Retirement Readiness of Generation X

Retirement Readiness of Generation X

An Overview of the Next Generation of Retirement Investors

January 2012

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Overview

Much of the research in the retirement planning industry has focused on the needs of Baby

Boomers. While the 79 million strong Boomer population undoubtedly requires retirement income

advice now and in the coming years, there are another 70 million Americans right behind them—

Generation X (Gen X).

As such, the Insured Retirement Institute (IRI) has embarked on a large-scale analysis of Americans

in their 30s and 40s, thereby including Generation X and the youngest Boomers. In this report, we

share a key portion of this research—the preparations they are making for retirement, and the

issues that are shaping these expectations.

Key Findings and Analysis

Although their collective retirements are decades away, there are a number of compelling

reasons for Generation X and their advisors to begin the retirement planning process early.

o Among GenXers who pinpointed an anticipated retirement age, the average age was

64, indicating a retirement period of more than 20 years.

o Only one-third of GenXers are at least very confident of having enough money to live

comfortably during retirement, cover their medical expenses, and pay for their

children’s higher education.

o Just 41% of GenXers have tried to figure out how much money they will ultimately

need to save. And, among those who have saved, half have amassed less than

$100,000.

o The economy has played a significant role in how GenXers shape their retirement

expectations. Overall, many GenXers felt the sting of the recession, as 15% made

early withdrawals from their 401(k) plans, 23% stopped contributing to their

retirement accounts, and 22% stopped contributing to college savings plans.

Single GenXers, women and those on the cusp of the Boomer Generation are in particular

need of guidance in planning for retirement.

o Approximately 21% of older GenXers and younger Boomers in this group needed to

dip into their retirement savings plans in the past year.

o 54% of female GenXers rated themselves as having little to no investment

knowledge; this compares to 37% of male GenXers.

o Only 24% of single GenXers indicated that they were at least very confident that

they would have enough savings to fund their lifetime retirement needs, compared

to 40% of married GenXers. On the other end of the scale, 35% of single GenXers

expressed little to no confidence about having enough money for their retirement,

compared to 20% of married GenXers.

Presently, 37% of GenXers have consulted a financial advisor. Among single GenXers, this

figure is 20%. IRI defines Generation X as Americans born from 1965 through 1981,

inclusive.

o The Generation X population numbers 70 million; including the youngest Boomers

brings this figure to 83 million.

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o Generation X, as a group, is educated (one third have at least a Bachelor’s degree),

own their own homes (at least 70% of married couples), and work in professional

occupations (more than 40%).

Who is Generation X?

There are various accepted boundaries that define the age group dubbed Generation X. IRI

recognizes GenX as the 70 million Americans born from 1965 through 1981, inclusive, a population

that turned ages 30-46 in 2011. Additionally, this report includes late-stage Boomers—those born

from 1962 through 1964, as their views and experiences tend to align with those of the earliest

GenXers. This range enabled us to do a complete analysis of Americans who are in their 30s and

40s.

For this report, we segmented GenXers into three groups, by age, as follows:

Young GenXers: Those born during the five-year period from 1977 through 1981, who were

between ages 30 and 34 in 2011. The year 1977 is used by some demographers to

differentiate between Generations X and Y.

Core GenXers: Those born during the ten-year period from 1967 through 1976, inclusive,

who were therefore between ages 35 and 44 in 2011.

Hybrid Boomers: Those born during the five year-period from 1962 through 1966. This

group, who were between ages 45 and 49 in 2011, is somewhat evenly divided between the

youngest Boomers and the oldest GenXers.

For ease of presentation, this report refers to all three groups collectively as Generation X.

Generation X segmentation Birth Years Age in 2011 Population

(millions) Hybrid Boomers 1962-1966 45-49 22.7 Core GenXers 1967-1976 35-44 41.0 Young GenXers 1977-1981 30-34 20.0 Source: United States Census, 2010, Insured Retirement Institute

Generation X, as a group, is educated, own their own homes, and work in professional occupations.

In its Demographic Profile of America’s Gen X, the MetLife Mature Market Institute includes the

following statistics. (Note that MetLife classifies Gen X as those born between 1965 and 1976.)

