Baby boomers are receiving a lot of attention from financial services firms looking to help them manage retirement, but it may be the next generation that needs the most help.
Nearly half of people age 35 to 42 are at risk of not having enough money in retirement, according to research published this month by the Center for Retirement Research at Boston College.
Increasing longevity, a higher retirement age for collecting Social Security benefits and fewer traditional pensions all put this group - which it defines as Generation X - at risk, said one of the study's authors, Alicia H. Munnell.
Although these workers have longer to save than baby boomers, they'll likely be worse off, said Munnell, who is director of the research center.
"I'm worried about them because the system gets less secure over time," she said. "If behavior doesn't change, they will be way off the mark."
That's because median balances in 401(k) plans requiring employees to save portions of their paycheck and in individual retirement accounts remain stubbornly low - just $60,000 for 55- to 64-year-olds, the study reported.
Gen Xers are distracted predominantly by current spending and saving for children's college, said Keith I. Millner, senior vice president for Nationwide Financial Services Inc. The insurance company helped promote the Boston College study.
"Most Xers, and boomers for that matter, are in denial and don't want to even assess their debt and savings levels," Millner said. "This really is a crisis of denial because the safety nets aren't going to be there."
Talk like that prompted the Boston College study. Responding to accusations that the financial services industry hyped the savings shortfall to scare people into investing more, researchers from the center reconciled their own work with a popular national study of household wealth done in 1992.
The study, undertaken by University of Michigan researchers and financed by the National Institute on Aging, showed pre-retirees were in good shape to retire.
The Boston College researchers looked at a wider age spectrum and at subsequent interest-rate effects on the 1992 group and concluded that there is, in fact, a retirement savings crisis.
"Revisiting 1992 highlights the fact that the retirement landscape is changing over time, and that a good report card for older households in 1992 does not preclude serious problems for baby boomers when they retire," the researchers concluded.
Another difference in the research stems from withdrawal rates. The earlier work assumed a significant decline in spending over a retiree's lifetime, while the Boston College research assumes a more consistent withdrawal pattern.
All told, 49 percent of Gen Xers were at risk for not having enough money for retirement using the more updated research, the center found. Not surprisingly, the risk rose for lower income groups. Sixty percent of those in the bottom third of income were at risk, researchers said.
Obviously, higher individual savings rates would help. If every Gen Xer started contributing at least the maximum amount to qualify for their entire company match in a 401(k) plan, they would be miles ahead of where they stand today, Millner and Munnell said.
Realistically, however, Munnell believes that the savings rate required to comfortably finance retirement at the ages most Gen Xers are thinking about would be completely out of reach.
Working a few years longer has a higher potential to help, she said.
Not everyone can maintain good health longer into their late 60s and 70s, of course, and layoffs and age discrimination are other roadblocks. Still, keeping as current as possible in your career, or at least thinking about ways to start a new career later in life is a must, experts say.
Finally, Munnell said, don't count on grabbing Social Security benefits the moment you are eligible. Although the Social Security system faces substantial challenges, Gen Xers can count on benefits, albeit at a lower replacement rate than their parents, she said. That means retirees should put off collecting those benefits as long as doing so increases benefits.
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