Gen X and Millennials Anticipate a Rocky Retirement

Current retirees are less stressed about finances and provide examples of additional preparation steps.

Two out of three Americans (66%) expect to be stressed about money in retirement based on how they are currently saving, according to a new survey released by Bank of America and Merrill Edge.

The survey of more than 1,000 Americans with investable assets of $50,000 to $250,000 finds non-retired Generation Xers (74%) and Millennials (67%) are the most likely to predict financial stress in retirement based on how they’re saving right now, while 59% of current retirees say they are not stressed about finances because of how they saved. Additionally, 73% of retirees who have saved believe they will have enough money to last through retirement, compared to 57% of non-retired respondents.

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The majority (75%) of non-retirees are also planning to rely on their own savings and investments for financial help during their golden years. Nearly half (49%) plan to work in retirement to get financial help during this time, and 28% plan to rely on help from the government for the same reason. In comparison, only 20% of retired respondents plan to work in their golden years to receive financial assistance, while 41% say they currently rely on the government for financial help in their retirement.

“Even though current retirees report they are not as anxious about money, younger Americans can learn from their example—that preparation pays off,” says Aron Levine, head of Bank of America Preferred Banking and Merrill Edge.

NEXT: Learning from the example of current retirees.

The biannual survey found that most non-retired respondents agree that, in their ideal retirement, they will not worry about money (77%) and will be stress-free (70%). Respondents who have yet to reach retirement are taking actions to get there like today’s retirees, but could do more to emulate strategies that retired Americans employed to ensure that their golden years were less worrisome.

Today, the most popular actions that non-retired Americans are taking to live a stress-free retirement are funding retirement accounts (57%) and paying off debt (54%). Contributing to a retirement account (63%) and paying off debt (68%) were also some of the most common measures that retirees took to reduce strain in retirement before reaching that stage.

However, while more than four in 10 retirees (42%) preemptively invested as much as they could outside a retirement account to be stress-free when they did retire, only 24% of non-retired survey respondents are doing this with the same goal in mind. Similarly, less than one-quarter (24%) of those who have yet to reach retirement are working with a financial adviser to reduce retirement anxiety, while 38% of retirees said they worked with an adviser to achieve that same goal before retiring.

Respondents are most likely to feel that stress would be placed on their finances by unexpected health care costs (65%), followed by lack of Social Security funds (38%) and taking a loan from a 401(k) account (25%). Generationally, more Seniors (77%) and Baby Boomers (66%) agree that unexpected health care costs would put stress on their finances, in comparison to 55% of Gen Xers and half of Millennials.

NEXT: Millennials’ view of retirement.

More than four in 10 (43%) Millennials say they are counting on assistance from loved ones if financial help is needed in retirement, which is significantly higher than the 9% of all other respondents combined. The reason for the large disparity may come from the fact that 43% of Millennials say that they feel behind their peers in either financial stability, saving for the future or their income.

According to the survey, Millennials also have a different vision of how they plan to spend their retirement: two-thirds (66%) say their ideal retirement includes traveling often, and more than half (54%) say the same about living near loved ones. In comparison, fewer older respondents (Gen X, Boomers and Seniors) say their ideal retirement includes traveling often (62%) and living near loved ones (46%).                                           

The survey also reveals that Millennials are more tech-savvy when it comes to retirement planning than Gen Xers, Baby Boomers or Seniors. More than one-quarter (27%) of Millennials say they use websites and apps to manage funds in an attempt to have a more stress-free retirement, compared to 16% of Gen Xers, 11% of Baby Boomers and 5% of Seniors.

NEXT: Embarrassment can be a motivator.

According to the survey, while the overwhelming majority (85%) of non-retired Americans are investing for retirement, nearly one-third (29%) of all respondents would still be embarrassed if their close friends or family knew intimate details of their finances, specifically their retirement savings, checking account balance, credit score, total wedding cost or monthly discretionary spending. Along similar lines, nearly four in 10 (37%) feel they lag behind their peers in terms of financial stability, saving for the future or current income.

However, those shortfalls could also be a catalyst for better financial planning. Nearly one-third (32%) of those who are not retired report that they have been motivated by financial stress, financial embarrassment or the feeling that they are behind their peers to make positive financial decisions.