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Selected Traits of Generation X

Education

Master’s Degree or Higher 11% males / 12% females

Bachelor’s Degree 21% males / 22% females

Some College 25% males / 29% females

High School Graduate 31% males / 26% females

Less than High School 13% males / 10% females

Family

Married 65% males / 67% females

Divorced or Separated 13% males / 16% females

Widowed 0.3% males / 1.1% females

Never Married 22% males / 16% males

Home Ownership (among Married Couples)

Age 30-34 70%

Age 35-39 79%

Age 40-44 84%

Home Ownership (among Singles Living Alone)

Age 30-34 36% males / 34% females



Occupation Group Management, Professional, and Related 35% males / 44% females

Sales and Office 15% males /29% females

Service 12% males / 20% females

Construction and Maintenance 19% males / 1% females

Farming, Fishing and Forestry 1%

Other 6% - 18%

Median Household Income (2008, Married Couples)

Age 30-34 $73,601

Age 35-39 $81,107

Age 40-44 $84,278

Median Household Income (2008, Singles Living Alone)

Age 30-34 $37K males / $39K females



Source: MetLife Mature Market Institute

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Generation X and Retirement

Although their collective retirements are decades away, there are a number of compelling reasons

for Generation X and their advisors to begin the retirement planning process early. The key reason

is simply life expectancy. Among the 70% of survey respondents who pinpointed an expected

retirement age, the average was approximately 64 years old. When we employ life expectancy

tables, this corresponds to a retirement period that will span more than 20 years.

Although GenXers have been saving money for retirement, the end goal is still filled with unknowns.

Our research shows the following key themes regarding retirement savings and planning.

Low Retirement Confidence

Yet, even with these strong profiles, there is concern among Generation X about their ability to meet

future expenses in retirement. According to IRI’s survey, only one-third of GenXers are at least very

confident of having enough money to live comfortably during retirement, cover their medical

expenses, and pay for their children’s higher education.

60

65

70

75

80

85

90

30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

Futu

re A

ge

Current Age

Life Expectancy vs. Anticipated Retirement Age, Generation X and Late-Stage Boomers

Average life expectancy - Female

Average life expectancy - Male

Anticipated retirement age

Average life expectancies determined using Social Security 2010 tables with 1% mortality improvement. Anticipated retirement age based on IRI consumer survey, November 2011; averages are shown for age groups 30-

34, 35-44, and 45-49 for those who specified an age at which they expect to retire.

Late-stage Boomers

Generation X

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These findings were fairly consistent by age and gender. Differences between income groups were

as expected, with higher levels of confidence in households with higher incomes. Yet, there was a

notable distinction between GenXers who were married and those who were not. Using overall

retirement income confidence as the example, nearly 40% of married GenXers indicated they were

at least very comfortable that their savings would take them through retirement, compared to only

24% of single GenXers. On the other end of the scale, less than 20% of married GenXers expressed

little to no confidence about having enough money for their retirement compared to 35% of single

GenXers. As noted earlier, a substantial proportion of GenXers have never married, and their

assertion that they are not confident about retirement opens up opportunities for advisors to assist

them.

21%

28%

32%

34%

35%

26%

35%

28%

40%

43%

44%

33%

32%

23%

20%

9%

8%

0% 20% 40% 60% 80% 100%

Will have enough money to pay for long-term care for parents

Will have enough money to pay for my/our long-term care expenses

Will have enough money to pay the cost of higher education for children

Will have enough money to take care of medical expenses during retirement

Will have enough money to live comfortably throughout retirement years

Confidence in Meeting Retirement Expenses, Generation X

Extremely or very confident Somewhat confident Not too/not at all confident Not sure

Medical expenses include those incurred for doctor visits, prescription drugs, and hospital stays; excludes the cost of long-term care. Long-term care expenses include those incurred in a nursing home or for home health care. Response rates of 3% or less are not labeled.

Survey population: Americans currently age 30-45. Source: Insured Retirement Institute

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Insufficient Savings

First, while three-quarters of GenXers have money saved for retirement, only 41% have tried to

figure out how much money they will ultimately need to save. Among those who have saved, many

have set aside an insufficient amount. As shown below, half of GenXers have saved less than

$100,000.

38%

24%

44%

39%

16%

35%

Married Not Married

Confidence in Having Enough Money to Live Comfortably Throughout Retirement, Generation X,

by Marital Status

Not sure

Not too/not at all confident

Somewhat confident

Extremely or very confident

Survey population: Americans currently age 30-49.

Source: Insured Retirement Institute.

