Gen Xers’ Retirement Savings Prospects

Auto enrollment features have greatest effect on youngest workers

By Stephen Miller, CEBS Sep 16, 2014

Are Generation X workers in worse shape than Baby Boomers when it comes to having enough money for retirement? Not if you take into account future contributions and current trends in automatic plan design features, according to the nonprofit Employee Benefit Research Institute (EBRI).

A recent EBRI report takes issue with projections that allege members of Generation X (those born between 1965 and 1974) will be less likely to generate adequate retirement income than the older Baby Boomer cohort (those born between 1948 and 1964). In particular, each of the annual EBRI Retirement Security Projection Model studies since 2010 has found that the overall retirement income adequacy prospects for Generation X were approximately the same as the prospects for both Early Boomers and Late Boomers.

To a large extent, this is because 401(k) sponsors are adopting automatic enrollment features for their retirement plans (including auto-escalation of contributions) that are expected to significantly increase workers’ savings going forward, with the greatest long-term effect on younger workers and lower-income workers.

The projection of future worker and employer contributions to defined contribution plans is especially important, “particularly among younger workers who have longer participation windows, and for whom (particularly in their initial savings years) these contributions constitute a significant percentage of their account growth,” the report states.

Gen Xers Need a Vote of Confidence

“Generation X was slammed by the Great Recession yet most are now financially recovering,” said Catherine Collinson, president of the nonprofit Transamerica Center for Retirement Studies, which also released a new report on retirement preparedness among Generation X.

According to Transamerica's findings:

  • Just 24 percent of Generation X workers say that saving for retirement is their greatest financial priority.
  • Almost half (48 percent) are focused on current needs, such as paying off debt (27 percent) or covering basic living expenses (21 percent), as their top priorities right now.

“Most Generation X workers are currently saving for retirement but many are not saving enough,” said Collinson. Eighty-four percent of Gen Xers who are offered a 401(k) or similar plan participate in that plan at an annual contribution rate of 7 percent (median).

“Taking out loans and early withdrawals can severely inhibit the long-term growth of retirement accounts,” said Collinson. “Unfortunately, many Gen Xers have found themselves in situations where it was necessary to do so.”

Among Generation X workers currently participating in a 401(k) or similar plan, the survey found that 27 percent had taken some form of loan and/or early withdrawal from the plan, including 18 percent who had taken a loan and ten percent an early withdrawal.

The survey also found that Generation X workers have currently saved just $70,000 (estimated median) in total household retirement accounts.

“In the coming years before they retire, Gen Xers can meaningfully grow their savings,” said Collinson. “Increasing retirement plan contributions from the current level of 7 percent of annual pay to 10, 12, or even 15 percent can profoundly increase the size of their nest eggs at retirement.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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