Today, respondents are also just as likely to prioritize saving more for the future (61%) as living comfortably today (61%). In last year’s Spring 2014 Merrill Edge Report, respondents were more likely to prioritize living comfortably today (63%) than saving more for the future (48%).

The Spring 2015 Merrill Edge report may be downloaded here

Wells Fargo Data Shows Auto Features Help

Automatic enrollment and automatic asset allocation products are helping 401(k) participants save and diversify.

The number of eligible employees participating in Wells Fargo-administered plans rose 13% between 2011 and 2015.

Wells Fargo says the increase in participation correlates to an increase in plan sponsors opting for automatic enrollment of their participants, which now stands at 40% of Wells Fargo-administered plans versus 30% in 2011.              

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The data shows increasing participation rates among younger employees, new hires and lower-earning workers over the past four years. Participation in 401(k) plans among Millennials has reached 55% compared to 45% in 2011. For newly hired eligible employees (meaning those who have reached the one-year mark of employment), participation has increased from 36% four years ago to 48% in 2015.  In addition, employees in a pay range of $20,000 to $40,000 in salary are participating at a rate of 59% versus 47% four years ago.

“We know that systematic, pre-tax savings and investing works. The first critical step along that journey is to get people in the plan,” says Joe Ready, head of Wells Fargo Institutional Retirement and Trust. “In addition, to see such gains among people who are historically the hardest to get saving for retirement is also quite encouraging.”

NEXT: Savings rates could be better.

Although participation rates are rising, the deferral rates are relatively flat in the four-year analysis, with 38% of participants saving a minimum of 10% of their salary (which may include employer match) in their 401(k) plan—a modest increase from 34% four years ago.  Twenty-eight percent of Millennials currently reach a total contribution of 10% of pay, compared to 35% of Gen X and 45% of Boomers.

“Participating in the plan is the first step, but what we really need to see is a more robust increase in how much people are saving,” says Ready.

Sixty-two percent of all active participants are taking full advantage of their employer match. When analyzed by generational groups, this breaks down to 54% of Millennials, 63% of Gen X, and 70% of Boomers who are contributing enough to capture their full company match.

The average 401(k) balance is $93,015—up from $69,802 four years ago, largely due to gains in the stock market.

The Roth 401(k) usage is creeping up—with 12% of participants contributing to a Roth 401(k) compared to 8% four years ago. Millennials are the most significant users of Roth, with 16% contributing to a Roth 401(k), versus 11% of Gen X and 7% of Boomers.

“The decision to contribute after-tax money to a Roth 401(k) is an intentional one, because people typically are not automatically enrolled into Roth 401(k) plans,” says Ready. “I am encouraged that the younger participant group is putting thought into what can be a tax diversification strategy when it comes time to take money out of plans in retirement.”

NEXT: Millennials are the most diversified.

Millennials are still the most diversified generation, and are making the biggest gains: 82% are meeting a minimum level of diversification—a minimum of two equity funds and a fixed income fund and less than 20% in employer stock—which is up from 72% four years ago. Gen X and Boomers have also seen strong gains in this category, with 78% and 75% respectively meeting the minimum level of diversification (compared to 70% and 68% four years ago).

Wells Fargo says this improved diversification is most likely due to the broader use of managed investment products, which continue to gain in popularity. Overall, 76% of participants use a managed product, up from 65% four years ago. Target-date funds in particular have seen strong growth, from 47% to 62% of participants having money invested in target-date options. When comparing by generation, 83% of Millennials, 75% of Gen X and 70% of Boomers use some type of managed product in their 401(k) plan.

In a review of data compiled from 2,036 companies where gender is indicated, there are also some noteworthy differences. Women participate in their 401(k) plans at a slightly higher rate than men: 65% to 62%. The number of women saving at least 10% of their salary is slightly lower: 38% of women vs. 40% of men contribute at least 10% of their salary, and 64% of men are taking full advantage of their company match, compared to 61% of women. Women use managed investment products more than men—77% of women compared to 74% of men—which might explain why they are better diversified. Eighty percent of women are meeting minimum diversification criteria compared to 78% of men.

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