Data & Research May 27, 2021

Gen X Participants Are Even More ‘Sandwiched’ After COVID-19

However, there are several helpful actions and concepts that advisers can bring to the table.
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While one might expect Baby Boomers, as the oldest generation in the workforce, to have been more materially impacted by the COVID-19 pandemic in terms of layoffs, furloughs and pay cuts, surveys have found the generation right after Boomers, Generation X—or roughly those between the ages of 41 and 56—was harder hit. Millennials and younger adults suffered the most job disruptions.

According to a report from Greenwald Research and the Society of Actuaries, “Financial Perspectives on Aging and Retirement Across the Generations,” 33% of Gen Xers were laid off or subjected to a pay cut during the pandemic. This was also true for 40% of Millennials, but only 21% of Baby Boomers.

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Furthermore, the report says, “Since the beginning of the pandemic, two in 10 [Gen Xers] experienced changes to their living situation—with a housing change being more common for younger people. Debt is complicating the finances of 35% of Gen Xers—higher than the rates of Boomers and the Silent Generation.” (The Silent Generation is the demographic that precedes Baby Boomers, roughly those born between 1928 to 1945.)

Given the findings of the troubles facing Gen X, the American Institute of Certified Public Accountants (AICPA)’s National CPA Financial Literacy Commission recommends three steps that Gen Xers can take to begin alleviating financial stress. The first is to embrace the idea that while markets go down in the short term, they also go up in the long term. Building a solid financial plan, with the help of an adviser or perhaps a digital financial planning service, can help Gen Xers manage this anxiety.

The second thing the AICPA recommends is taking an honest inventory of one’s finances—including spending habits, debt levels, the interest rates being paid on each type of debt, credit reports and scores, and cash flow. This can help a person see more clearly where they can cut expenses and increase savings.

Thirdly, the AICPA says it is helpful to set up automatic savings plans and to use modern financial tools and apps.

Gen X is the now firmly the “sandwich generation,” says Edward Chairvolotti, CEO of Chairvolotti Financial in Winter Park, Florida. “They are taking care of their children and, in many cases, their parents. Life is busy for them, and it is unfortunate that many incorrectly view retirement as being in the far future.”

Ryan McPherson, director of coaching and financial education at SmartPath in Atlanta, agrees that Gen Xers are “sandwiched” by competing financial priorities.

“For years, Gen X has been conducting the great financial balancing act,” he says. “They are caring for aging parents while handling their own financial goals and challenges. COVID-19 didn’t make this any easier.”

Dan Keady, a chief financial planning strategist at TIAA, agrees with Chairvolotti that, even before the pandemic, Gen Xers were being pulled between their children’s and their parents’ needs. On top of this, he points out, many Gen Xers are saddled with student loan debt.

One of the most effective ways a retirement plan adviser can support members of this generation is to help them pause and take stock of their financial health—and to show them their retirement income projections, Keady says.

“According to our own survey data, only 40% of employees are doing financial planning that looks beyond one year in the future,” he notes. “What I have seen from our surveys, and as a practitioner, is once a person gets their retirement income projection, they can see if they are on track. Most retirement planning tools can then show them that if they invested just a little more, how much more improved their outlook would be. Between the ages of 41 and 56, you still have time to make small changes that could really grow your money.”

It is also important for advisers to realize that during the pandemic lockdowns when people were staying at home, many were not spending as much money, so Gen Xers might be able to perpetuate the savings habits they have learned over the past year and a half, Keady points out.

“It is important for advisers to help Gen Xers get a kick start, especially if they had to reduce their savings because they were laid off. We used to call this ‘finding coins in your sofa,’” he says. “Advisers can also remind people about the incredible value of deferring enough money in their retirement plan to meet their employer’s match. Another tool that many people aren’t aware of at work is the health savings account [HSA] that may be available to them. Access to an HSA could greatly magnify their tax-free savings.”

Client Service May 27, 2021

Financial Wellness Is Really About Financial Priorities

Retirement industry researchers say the pandemic will have a lasting impact on the way people rank and pursue their financial priorities, influencing their vision of ‘financial wellness’ and redefining what success with money really means.
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After living through a pandemic that has lasted for well over a year, U.S. investors’ behaviors and outlooks have clearly shifted, and their viewpoints about financial wellness have been similarly reshaped.

