Generational Differences Toward Retirement Readiness Can Help Inform Your 2024 Education Strategy
On average, American workers today expect to need $1.27 million to retire comfortably, up from $1.25 million in 2022, according to Northwestern Mutual’s 2023 Planning & Progress study. Those expectations may be less than what is realistic, the study reported. That’s because the average amount saved for retirement has only modestly increased by 3% to $89,300, up from $86,869 in 2022.
The study also highlighted a number of generational differences regarding retirement readiness that can help inform your 2024 employee education strategy. Determining how much to save, managing longevity and health risks in retirement and forming realistic expectations regarding the future of Social Security may be important topics for you to prioritize.
Generational Confidence in Retirement Readiness Differs
While the study acknowledges the positive trend of employees saving more for retirement (even during times of high inflation and ongoing market volatility), there continues to be a big gap between what they think they’ll need to retire and what they’ve saved so far. For example, those in their 50s anticipate requiring $1.56 million for retirement, even as they’ve saved just $110,900 on average.
Generation Z was the likeliest to believe they’ll be financially prepared once their retirement comes. Sixty-five percent of this youngest group said they would be financially set to retire once ready. In contrast, 55% of those in Generation X said they won’t be prepared, while 46% of Millennials and 48% of Baby Boomers (who are not retired yet) said the same. In fact, Baby Boomers said they expect to work the longest, until age 71, while those in Generation Z anticipate retiring more than a decade earlier at age 60. Millennials say they expect to retire at 63, and those in Generation X don’t expect to retire until age 65. On average, Americans expect to work until 65, up from 64 in 2022 and 62.6 in 2021.
Longevity and Health Risk Are Biggest Concerns
When asked about their biggest fears in retirement, 44% of Americans responded declining health and 43% replied outliving their savings. The report had found that on average, Americans believe there is a 45% chance they will outlive their savings. Still, 33% have not taken steps to address their longevity risk. Among their smallest fears are feeling uncertain on where to focus time (17%), isolation from
friends, families, and coworkers (17%) and missing their career (16%). Seventy percent of respondents said they fear nothing at all when it comes to retirement.
Social Security Expectations Vary
When questioned about the future of Social Security, 42% of respondents say they can imagine a time when Social Security no longer exists. Still, the research also found that respondents are relying on Social Security to provide 28% of their overall retirement funding. That’s more than personal savings (22%) and equal to retirement savings (28%). Generation Z and Millennials were the least likely to rely on funding from Social Security, at 15% and 19%, respectively. This was much lower than what their older counterparts expected — at 27% for Generation X and 38% for Baby Boomers.
Northwestern Mutual’s 2023 Planning & Progress Study can be viewed at: https://tinyurl.com/3phxxc2y.
For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.
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©2023 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.