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Excessive retirement anxiousness for millennials and Technology X

Generation X and Millennials have good reason to be concerned about their retirement prospects.

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Every two years the National Institute on Retirement Security surveys Americans to measure their attitudes towards retirement. The latest poll again found that most Americans remain worried about retirement.

More than two-thirds of Americans (67 percent) say the nation is facing a pension crisis. And more than half (56 percent) fear that they will not achieve a financially secure retirement.

More than two-thirds of Americans say the US is facing a pension crisis.

National Institute for Old-Age Insurance

Americans’ fear of retirement is justified. A wide and growing body of research shows that most Americans face a significant retirement deficit. According to the Boston College Center for Retirement Research (CRR), half of US households will not have enough income to maintain their standard of living after retirement, even if they work until the age of 65 and retire on all financial assets, including that Securing a reverse mortgage on their home.

And the COVID-19 pandemic and the resulting economic crisis have arguably worsened pension prospects for most workers. We asked Americans about the economic impact of the pandemic on their financial futures, and 51 percent said they were more concerned about retirement. Among Americans who have changed or are considering switching when they retire, 67 percent say they plan to retire later than originally planned due to COVID-19.

More than half of Americans worry the pandemic is affecting retirement plans.

National Institute for Old-Age Insurance

Interestingly, the research also found that Americans agree on their retirement concerns, despite the deep political divisions that seem to engulf so many political issues in the U.S. Republicans (62 percent) agree that the nation is facing is facing a pension crisis.

Americans across party lines agree that the nation is facing a pension crisis.

National Institute for Old-Age Insurance

But while concerns about retirement are consistent across party lines, significant differences exist between generations. Millennials (72 percent) and Generation X (59 percent) are much more pessimistic about financial security in retirement than the baby boomers (43 percent) and the silent generation (26 percent).

Millennials and Gen X are the most pessimistic about retirement.

National Institute for Old-Age Insurance

It’s not hard to see why Generation X and Millennials are so much more concerned compared to older generations. These are the first two generations who are far less likely to have access to pensions that provide stable income until retirement age. According to the Bureau of Labor Statistics, 84 percent of full-time employees in large companies were on a retirement plan in 1981. In 2020, only 28 percent of employees in companies with 500 or more employees will take part in a pension scheme.

Instead, Millennials and GenXers who have access to an employer retirement plan are more likely to rely on do-it-yourself 401 (k) plans, which have become more common since the 1980s. Originally designed to complement pensions, 401 (k) accounts have in all respects replaced pensions for non-unionized workers in the private sector with access to company pension plans. Unfortunately, 401 (k) accounts weren’t created to take the full burden of retirement. These savings accounts have historically had higher fees, lower returns, and more risks for individual employees. And there is a real risk that workers will be able to outlive their 401 (k) savings, especially as lifetime income options have become more expensive due to low interest rates.

Financial asset inequality can also be seen as a contributing factor. Research has shown that among Generation X households, the richest 25 percent owned 87 percent of their financial wealth in 2016. Millennials achieved a similar level of financial wealth concentration in 2016, with 85 percent of financial wealth owned by the richest 25 percent.

And let’s not forget about social security. While Millennials and Generation X support the protection and expansion of social security, in reality these benefits will be lower. Current retirees are already feeling the pain of social security changes introduced in 1983 to raise the retirement age. Once fully rolled out for Millennials and Gen X, the full benefit amount (aged 67) will be reduced by 30 percent for those who choose to receive benefits by the age of 62.

Millennials are most supportive of expanding social security.

National Institute on

Millennials’ and Generation X’s fear may also be rooted in their experience of several “black swan” economic downturns and decades of stagnant wages. Add to this college debt, longer life expectancies, and rising health and care costs, and pessimism is deepening.

Going forward, it will be of vital importance for policy makers to find ways to strengthen our retirement infrastructure so that these generations can be self-sufficient in their older years. Policies that would have a meaningful impact include:

  • Consolidation of social security, the country’s most reliable source of retirement income, which has also been shown to be a tool for reducing old-age poverty.
  • Providing universal access to retirement plans at the beginning of every worker’s career. Retirement becomes more and more expensive when retirement planning is delayed.
  • Ensure that retirement plans are “smooth” in terms of enrollment and contribution, and the plans offer affordable lifelong income options.
  • Receiving existing defined benefit pensions and facilitate the path for more employers to offer pensions. The pension is the cheapest way of earning an old-age income.

Failure to act means that a comfortable retirement after a lifetime of work remains just a dream that cannot be fulfilled for most Millennials, Generation X, and subsequent generations.

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