Retirement Readiness of Generation X An Overview of the Next Generation of Retirement Investors

January 2012

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Overview Much of the research in the retirement planning industry has focused on the needs of Baby Boomers. While the 79 million strong Boomer population undoubtedly requires retirement income advice now and in the coming years, there are another 70 million Americans right behind them— Generation X (Gen X). As such, the Insured Retirement Institute (IRI) has embarked on a large-scale analysis of Americans in their 30s and 40s, thereby including Generation X and the youngest Boomers. In this report, we share a key portion of this research—the preparations they are making for retirement, and the issues that are shaping these expectations. Key Findings and Analysis Although their collective retirements are decades away, there are a number of compelling reasons for Generation X and their advisors to begin the retirement planning process early. o Among GenXers who pinpointed an anticipated retirement age, the average age was 64, indicating a retirement period of more than 20 years. o Only one-third of GenXers are at least very confident of having enough money to live comfortably during retirement, cover their medical expenses, and pay for their children’s higher education. o Just 41% of GenXers have tried to figure out how much money they will ultimately need to save. And, among those who have saved, half have amassed less than $100,000. o The economy has played a significant role in how GenXers shape their retirement expectations. Overall, many GenXers felt the sting of the recession, as 15% made early withdrawals from their 401(k) plans, 23% stopped contributing to their retirement accounts, and 22% stopped contributing to college savings plans. Single GenXers, women and those on the cusp of the Boomer Generation are in particular need of guidance in planning for retirement. o Approximately 21% of older GenXers and younger Boomers in this group needed to dip into their retirement savings plans in the past year. o 54% of female GenXers rated themselves as having little to no investment knowledge; this compares to 37% of male GenXers. o Only 24% of single GenXers indicated that they were at least very confident that they would have enough savings to fund their lifetime retirement needs, compared to 40% of married GenXers. On the other end of the scale, 35% of single GenXers expressed little to no confidence about having enough money for their retirement, compared to 20% of married GenXers. Presently, 37% of GenXers have consulted a financial advisor. Among single GenXers, this figure is 20%. IRI defines Generation X as Americans born from 1965 through 1981, inclusive. o The Generation X population numbers 70 million; including the youngest Boomers brings this figure to 83 million.

o

Generation X, as a group, is educated (one third have at least a Bachelor’s degree), own their own homes (at least 70% of married couples), and work in professional occupations (more than 40%).

Who is Generation X? There are various accepted boundaries that define the age group dubbed Generation X. IRI recognizes GenX as the 70 million Americans born from 1965 through 1981, inclusive, a population that turned ages 30-46 in 2011. Additionally, this report includes late-stage Boomers—those born from 1962 through 1964, as their views and experiences tend to align with those of the earliest GenXers. This range enabled us to do a complete analysis of Americans who are in their 30s and 40s. For this report, we segmented GenXers into three groups, by age, as follows: Young GenXers: Those born during the five-year period from 1977 through 1981, who were between ages 30 and 34 in 2011. The year 1977 is used by some demographers to differentiate between Generations X and Y. Core GenXers: Those born during the ten-year period from 1967 through 1976, inclusive, who were therefore between ages 35 and 44 in 2011. Hybrid Boomers: Those born during the five year-period from 1962 through 1966. This group, who were between ages 45 and 49 in 2011, is somewhat evenly divided between the youngest Boomers and the oldest GenXers. For ease of presentation, this report refers to all three groups collectively as Generation X. Generation X segmentation Hybrid Boomers Core GenXers Young GenXers

Birth Years

Age in 2011

1962-1966 1967-1976 1977-1981

45-49 35-44 30-34

Population (millions) 22.7 41.0 20.0

Source: United States Census, 2010, Insured Retirement Institute

Generation X, as a group, is educated, own their own homes, and work in professional occupations. In its Demographic Profile of America’s Gen X, the MetLife Mature Market Institute includes the following statistics. (Note that MetLife classifies Gen X as those born between 1965 and 1976.)