Less than $50,000

30%

$50,000-$99,99919%

$100,000-$199,999

12%

$200,000 or more13%

Don't know/refused to

answer

26%

Amount Saved for Retirement, Generation X

Survey population: Americans currently age 30-49 who have saved money for retirement.Source: Insured Retirement Institute.

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Not surprisingly, the amount of money saved for retirement increases with the age of the individual.

As noted, one-third of Americans between ages 45-49 have saved at least $100,000, including 25%

whose retirement savings are $200,000 or more. It is also not a surprise that lower-income GenXers

have smaller amounts in retirement savings. Still, just 40% of those earning at least $75,000

annually have at least $100,000 in savings.

46%

30% 22%

21%

18%

18%

9%

14%

11%

13% 23%

22% 25% 26%

30-34 35-44 45-49

Amount Saved for Retirement, Generation X, by Age

Don't know/refused to answer

$200,000 or more

$100,000-$199,999

$50,000-$99,999

Less than $50,000

Survey population: Americans currently age 30-49. Source: Insured Retirement Institute.

80%

53%

20%

5%

20%

22%

7%

18%

22%

15% 17% 19%

<$30K $30K - $74K $75K+

Amount Saved for Retirement, Generation X, by Household Income


$200,000 or more

$100,000-$199,999

$50,000-$99,999

Less than $50,000


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We also noted small differences in savings patterns between genders—with one clear caveat. One-

third of female GenXers (married and unmarried, combined) were uncertain as to the amount of

money they had saved for retirement. Past IRI research shows that women are very highly involved

in the management of household finances. This is an indication that greater attention needs to be

paid to retirement savings.

That said, there is a notable difference in the retirement savings patterns of GenXers by marital

status. Overall, more than half (52%) of single GenXers have retirement savings of less than

$50,000. While we would expect the level of savings to be less than that of married GenXers, this

level is still quite low. However, the savings levels of married GenXers are also insufficient, even

more so when compared to patterns seen among their unmarried counterparts.

29% 33%

22% 15%

14% 10%

17%

10%

18% 33%

Male Female

Amount Saved for Retirement, Generation X, by Gender


$200,000 or more

$100,000-$199,999

$50,000-$99,999

Less than $50,000


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The Recession

The economy has played a significant role in how GenXers shape their retirement expectations.

Overall, many GenXers felt the sting of the recession, and few were immune. Many GenXers had to

make the decision to cut back on their retirement savings, as 15% made early withdrawals from

their 401(k) plans, 23% stopped contributing to their retirement accounts, and 22% stopped

contributing to college savings plans.

This trend was particularly evident among older members of Generation X. Most interesting is that

21% in this group needed to dip into their retirement savings plans, more so than younger

members of Generation X. Of course, their account balances were larger, on average, yet this finding

illustrates the need for more immediate retirement advice to this group of individuals.

27%

52%

19%

17%

12%

10%

14%

8% 28% 12%

Married Not Married

Amount Saved for Retirement, Generation X, by Marital Status

Don't know/refused to answer $200,000 or more

$100,000-$199,999

$50,000-$99,999

Less than $50,000


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Also of note is that single GenXers withdrew funds from their retirement savings at a much greater

rate than married GenXers. As discussed earlier, this indicates a greater need for retirement savings

advice among GenXers who are not married.

10%

20% 17%

15%

21% 22% 21%

28%

23%

Prematurely withdrew funds from 401(k)

Stopped contributing to 401(k) or IRA

Stopped contributing to college savings plan

Impact of Recession on Retirement Planning, Generation X, by Age

30-34 35-44 45-49


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16% 19%

22%

12%

34%

20%

Prematurely withdrew

funds from 401(k) Stopped contributing to

401(k) or IRA Stopped contributing to

college savings plan

Impact of Recession on Retirement Planning, Generation X, by Marital Status

Married Not Married


15%

20% 21%

15%

25% 23%

Prematurely withdrew

funds from 401(k) Stopped contributing to

401(k) or IRA Stopped contributing to

college savings plan

Impact of Recession on Retirement Planning, Generation X, by Gender

Male Female


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Investment Guidance Needed

GenXers will need to rely more on investment acumen than Americans in earlier generations.

