Generation Clash in Retirement Strategy: Boomers vs Gen X Display Distinct Retirement Patterns
Baby boomers, numbering 69 million strong according to Pew Research, and Generation X, approximately 65 million strong, are two significant generations currently navigating the path to retirement. While both generations aim for a happy and healthy retirement, their approaches to planning and expectations differ.
Born between 1946 and 1964, baby boomers have seen a shift in retirement planning since the 80s and 90s. Many companies moved away from pension plans towards 401(k)s, putting the onus of saving on the individual rather than the company. However, the higher-than-expected returns and home value appreciation in the past 10 to 15 years have not made boomers overly conservative in their spending.
In contrast, Generation X, born between 1965 and 1980, has a more conservative approach to retirement planning. Gen Xers have higher cash balances and are less optimistic about receiving Social Security, which may drive them to save more on their own. This self-reliance is reflected in their preference for a more DIY (do-it-yourself) approach compared to baby boomers, who are more DIFM (do-it-for-me).
One key difference between the two generations is their approach to research and planning. Gen Xers are more likely to research online and do comparative shopping, while boomers tend to ask their circle of friends for advice. This technological comfort among Gen Xers could explain why they aren't seeking help from financial advisers as much as baby boomers.
Social Security trust funds are projected to face a shortfall by 2033 and start paying reduced benefits, barring government intervention. This uncertainty has added to Gen X's concerns about retirement, with BlackRock's Read on Retirement survey from last year highlighting that Gen X was the least likely to feel confident about retirement.
Another challenge faced by Gen X is their role in the sandwich generation, taking care of both their parents and children at the same time. This responsibility, coupled with a lack of retirement savings, has led many Gen Xers to need a phased retirement. In contrast, many baby boomers are not motivated by a lack of retirement savings to slowly transition into retirement.
Despite these differences, both generations prefer a phased retirement. Baby boomers seek it for maintaining work relationships, income for healthcare costs, and a desire to slow down, while Gen X requires it for income to support their sandwich generation responsibilities and lack of retirement savings.
In conclusion, while baby boomers and Generation X have different approaches to retirement planning, they share a common goal: a secure and fulfilling retirement. As Gen X enters retirement age, it will be interesting to see how their paths merge and diverge from those of the baby boomers.
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