'Financial Independence' a Better Buzzword than 'Retirement'

Generations X (born between the mid-60s and early 80s) and Y (born between the mid-80s and 2000) are more pessimistic about retirement than Baby Boomers.

A study from Northwestern Mutual found a strong majority (66%) of Gen X expects to work past traditional retirement age due to necessity, with two in 10 (18%) believing they will never retire. In addition, nearly three-quarters (73%) of Gen Y expect to work past 65, acknowledging that in old age, safety nets will not be there for them and Social Security will not take care of their needs.

But, Sarah Simoneaux, a consultant with Simoneaux & Stroud Consulting Services, told attendees of the American Retirement Association’s 2015 ASPPA Annual Conference that Generation X “loves work/life balance.” They don’t want to work forever, she says, so they feel they need more than a 401(k) to prepare financially.

Natalie R. E. Wyatt, vice president of business development at Innovest Systems, added that a Scottrade/Pew study found Generation Y expects to work until they die, “so why bother saving in a retirement plan.”

Yet, both of these generations want to be debt-free and obtain financial independence. They need a retirement plan design and message that speaks about financial independence or flexibility, not retirement, Simoneaux said.

Plan sponsors need to design plans and communicate about them with outcomes in mind, Simoneaux suggested. For example, “some think if the employer matches up to 4% of pay, that’s all they need to save, and participants should know the advantage of saving in a Roth account after deferring pre-tax dollars up to the match.” Gens X and Y want to get their money out tax-free, she contended.

In addition, Simoneaux noted that studies show a majority of the younger generation have their savings in “safe” investments. “They don’t trust others with their money,” she said.

Automatic enrollment into a target-date fund will help Generation Y get out of their comfort zone, and will making saving and investing easy for Generation X, who may be busy or overwhelmed by choices.

And the message should focus on financial independence and flexibility. Plan sponsors should consider adding other benefits, such as non-qualified plans, health savings accounts (HSAs), student loan repayment plans or payroll deduction individual retirement accounts (IRAs), Simoneaux suggested.

Let them know if they use these tools, they can have flexibility later in life, whether they want to stop working, only work part-time or continue working.