According to the Employee Benefit Research Institute (EBRI), only 15% of today’s workers are

covered by a defined benefit plan. Additionally IRI research shows that 56% of GenXers expect their

401(k) plans to provide a major source of retirement income, thereby requiring investment

expertise to make the plan’s value stretch over more than two decades of retirement. Yet, while

nearly 4 in 10 GenXers believe they are somewhat knowledgeable about investing, only 16% rate

themselves as savvy investors, and 45% assess their investment knowledge as low to none.

22%

37%

30%

20%

28% 30%

11%

18% 15%

Prematurely withdrew funds from 401(k)

Stopped contributing to 401(k) or IRA

Stopped contributing to college savings plan

Impact of Recession on Retirement Planning, Generation X, by Household Income

<$30K $30K - $74K $75K+


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The above results do not vary by age, yet there are some notable differences by gender and marital

status.

3%

13%

38%

27%

18%

Extremely knowledgeable

Very knowledgeable

Somewhat knowledgeable

Not very knowledgeable

Not at all knowledgeable

Knowledge About Investing, Generation X


22%

41%

37%

11%

35%

54%

Extremely or very knowledgeable

Somewhat knowledgeable Not knowledgeable

Knowledge About Investing, Generation X, by Gender

Male Female

Survey population: Americans currently age 30-49.Source: Insured Retirement Institute.

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Additionally, GenXers are likely to value performance, rather than guarantees, when selecting a

retirement investment product. The top three traits that GenXers deem most important are rate of

return (24% of survey respondents), guaranteed income (19%), and past performance of the

investment (14%). Principal protection is of low priority (11%). Therefore, GenXers need some

guidance in how to supplement their desire for strong returns with investments that provide long-

term stability.

17%

41% 42%

15%

29%

56%

Extremely or very

knowledgeable

Somewhat knowledgeable Not knowledgeable

Knowledge About Investing, Generation X, by Marital Status

Married Not Married

Survey population: Americans currently age 30-49.

Source: Insured Retirement Institute.

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The combination of GenXer’s investment confidence and their emphasis on performance would

indicate a strong need for a financial advisor to provide guidance in retirement planning. Yet, only

37% of GenXers have consulted a financial advisor. As in prior analyses, the most common

differentiator (other than household income) is marital status. While 42% of married GenXers have

consulted an advisor for retirement planning, only 20% of single GenXers have done so. No

difference was noted when segmenting by gender, despite the lower general investment confidence

cited by women.

Conclusion

It is clear from IRI’s research that it is not too early to advise Generation X on retirement income

planning. Presently, 37% of GenXers have consulted a financial advisor to help them plan for

retirement. Yet, the concerns expressed by GenXers give indication that this number needs to

increase. Even so, advisors must use caution to not paint all GenXers with the same brush. GenX,

while sharing many characteristics, also have different financial needs depending upon their

situation in life.

Core GenXers—those born between 1967 and 1976—need additional guidance on building their

retirement nest eggs (30% have saved less than $100,000), and the pitfalls of suspending

8%

11%

11%

12%

14%

19%

24%

Other

Principal protection

Don't know

Advisor recommendation

Past performance

Guaranteed monthly income

Rate of return

Most Important Trait in a Retirement Investment, Generation X

Survey population: Americans currently age 30-49.Source: Insured Retirement Institute.

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contributions to retirement and college savings plans. Hybrid GenXers—those born between 1977

and 1981—need to be given the impetus to start saving for their future.

Younger Boomers and the oldest GenXers—those born between 1962 and 1966—must not get

overlooked when servicing the general Boomer population. Although their retirement savings

accounts are higher, these investors have also needed to dip into them at higher rates than have

younger investors.

Special attention must also be paid to GenXers who are not married and those in middle income

bands to address their financial needs for retirement. These groups tend to have less money saved

for retirement, and are the most likely to have used their savings for present needs.

Methodology

The Insured Retirement Institute (IRI) commissioned Woelfel Research, Inc. to conduct a survey to

determine how retirement is viewed by individuals in their 30s and 40s. The research was

conducted by means of telephone interviews with 802 adult Americans ages 30-49. The sample was

selected from a list of households in this age group, developed by Accudata, Inc. by compiling data

from available sources such as motor vehicle records. Results were weighted by age and gender to

the 2010 United States Census. Data was collected from November 10-22, 2011, and analyzed by IRI

in December 2011. The margin of error for the sample of 802 was ±3.5%.

Documents

Retirement Readiness of Generation X