According to a financial priorities survey of more than 3,000 Americans published by Ameriprise Financial in April, nearly two-thirds (63%) of investors who did not have an emergency savings fund prior to the pandemic have put one in place or plan to do so soon due to COVID-19. The research shows the COVID-19 pandemic has rewritten the ways in which many investors are spending and saving their money—and they expect they’ll carry their newfound priorities into the future.

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According to Ameriprise, a majority of respondents (63%) said their household income was not significantly impacted by the pandemic, and 10% said their income actually increased. However, a quarter (25%) reported they are earning less money, with many in this group having experienced a significant loss of income.

Against this backdrop, more than six in 10 respondents said protecting their financial assets (63%) and planning for uncertainty (62%) are more important to them now than before the pandemic. Nearly half (45%) believe these shifts will be long lasting, come what may in terms of broad economic recovery.

“While the economic impact of the pandemic has unevenly affected people across the country, it has been a wake-up call to everyone,” says Marcy Keckler, vice president of financial advice strategy at Ameriprise in Minneapolis. “The extraordinary circumstances of the last year convinced many people, even those who were already on strong financial footing, to take actions they may have previously put off. Investors are paying closer attention to their finances and are making important changes to strengthen their financial situation.”

Conflicting Signals?

Related data taken from the “2021 Retirement Confidence Survey” conducted by the Employee Benefit Research Institute (EBRI) and Greenwald Research shows that 80% of retirees are confident in their ability to live comfortably throughout retirement. This is actually up from the 76% of retirees who held that view last year.

EBRI and Greenwald find 18% of workers said their hours and/or pay have been reduced since February 1, 2020, while 10% had been furloughed or temporarily laid off. In total, 39% of workers reported that their household experienced some type of negative job or income change since February 1, 2020. On the flip side, 21% of workers reported having some type of positive change in work in the same time frame.

“Even with changes in the labor market, workers’ confidence in their ability to live comfortably in retirement remains high overall,” says Craig Copeland, EBRI senior research associate. “However, while resilience may be the watchword for 2021, three in 10 workers say the pandemic has negatively impacted their ability to save for retirement due to reduced hours, income or job changes. The group that was most likely to have their ability to save impacted were those more likely to have low confidence historically, such as those who are low income, not married and having a problem with debt.”

The Ameriprise research shows nearly half (45%) of respondents reduced their spending during the pandemic, and 30% of them expect to remain more frugal with their money in the future. On the other end of the spectrum, a quarter made big ticket purchases or made investments such as a significant home renovation. Once the pandemic ends, a quarter of investors anticipate spending more money than usual on activities they had to postpone. Also noteworthy, 30% of survey participants who did not have an adviser prior to the pandemic started working with one or intend to do so soon due to COVID-19.

“A financial professional can play an important role in helping investors assess the long-term impact of their shifting priorities,” Keckler says. “Advice from a qualified adviser can help them navigate life’s twists and turns and stay on track to achieve their biggest financial goals for the future.”

New Views Post-Pandemic

Data from the Northwestern Mutual “2021 Planning and Progress Study”—an annual research project that explores Americans’ attitudes and behaviors toward money, financial decisions and broader economic issues—shows a third (32%) of Americans say their financial discipline has actually improved during the pandemic. In this group, 95% say they expect their newfound habits will stick after the health crisis subsides.

The study finds that the pandemic and related events have prompted people to get proactive with their planning. Nearly one out of five (17%) U.S. adults aged 18 and older said they didn’t have a financial plan before the pandemic, but now they have one in place. Overall, 83% of people were prompted to either create, revisit or adjust their financial plan during the pandemic.

“COVID-19 has dealt financial setbacks to so many Americans, but people are changing their behaviors and financial choices to meet those head-on,” says Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual in Milwaukee. “While we don’t know what post-COVID life will look like, we’re encouraged to see that people intend to hold on to the better financial habits they’ve developed during this challenging time.”

Among the behaviors that people say they’ve adopted and expect to maintain going forward are reducing living costs and discretionary spending (45%); paying down debt more aggressively (34%); increasing investment levels (33%); regularly revisiting financial plans (29%); increasing use of tech/digital solutions to manage finances (28%); and increasing retirement contributions (25%).

On the other hand, the Northwestern Mutual research also shows nearly half (45%) of Americans say the pandemic has impacted their timeline for achieving long-term financial security, with most saying it’s a setback of one to two years.

“An improvement in financial habits is a positive for sure, but it shouldn’t overshadow the fact that it’s coming from a place of financial difficulties for many,” Mitchell concludes. “Taking action is critical, and the first step is putting a solid plan in place.”

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