Waller. With me is Catherine Collinson, CEO and president of nonprofit Transamerica Institute® and its Transamerica Center for Retirement Studies to discuss the evolving retirement landscape and the financial journeys to retirement for Baby Boomers, Generation X, Millennials, and Generation Z.
Before we get started – a reminder that we would love to hear from you and learn what topics you would like us to cover or give us feedback on today’s show. Please drop Catherine or me a note at [email protected].
Catherine, I'd like to start things off by asking that given the uproar of the pandemic and economy, to what extent are workers even thinking about retirement?
Catherine Collinson: Al, it’s extraordinary. The short answer to your question is workers are thinking about it “a lot.” As you mentioned, today’s workers are emerging from a pandemic and navigating megatrends such as population aging, increases in longevity, workforce disruptions, and concerns about Social Security. So, it's really extraordinary that workers are thinking about and saving for retirement, despite this unclear future. The big question is: are they saving enough and are they adequately preparing?
Al Waller: Exactly, and I understand your team recently released a survey report, Emerging From the COVID-19 Pandemic: Four Generations Prepare for Retirement. What did your research find?
Catherine Collinson: We conducted a survey of almost 5,500 workers of for-profit companies in late 2021. If you’re up for it, I’d like to share highlights and tips for each of the four generations.
Al Waller: Absolutely, why don’t we start with Baby Boomers, the generation nearing and entering retirement.
Catherine Collinson: Baby Boomers were born between 1946 and 1964. This year, 2022, the oldest Baby Boomers are 76 and the youngest are 58 years old.
Baby Boomers have re-written societal rules at every stage of their lives, including retirement. With aspirations of working into older age and flexible transitions to retirement, Baby Boomers are upending the notion that work and retirement are mutually exclusive. As a result, they are paving the way not only for themselves but for future generations of retirees.
Al Waller: Given they've been in the workforce for somewhere in the range of 40 and 60 years – what has been their experience in preparing for retirement?
Catherine Collinson: Many Baby Boomers were already mid-career when the retirement landscape began shifting away from traditional defined benefit pensions towards 401(k) or similar plans. Baby Boomers started saving at an older age than younger generations and they just haven’t had the same time horizon to save and grow their investments.
Emerging from the pandemic, Baby Boomers have also been susceptible to employment risks, volatility in the financial markets, and increasing inflation – all of which can be disruptive to their retirement plans.
If you're up for it, I want to take you through Baby Boomers and retirement by the numbers, according to our survey findings. We found that 40 percent of Baby Boomer workers expect to rely on Social Security as their primary source of income in retirement.
Eighty-three percent are saving for retirement, either in an employer-sponsored 401(k) or similar plan and/or outside the workplace. Baby Boomers began saving at age 35 (median age). Baby Boomer workers have saved an estimated median of $162,000 in their total household retirement accounts – $162,000 may sound like a lot, but if you think that that would have to last over the course of a retirement of 20 or more years – it doesn't go as far as you might think.
Al Waller: Well, Catherine, in this day and age, especially in light of inflation, I'd have to agree with that assessment. Now, you mentioned they plan to work longer and then retire at an older age. How feasible is this?
Catherine Collinson: This is a really important and pressing question. Our survey found that almost half of Baby Boomer workers (49 percent) expect to work past age 70 or do not plan to retire. Their reasons for doing so are almost as likely to be healthy aging-related (78 percent) as financial-related (82 percent).
However, their success depends on support from their employers. Fewer than six in 10 (59 percent) Baby Boomer workers say their employers are age-friendly by offering opportunities, work arrangements, training, and tools needed for employees of all ages to be successful.
As Baby Boomers are extending their working lives, this is a really great way for them to bridge any savings shortfalls – because they're working longer, they have the opportunity to save more, and it will conceivably be a shorter retirement. This sounds like it could be really good – and it can be really good – however, it is critical that they establish well-developed financial plans and include backup plans for life's unforeseen circumstances that could potentially derail the best of their intentions.
