How Boomers and Gen-Xers are Rethinking Retirement

7 minute read time.

We’ve officially reached the peak of Peak 65 this year, when more Americans than ever are turning 65. But instead of coasting into retirement, many are hitting the brakes.  A new study from the Alliance for Lifetime Income (ALI) and IPSOS reveals, there is a growing crisis of confidence among pre-retirees, as financial anxiety, longer life spans and changes in values reshape the retirement landscape.

“There was a real perception that at this magical age, all of a sudden, your life would be different,” says Jason Dorsey, a generational researcher and President of The Center for Generational Kinetics. “That is largely crashing on the rocks of reality right now, where we have so many people that are hitting this age and are not financially in the place where they thought they would be.”

BOOMERS AND GEN X: TWO GENERATIONS, TWO TRAJECTORIES 

The retirement paths of Baby Boomers (born between 1946 and 1964) and Gen X (born between 1965 and 1980) couldn’t be more different. These differences show up in the data. 68% of Baby Boomers in the Peak 65 Zone feel that retiring and never returning to work is still possible. Just 60% of Gen Xers feel that way.

For Boomers, there’s always been a bit of predictability, which has made planning easier. “Baby Boomers grew up at a time when they had defined benefit plans and pensions and all kinds of expectations around Social Security and Medicare,” says Dorsey. “There are a whole lot of institutional promises that baby boomers came of age with and many of them continue to benefit from that in a variety of ways.”

Gen X, on the other hand, came of age in an era of economic instability, layoffs and eroding trust in institutions, or “broken promises,” as Dorsey puts it. “Gen X sort of swung the other direction and said, ‘We’ve got to be really self-reliant.’”

One of the other challenges Gen Xers are up against? As part of the “sandwich generation,” they’re not just planning for their own futures; they’re also supporting aging parents and children, often at the same time. “The question we’re seeing from them is, is there a path for retirement balanced against taking care of their aging parents… and also supporting their kids,” says Dorsey. “This tension…is extraordinarily hard.”

WHY SO MANY DELAY RETIREMENT (OR DREAD IT)

ALI data shows that over a quarter (28%) of consumers aged 45 to 75 are contemplating postponing retirement due to financial concerns.

While finances are a major factor behind delayed retirement – especially as longevity increases – identity also plays a big role. For many, leaving work means leaving behind structure, community and purpose. “Not only are they not at work, but now they’re losing the friends that they’ve known for 40, 50 years, and they’ve got to relearn the muscle of how to go make new friends,” explains Dorsey. “I think Baby Boomers, many of them, are going to work as long as they can.”

Whether by necessity or choice, part-time work, consulting or volunteering is increasingly becoming part of the post-retirement plan.

A SPENDING SURPRISE: RETIREMENT ISN’T ALWAYS CHEAPER

Many Americans assume their expenses will shrink in retirement, but that’s not always the case. Healthcare, long-term care and lifestyle expenses can drive up spending. Some 33% of people say they are spending money faster in retirement than anticipated. “The reality is, unfortunately, it’s very hard for people generally to adjust down,” says Dorsey. “Unless you’re in a crisis situation, we find, generally, people tend to spend more than they anticipated overall.”

Ironically, others spend too little – out of fear. A full 47% of people say spending money in retirement gives them anxiety. One of the worries people have, according to Dorsey, is becoming a burden to their children. “Frequently, it comes down to, I don’t want to be a burden on my kids. I don’t want to burden them with having to take care of me, or, I want to delay that as long as possible.”

PLANNING PARALYSIS: THE EMOTIONAL ROADBLOCKS TO PLANNING

Whether you’re spending too much or are afraid to tap your nest egg, financial planning plays a key role in getting on the right track. The problem is, many people don’t. Just 34% of consumers aged 45-to-75 say they have a detailed retirement plan.

One of the things holding people back is denial and fears over not being adequately prepared. A financial plan, however, can be the cure for those anxieties. “When people really take the time to create a plan, often with the professional…it’s very eye-opening because one, it removes the mystery, which tends to drive fear, and at the same time, people tend to feel more in control by the end of it,” says Dorsey.

Younger generations may have an easier time discussing their financial plans. However, they often struggle with parents who were raised to avoid talking about finances. “Take a Gen Xer who’s not really digging into their finances to make better decisions, and you’re creating a legacy where that next generation doesn’t develop that muscle, and that’s something I’m really on a mission to try to change,” he explains.

FINDING THE RIGHT HELP

When it comes to increasing your financial confidence in retirement, getting the right help can be key. Just 35% of Generation X consumers and 49% of Peak 65 consumers are confident about being able to create a retirement income plan, while 70% of consumers ages 45 to 75 working with a financial advisor are confident.

If you’re seeking help, Dorsey stresses that finding a financial professional who is a good fit for you is key. “Just because somebody understands finance doesn’t mean they’re the right person to give you advice,” he says. “We all have different risk thresholds and tolerances and lived experiences and everything else.”

PREDICTABLE RETIREMENT INCOME = PEACE OF MIND

For a growing number of individuals, protected income is a key part of their financial plan in retirement. 50% of financial advisors say they are putting more client investments into annuities, which ranks as the most popular change in investment strategy. “We’re definitely seeing a really strong desire for stability within portfolios and annuities are one of the ways that can happen,” says Dorsey.

Part of the shift toward annuities has to do with education around protected income products. For example, most people don’t realize there are only three sources of protected income available today – Social Security, pensions, and annuities. As Dorsey says, advisors are getting better at explaining this category of products across generations. “I think there’s more excitement, more enthusiasm, and just a better understanding of how this works and how it fits.”

THREE ESSENTIAL STEPS FOR PRE-RETIREES

If retirement is on the horizon, here are three critical moves Dorsey recommends, especially for Gen-Xers and younger generations.

• Create a “snapshot” of your finances: “This is not a budget. This is a ‘get real with where we are’ in terms of what we have, debt, assets, all those sorts of pieces,” says Dorsey.
• Build a simple, actionable financial plan: “It gives you the understanding you need…without being so complex that you don’t understand it,” he adds.
• Have money conversations early: “One of the best things you can do to honor your kids and your grandkids and your legacy is to have the conversations while everybody is there, so everybody understands,” Dorsey notes. “It is such a gift to your family to have financial conversations.”

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