Benefits September 8, 2014

Gens X and Y Need Retirement Savings End Goal

September 8, 2014 (PLANSPONSOR.com) - Two-thirds (66%) of Generations X and Y have not calculated how much they need to save for retirement—and only 19% work with a financial adviser.
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It’s more than a lack of direction that is hurting Americans born between 1965 and 1992, according to a study by Security Benefit. A significant percentage believe saving for retirement is becoming more difficult, with two-thirds (65%) saying it’s harder for their generation to save for retirement than it was for previous generations. Additionally, half (48%) of respondents believe they are behind on saving for retirement while just 43% said they were satisfied with their current financial situation.

The survey found that Generations X and Y place a premium on securing their financial futures. Nearly three-quarters (73%) said that a guaranteed stream of income in retirement is an important reason to purchase a financial product, while more than half (55%) said that it’s important for a financial product to protect their assets from losses in the stock market.

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Generations X and Y are still putting money aside for retirement despite the lack of clear goals and the perception of generation-specific hurdles. A majority of respondents (90%) said saving for retirement is an important goal, and 88% said it’s important to maintain their desired lifestyles in retirement.

Surprisingly, these two generations that were instrumental in the growth of the Internet do not view online solutions or resources as the best option for retirement planning. Only 12% of respondents would prefer to save for retirement though a company or service they found online, while just 18% of respondents would go online for advice about how to save more.

“It’s somewhat of a surprise that these generations, especially Generation Y, would prefer to use offline resources to guide their savings decisions,” says Al Dal Porto, vice president of market research with Security Benefit. “It’s clear that Generations X and Y prefer to use more traditional means of financial planning by working through employer-provided retirement services or consulting with a professional financial adviser.”

 Thumbs Down to Web Help 

Instead of turning to the Web for help, Generations X and Y expressed a high preference to seek information through more traditional avenues. The survey found only 18% said an Internet search engine like Google or online reviews is a major source for financial information or advice. In comparison, 39% said a financial adviser or planner is a major source of financial information or advice, and 27% see their parents as a resource.

The younger generations are actively working to fund their dream retirements through a variety of retirement savings vehicles:

  • 71% have used a 401(k), 403(b) or a 457 plan at work to save for retirement;
  • 41% turned to a checking, savings or money market account expressly earmarked for retirement; and
  • 39% have saved through an individual retirement account (IRA).

“It’s great to see Generations X and Y actively considering their retirement savings needs, but it’s difficult to plan for and ultimately achieve a successful retirement without having an end-goal in mind,” Dal Porto says. “While accumulating retirement savings is critical at this point in the lives of Generations X and Y, it’s encouraging to see that a significant portion of these individuals looking toward their inevitable retirement income needs.”

The 2014 Gen XY Financial Maturity Study was conducted by Greenwald & Associates between April 8 and April 21 on behalf of Security Benefit, among other financial services firms. A total of 2,122 individuals age 18 to 48 completed the survey online. Security Benefit previously released results of the study specific to K-12 educators.

More about Security Benefit is on its website.

Benefits September 8, 2014

Retirement Account Ownership Down, Values Up

September 8, 2014 (PLANSPONSOR.com) - Ownership of retirement accounts fell in 2013, but median and mean values of retirement accounts rose substantially, according to a Federal Reserve Bulletin.
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Based on its Survey of Consumer Finances (SCF), the Federal Reserve said ownership of retirement accounts—including individual retirement accounts (IRAs), Keogh accounts, and employer-sponsored defined contribution (DC) and defined benefit (DB) accounts—fell below 50% in 2013, continuing the downward trend also observed between the 2007 and 2010 surveys. The conditional median value of retirement accounts rose 25%, from $47,200 in 2010, to $59,000 in 2013, and the mean value rose 10%, from $183,400 in 2010 to $201,300 in 2013. The Federal Reserve attributes this growth to a combination of resurgent stock markets and increased contributions by retirement plan participants.

Among families whose head is between ages 35 and 64, those in the bottom half of the usual income distribution saw overall declines in retirement plan participation between 2007 and 2010 and then again between 2010 and 2013, from 48.2% in 2007 to 40.2% in 2013 This overall drop was driven by declines in both IRA and DC coverage, as there was little change in the fraction of families with a DB plan. Those families in the next 40% of the income distribution saw only a slight net fall in overall retirement plan participation between 2007 and 2013, since between 2010 and 2013, they experienced a slight increase in participation driven by increases in participation for all three classes of retirement assets. Families in the top 10% of the income distribution saw a slight increase in retirement plan participation from 2007 to 2013, reaching 94.6% in 2013.

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The Federal Reserve notes the value of assets held within IRAs and DC plans are among the most significant components of many families’ balance sheets and are a significant determinant of their future retirement security. The average combined IRA and DC pension balance for families owning those assets in the lowest income group was $39,100 in 2013. That figure is close to the 2010 average balance of $40,500, but down more than 20% from the 2007 value of $50,600. Those in the upper-middle income group saw an increase in their average total balance between 2007 and 2010. While there was little change in average balance from 2007 to 2010, between 2010 and 2013, the average balance for this group increased by approximately $20,000, or 16%, from $126,900 to $147,300. Average balances fell for those in the top income group, and particularly for those at the very top. For example, the fraction of families in the top 10% of the income distribution with retirement account balances exceeding $1,000,000 fell from 14% in 2010 to 9% in 2013.

The SCF also indicates friends, relatives and associates remain the most common sources of information used to make investing decisions for consumers in 2013 (40.8%). This is followed by sellers of financial services (38.3%); the Internet (35.3%); and lawyers, accountants and other financial advisers (31.8%). Fewer families reported consulting print media or material in the mail in 2013 than in 2010.

The Federal Reserve Bulletin is here.

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