Over the years we have surveyed retirees, and we find that many retired sooner than they had planned either due to employment reasons, health reasons, or health of a spouse or needing to be a caregiver for a family member.
So, for Baby Boomers looking to work longer, that can be a great way to bridge your savings shortfalls, but it's really important to have a financial plan and those backup plans for life's unforeseen circumstances.
Al Waller: As I've heard it said, the best surprise is no surprise at all. Now, let's keep rolling – what about the Generation X?
Catherine Collinson: Generation Xers were born between 1965 and 1980 – so they’re now in their 40s and 50s.
To give a little historical context, Generation Xers entered the workforce in the 1980s and 1990s when 401(k) plans were brand new and traditional defined benefit plans were vanishing from the retirement landscape.
Generation X were the early adopters of 401(k) plans and the first generation to potentially have access to a plan for the majority of their working careers. I want to underscore – I say they “potentially” have access to plans because many employers just weren’t yet offering them yet, which by the way is a societal challenge that continues to this day – not all employers are offering plans yet.
So, Gen X potentially has had access to plans for the entirety of their working careers so far. Another thing I think is really important to point out, 401(k) plans in the early days predated the internet. So, they were much more primitive than the 401(k)s that we have today with access to your account balance 24/7 online. It just wasn't that way back in the early days of 401(k)s.
They had few investment options, limited investment education and guidance, and if you wanted to know what your account balance was, you received a printed statement via US Mail about a month to six weeks at the end of each quarter. So, things were just so different back then that it illustrates how our world has changed, technology has changed, and the retirement landscape has changed.
Al Waller: Well, Catherine, I'm old enough to remember those old days and it seems with accessibility and everything else, we've taken a giant step in the right direction.
Fast forwarding to present day, what does the Generation X's retirement outlook look like?
Catherine Collinson: According to our survey findings, most Generation X workers are saving for retirement, but many have a steep mountain to climb in terms of building their savings. Eighty-one percent are saving for retirement, and they began saving at age 30 (median). They have saved an estimated median of $87,000 in total household retirement accounts.
More than three in four (78 percent) are concerned that Social Security will not be there for them when they are ready to retire. Only 22 percent of Generation X workers are “very” confident they will be able to fully retire with a comfortable lifestyle.
Al Waller: Well, Catherine, I don't know about you…but I find all of this more than just a little discomforting. So then, would it be safe to say like Baby Boomers, the Generation X worker population is probably planning to work longer, as well?
Catherine Collinson: Indeed, they are. Almost four in 10 Generation X workers (38 percent) expect to retire at age 70 or older or do not plan to retire, and more than half (55 percent) plan to work in retirement.
I want to point out, our survey yielded a major opportunity for Gen X workers – that is to develop a written retirement strategy for retirement, a well-developed financial plan. Only 27 percent of Gen X workers have done so yet – with hopefully many more to follow.
My tip for Generation X workers, if you haven’t already, now is the time to get ultra-focused on retirement planning, including estimating your retirement savings needs, assumptions about when you’ll retire, and your expected expenses in retirement. Of course, it’s also critical to consider health care expenses, investment returns, and potential inflation – among other factors.
For Gen X, I also encourage you to avoid procrastinating – time is one of your most precious resources. The sooner you focus, the more time you’ll have to get on track.
And by the way, I also want to underscore the need to avoid procrastination for workers of all ages because time is one of our most important resources in helping us save and grow our savings over the long term.
Al Waller: Well, amen to that, Catherine. Thank you for these observations and very cogent pieces of advice.
Now, let's turn our attention to the Millennials. It's hard for me to fathom that the oldest Millennials are now in their early 40s and the youngest in their mid-to-late twenties, especially having personally raised two of them myself. But seriously, it seems like only yesterday Millennials actually began entering the workforce.
Catherine Collinson: Millennials were born between 1981 and 1996. I've been doing this retirement research a long time – I remember when they were the new generation in the workforce and we got to start reporting on their progress. Here we are twenty years later – time moves so quickly.
