Although general rules apply to all consumers when it comes to planning for retirement, these rules can differ from one generation to the other. As a financial advisor, tailoring the retirement-planning advice you give to each generation can make a substantial difference in their ability to save successfully for their retirement.
Here is a breakdown of advice you can give to each generation:
Baby Boomers (born between 1946 and 1964): Many are concerned about how they will afford retirement, given the economic downturn that affected the value of their homes and left savings in shambles. A fair number have pension plans, but many employers no longer offer such plans to their employees, having replaced them with defined-contribution plans, such as 401(k) plans. With 401(k) plans, there is no guaranteed payout; the individual assumes both the investment and the longevity risk.
Advice: Devising a workable retirement distribution plan is paramount. It is important for your clients in this category to assess their distribution plans now. If they miss the tax requirements necessary for certain investments or withdrawals by even a day, the financial implications can be enormous. Does putting off collecting Social Security payments for a few years make sense?
Gen X'ers (born between 1965 and 1976): They are arguably in the high-earning years of their careers and face financial stress that can seem overwhelming, such as starting a family, buying a house and car, and saving for their children’s college. Since the economic decline, it has been difficult for some of them to increase their 401(k) savings; in fact, many are taking the opposite tack. According to a recent study by the Insured Retirement Institute, 15 percent of X’ers made early withdrawals from their 401(k) plans, and 23 percent have stopped contributing.
Advice: Let them know that they should pay themselves first. If they have not adequately planned for retirement, what will they do when it arrives? They should focus on a 401(k) plan or other savings plan at this point. Otherwise, it may never happen. Taking advantage of their company’s 401(k) should be relatively painless--especially if the company offers matching funds. Still, how they find the right balance between adequate retirement savings and paying mortgages, college fees and weekly bills, can be difficult. But simply giving up or continuing to take away from existent savings is not an option.
Gen Y’ers (born between1977 and 1990): There is conflicting data over how this generation views retirement planning. According to a survey by Hewitt Associates, Generation Y’ers contribute 5.3 percent of their pre-tax salary to employer-sponsored savings plans, compared to 6.3 percent for Gen X’ers and 8 percent for Boomers. But according to a Fidelity Investments poll, 83 percent of Gen Y’ers are contributing to a 401(k) plan--up from the 8 percent who were doing so 10 years ago.
Advice: Even if they are saving, it is not enough. Often, they set aside 5 to 6 percent early and let it ride. But retirement savings should be evaluated annually. Assuming salaries increase throughout a career, maintaining a 6 percent contribution over a 40-year span creates a shortfall. There are also other expenses to consider, not all of them based in reality. When making “real” money for the first time, they may splurge on expensive autos or vacations. This generation faces repaying student loans as well, moving out of their parents’ homes, and a possible need to purchase a car. There are choices to make between needs and desires, which have significant consequences for the present and the future. The good news is that there is time for them to get their savings in order.
But advise them to begin saving now to realize the maximum benefit later. They should get advice from various financial sources with the use of online planning tools, and turn to their parents or other trusted people who have experience in planning. With a realistic approach, they should be able to create a workable strategy.
Millennials ( born between1991 and 2013): Retirement is not a priority at this point. Instead, parents of millennials should consider basic savings accounts, CDs, savings bonds, and other options to establish a base for future investments. Those born in the early-to-mid-1990s, however, are entering or are preparing to enter the job market; as a result, they should be saving in an IRA. Not only can this pay dividends, it can also help start a saving pattern early and get them used to the idea of setting aside part of their salary to meet their monthly budget.
Advice: If they start saving from day one, it will be easier to do so as their careers develop and this will become a habit. By automatically saving 6 percent in an IRA or a 401(k) plan, they will come to appreciate that habit, if not now, necessarily, then certainly as they mature and find the savings they have already accrued as indicative of their financial acuity.
This is often easier said than done at this age, though. “Spend now, save later” may be the byword for this generation, but hardly a prudent strategy. If they are working at a place that offers a 401(k), they should take advantage of it. They should also try to put as much of their subsequent raises as they can into their 401(k) plan until they reach the $17,500 annual contribution limit for those under 50.
Rich Rausser is senior vice president for client services with Pentegra Retirement Services, a provider of retirement plan solutions to organizations nationwide. For more information, visit www.pentegra.com .
More than six in ten women (62 percent) said they have an interest in learning about financial planning, retirement planning and investing according to the 2013 Women, Money & Power Study from Allianz Life Insurance Company of North America.
This is nearly double the percentage (35 percent) who indicated interest in these topics during the original study conducted in 2006. However, despite innovations in the financial-services industry, 70 percent of all women said they believe financial information is hard to understand.
The 2013 study, conducted with more than 2,000 women ages 25-75 with a minimum household income of $30,000 a year, also found that 68 percent of women felt financial-planning materials are dull and boring. Additionally, 54 percent said financial material “seems like it’s in a foreign language,” and a full 40 percentage said that none of the information is “applicable or useful.”
Surprisingly, despite indications that women want to learn and want help translating financial material, 69 percent do not see their financial professional as a “go to” source for information on how to save, spend and invest. In fact, only 38 percent of women noted they had a financial professional. Of those who had a financial professional, more than a third (38 percent) said their financial professional is “not very responsive” or “doesn’t seem all that interested in my personal situation” (40 percent).
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“It’s definitely concerning that the financial-services industry doesn’t seem to have learned much in the last seven years about customizing solutions to female clients,” says Allianz Life Vice President of Consumer Insights Katie Libbe. “Women are in more financial control than ever before, and regardless of their high level of interest in learning about financial topics, the information and planning resources made available aren’t doing enough to change negative perceptions about the industry.”
Whom to trust
According to the 2013 study, today’s women feel more empowered about financial planning and are more responsible for financial decisions than before. More than 90 percent of women said they feel that they need to be significantly more involved in financial planning than in the past. They also report that they are equally responsible for major investment decisions and retirement planning in their household (57 percent).
Although negative perceptions about the industry remain strong, many women do see the value in having a financial professional help guide them. In the study:
- 77% of women who reported they have a financial professional said they were more confident and prepared for their financial future.
- 75% of respondents recommend having a financial professional to other women.
- 75% of women feel they earn better returns on their money with a financial professional.
- 72% of women felt more self-sufficient having a financial professional.
Women also noted the importance of feeling engaged and having the ability to learn in a non-intimidating environment with other women. Yet, despite a desire to connect, the internet was cited as the most popular source for financial information (54 percent), with financial professionals coming in at 39 percent.
Most wanted: retirement lifestyle
The top financial topic that women said they want to learn about the most--attaining a retirement lifestyle--is not likely the top focus for many financial professionals. Women are asking for clear and simple-to-understand financial information not available on the internet.
The vast majority of women surveyed noted they are more concerned about attaining a retirement lifestyle than in gaining specific investment guidance. Eighty-five percent of participants want to learn how to achieve their desired lifestyle in retirement, while an equal number want guidance on how they could guarantee income for life.
Seventy-five percent want to know how to invest and plan for retirement with a modest income and 67 percent are interested in the basics of “buying smart” (where to save, managing a budget, etc.) Getting guidance about the stock market was the least interesting to women, with only 58 percent finding the topic appealing.
In addition to highlighting the most popular retirement topics among women, respondents provided feedback on the perfect ways to learn about financial information. They asked for financial information to be clear, simple and easy-to-understand, with affordability and convenience ranking as the second and third most important characteristics.
For more information, visit www.allianzlife.com.