Each generation has its own challenges associated with our constantly changing world, but we can all relate to money issues. A new study finds that millennials, generation x, and baby boomers are all at an inflection point with their financial well-being and retirement planning. Let’s take a look at how each generation is faring in today’s economy.
1. Baby boomers
- Age: 55 and over
- Home ownership: 88%
- Most popular income bracket: $100,000-$150,000
According to Financial Finesse, an education company providing personalized advice and counseling programs to employees across the country, baby boomers are the most overall financially secure generation. They have an average financial wellness score of 5.7 out of 10. Baby boomers are often in their peak earning years, and many were able to invest in the strong bull markets during the 80s and 90s. However, only 29% say they are on target to replace at least 80% of their income in retirement, while only 16% have long-term care insurance. Their portfolios are also lacking diversity compared to other generations.
“The one investment area that baby boomers are actually weaker than the younger generations in is having too much of their portfolios concentrated in one position, which may include company stock (29%),” explains the report. “This is probably due to the fact that boomers are more likely to hold more senior positions that have compensation in the form of stock incentive plans. As a result, almost a third of boomers are vulnerable if something should happen to their concentrated position. If that position is company stock, and something should happen to their employer, they could find themselves without a job at an age where it can be harder to find employment and with a severely depleted nest egg without a lot of time to rebuild their savings.”
2. Generation X
- Age: 30 to 54
- Home ownership: 69%
- Most popular income bracket: $100,000-$150,000
Generation X has made significant financial improvements in recent years, but they are still the most likely to describe their financial stress level as high or overwhelming. They are also the most likely to cite not being able to reach their financial goals as the cause of their stress. Generation X has an average financial wellness score of 4.7 out of 10. That is slightly better than millennials, but given that millennials still have time on their side, Financial Finesse labels Generation X as the most at-risk generation. In fact, they are the least likely to have a handle on their cash flow and pay bills on time each month.
While retirement is creeping up on Generation X, only 17% say they are on target to replace at least 80% of their income in retirement. Meanwhile, only 50% have an emergency fund to cover unexpected expenses, and just 53% regularly pay off credit card balances in full each month. This may be due to Generation X facing more financial obligations than other generations. Many Gen Xers have a mortgage, minor children, and contribute to a college 529 savings plan.
“Parents might want to make sure they have adequate emergency savings and are on track for retirement before putting money in a college savings account like a 529 or Coverdell account,” explains the report. “That’s because there are penalties for using those accounts for non-qualified expenses and unlike with college, there’s no financial aid for emergencies or retirement income (although only 62% of Generation X understands the financial aid options available, the least of any generation).”
- Age: under 30
- Home ownership: 23%
- Most popular income bracket: $35,000-$60,000
Millennials are not as hopeless as you might think. Nonetheless, they certainly have their fair share of problems. With 54% of millennials earning between $20,000 and $60,000 per year, the generation is more concerned about managing money rather than investing it. The study finds that 72% of millennials say they spend less than they make each month, compared to 68% of Generation X. Millennials handle debt, monthly bills, and financial stress better than Generation X. They are also most likely to check their credit reports on an annual basis.
Millennials have an average financial wellness score of 4.6, the lowest among all generations. Yet they are the most likely of all generations to contribute to either a Roth IRA or a Roth 401(k). In fact, 79% say they take advantage of the company match in retirement plans offered at work, only two percentage points behind Generation X. They also tie Generation X when it comes to contributing to a traditional or Roth IRA (26%).
Despite millennials being the only generation not to have retirement planning as their top priority, they still have decades to prepare. Furthermore, there is arguably no better time to be an investor than today, considering the technology tools available to help plan for retirement and the dramatic reduction in fees over the past couple of decades. More employers are even offering workplace financial wellness programs so employees become better educated about taking better care of their futures.
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