So, to give some context about Millennials, they began entering the workforce around the time of the Great Recession, which began in late 2007. At that time, the Great Recession was the worst recession since the Great Depression of the 1930s.
Millennials experienced a turbulent economy in their early working years, and they started their careers with higher levels of student debt than previous generations. As a result, Millennials have waited to buy homes, get married, and start families – but amazingly, with the increasingly widespread availability of 401(k) plans, they made a solid and early start in saving for retirement.
Al Waller: Well, that certainly strikes a more optimistic chord. But then again, how has the pandemic impacted their situation?
Catherine Collinson: Our survey found that younger generations of workers, Millennials and Gen Z, who we'll talk about in a bit, in many ways are more likely to have been impacted by the pandemic in one way or another.
A positive example is more than eight in 10 Millennial workers (84 percent) say their life priorities have changed as a result of the pandemic. Some concerning news is that almost seven in 10 (68 percent) are concerned about their mental health. More than one in three (34 percent) Millennial workers were unemployed at some point during the pandemic for various reasons.
Al Waller: No doubt about it, they've been through a lot, and it seems likely this could potentially affect their plans in preparations for retirement, right?
Catherine Collinson: I'm cautiously optimistic that our news is still somewhat encouraging. Three in four Millennial workers (76 percent) are saving for retirement and they began saving at age 25 (median) – which is a much younger age than Baby Boomers and Generation X. They have saved an estimated median of $50,000 in total household retirement accounts. However, they report having saved just $3,000 (median) in emergency savings – which could be problematic if they have a financial emergency.
To further illustrate how the retirement landscape is changing, more than half of Millennial workers (52 percent) expect their primary source of retirement income to come from self-funded savings, such as 401(k)s, 403(b)s, and IRAs, as well as other savings and investments. Almost three in four Millennial workers (73 percent) are concerned that Social Security will not be there for them when they are ready to retire.
Al Waller: Well, Catherine, I think there's some consolation in this generation's initiative in terms of charting a more self-reliant course of saving for their future, especially in light of the question of Social Security’s availability and viability. What additional insight would you like to share with millennials?
Catherine Collinson: Many Millennials, as well as the other generations, are being called upon as caregivers for their aging parents or loved ones. Unfortunately, this invaluable labor of love could be at the expense of their own employment and ability to save for retirement.
If you are a Millennial or a worker of any generation and find yourself in this situation, I recommend having candid discussions with your extended family to come up with a care plan for the individual in need of care so that everyone can share in the caring, and to avoid what is a very common situation in which one individual in a family ends up bearing a disproportional amount of the responsibility, which then in turn disproportionately impacts their employment and ability to save.
Another thing that I want to point out is a tip – employers are increasingly aware that many of their employees will be caregivers at some point or another. And employers are adding resources to help support their caregiving employees.
So, if you think you might be a caregiver or you find yourself as a caregiver, it's super important to check out what resources your employer may have. Some employers even have things like discounts and referrals to backup care – so if your loved one needs help, there could be a resource for them without totally disrupting your own work situation. Employers are offering other types of services and supports as well. So, check them out.
Al Waller: I'll tell you this really strikes a chord with me because we've been through that type of situation and bearing the responsibility for a family member. It's tough – oftentimes, it can create a certain amount of discord within the family.
So, I think to your point – open, honest communication, and making sure that nobody winds up doing the lion's share of the work, I think is great council. It’s also really encouraging what your survey has uncovered and the fact that now employers realize this as a major issue and are taking the time to be supportive of their employees – because you don't want to lose the people that you have that are just so valuable to you. I think being proactive like this is clearly a step in the right direction. Glad to hear that.
Now let's turn our attention to Generation Z, the youngest generation in the workforce.
Catherine Collinson: Generation Z was born between 1997 and 2012. They entered the workforce shortly before the onset of the COVID-19 pandemic, and if we remember before the pandemic, unemployment rates were at historic lows. Then of course the pandemic happened – unemployment rates skyrocketed.
Where we are today, unemployment rates have returned back to lows as businesses have reopened and the economy has reopened and as many workers who dropped out of the workforce have been reluctant to come back.
Interestingly, despite this tumultuous start to their careers, Gen Z will have even greater access to 401(k)s and workplace retirement plans than their predecessors. So, you think – they are young, they're entering the workforce, it's been a pandemic. Amazingly enough, they're thinking about retirement.
Al Waller: To your point, that earlier access to worker Retirement plans is a very, very good thing, but at the same time, it's kind of hard to imagine they're even beginning to think about retirement at such a young age.
What did your survey reveal about that?
Catherine Collinson: So, our survey – I want to point out something really important. Our survey is of workers aged eighteen and over. So, it only captures Gen Z who are over 18. We didn't capture responses from those under the age of 18, which many still are.
We took a broad look at where they were at with the pandemic and retirement. And it's important to note, the pandemic has been especially difficult for Generation Z.
Almost six in 10 (59 percent) say they often feel anxious and depressed. More than half (52 percent) experienced one or more negative impacts on their employment, ranging from layoffs and furloughs to reductions in hours in pay. Slightly more than half (51 percent) have trouble making ends meet. Yet, remarkably, they haven't given up on retirement.
Al Waller: That is remarkable – because when I was their age, I can't say planning for retirement was actually center stage on my radar.
Catherine Collinson: It's extraordinary, and of course, I'm very concerned and a tad worried for Generation Z. They're showing so much resilience, but they've just weathered such a big storm. I hope that they don't get discouraged. Right now, they're showing great momentum and I hope that they can sustain it – we'll see.
Let me let me tell you a bit about the retirement situation. This is extraordinary – 67% of Gen Z workers are saving for retirement and they started saving at the unprecedented young age of 19. Remember earlier on, we were talking about Baby Boomers – they didn't start until 35.
When we think about a long-term horizon to save and grow your investments – from age 35 to age 19 – Gen Z workers who are starting to save are adding 16 years to that time horizon. It's extraordinary.
Al Waller: I really like the sound of this trend, Catherine. What insights would you like to offer our Generation Z listeners?
Catherine Collinson: Keep up the good work! That's the first tip. As I mentioned, they have a long time horizon. Gen Z has 40 or 50 or more years to save and grow their retirement savings. With this horizon, they are very well positioned to really enjoy potential growth and compounding of investments. This can make a huge difference in the long run because at some point, they're putting their money to work for them as they're working and saving.
One big tip I have for Gen Z workers – you're early on in your working years and your careers and it is likely that you will change employers many times between now and the time that you retire. It's also very likely that you'll spend time in self-employment.
This being the case, it is super important that you're diligent in managing your retirement savings, especially as you're transitioning between employers and in and out of self-employment. You don't want your retirement savings to get lost in the shuffle. Some good news is retirement plan providers and IRA investment providers are making it easier for people to roll over their accounts based on their needs. But it still requires action and diligence on behalf of the Individual.
So, just a word to the wise to Gen Z as you're navigating these life transitions, have a plan for your retirement savings so you're in a position that you can really manage it, nurture it, and goal set around it.
Al Waller: Well said, Catherine – thanks so much for sharing your insight and really supportive counsel.
That's all we have time for today. If you’d like to read the new survey report we just discussed, visit www.transamericainstitute.org. Additionally, if you are interested in learning more about generations, I recommend you check out our recent podcast episode on the latest employment-related trends in the multigeneration workforce.
If you have ideas for future episodes, comments, or feedback, please email me or Catherine at [email protected]. Don’t forget to subscribe to our podcast so you won’t miss upcoming episodes.
Until the next time, I’m your host Al Waller. Stay safe, be well and thanks for listening.
ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about health and wellness, employment, financial literacy, longevity, and retirement. You can find our weekly podcast on WYPR’s website and mobile app, wherever you get your podcasts, and at transamericainstitute.org/podcast.
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