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Selected Traits of Generation X Education Master’s Degree or Higher Bachelor’s Degree Some College High School Graduate Less than High School Family Married Divorced or Separated Widowed Never Married Home Ownership (among Married Couples) Age 30-34 Age 35-39 Age 40-44 Home Ownership (among Singles Living Alone) Age 30-34 Age 35-39 Age 40-44 Occupation Group Management, Professional, and Related Sales and Office Service Construction and Maintenance Farming, Fishing and Forestry Other Median Household Income (2008, Married Couples) Age 30-34 Age 35-39 Age 40-44 Median Household Income (2008, Singles Living Alone) Age 30-34 Age 35-39 Age 40-44 Source: MetLife Mature Market Institute

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11% males / 12% females 21% males / 22% females 25% males / 29% females 31% males / 26% females 13% males / 10% females 65% males / 67% females 13% males / 16% females 0.3% males / 1.1% females 22% males / 16% males 70% 79% 84% 36% males / 34% females 44% males / 45% females 47% males / 50% females 35% males / 44% females 15% males /29% females 12% males / 20% females 19% males / 1% females 1% 6% - 18% $73,601 $81,107 $84,278 $37K males / $39K females $40K males / $40K females $40K males / $32K females

Generation X and Retirement Although their collective retirements are decades away, there are a number of compelling reasons for Generation X and their advisors to begin the retirement planning process early. The key reason is simply life expectancy. Among the 70% of survey respondents who pinpointed an expected retirement age, the average was approximately 64 years old. When we employ life expectancy tables, this corresponds to a retirement period that will span more than 20 years.

Life Expectancy vs. Anticipated Retirement Age, Generation X and Late-Stage Boomers 90 Average life expectancy Female

Future Age

85

Average life expectancy - Male

80

Anticipated retirement age

75 70

Generation X

Late-stage Boomers

65 60 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

Current Age

Average life expectancies determined using Social Security 2010 tables with 1% mortality improvement. Anticipated retirement age based on IRI consumer survey, November 2011; averages are shown for age groups 3034, 35-44, and 45-49 for those who specified an age at which they expect to retire.

Although GenXers have been saving money for retirement, the end goal is still filled with unknowns. Our research shows the following key themes regarding retirement savings and planning. Low Retirement Confidence Yet, even with these strong profiles, there is concern among Generation X about their ability to meet future expenses in retirement. According to IRI’s survey, only one-third of GenXers are at least very confident of having enough money to live comfortably during retirement, cover their medical expenses, and pay for their children’s higher education.

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Confidence in Meeting Retirement Expenses, Generation X Will have enough money to live comfortably throughout retirement years

35%

Will have enough money to take care of medical expenses during retirement

34%

Will have enough money to pay the cost of higher education for children

32%

Will have enough money to pay for my/our long-term care expenses

21% 0%

28%

Somewhat confident

23%

32%

35%

40%

8%

33%

26% 20%

20%

40%

28%

Will have enough money to pay for long-term care for parents

Extremely or very confident

43%

44% 60%

Not too/not at all confident

9% 80%

100%

Not sure

Medical expenses include those incurred for doctor visits, prescription drugs, and hospital stays; excludes the cost of long-term care. Long-term care expenses include those incurred in a nursing home or for home health care. Response rates of 3% or less are not labeled. Survey population: Americans currently age 30-45. Source: Insured Retirement Institute

These findings were fairly consistent by age and gender. Differences between income groups were as expected, with higher levels of confidence in households with higher incomes. Yet, there was a notable distinction between GenXers who were married and those who were not. Using overall retirement income confidence as the example, nearly 40% of married GenXers indicated they were at least very comfortable that their savings would take them through retirement, compared to only 24% of single GenXers. On the other end of the scale, less than 20% of married GenXers expressed little to no confidence about having enough money for their retirement compared to 35% of single GenXers. As noted earlier, a substantial proportion of GenXers have never married, and their assertion that they are not confident about retirement opens up opportunities for advisors to assist them.

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Confidence in Having Enough Money to Live Comfortably Throughout Retirement, Generation X, by Marital Status 16% 35%

Not sure Not too/not at all confident Somewhat confident

44% 39%

Extremely or very confident 38% 24%

Married

Not Married

Survey population: Americans currently age 30-49. Source: Insured Retirement Institute.

Insufficient Savings First, while three-quarters of GenXers have money saved for retirement, only 41% have tried to figure out how much money they will ultimately need to save. Among those who have saved, many have set aside an insufficient amount. As shown below, half of GenXers have saved less than $100,000.

Amount Saved for Retirement, Generation X Don't know/refused to answer 26% $200,000 or more 13%

Less than $50,000 30%

$100,000$199,999 12%

$50,000-$99,999 19%

Survey population: Americans currently age 30-49 who have saved money for retirement. Source: Insured Retirement Institute.

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Not surprisingly, the amount of money saved for retirement increases with the age of the individual. As noted, one-third of Americans between ages 45-49 have saved at least $100,000, including 25% whose retirement savings are $200,000 or more. It is also not a surprise that lower-income GenXers have smaller amounts in retirement savings. Still, just 40% of those earning at least $75,000 annually have at least $100,000 in savings.

Amount Saved for Retirement, Generation X, by Age 22%

25%

9%

13%

21%

Don't know/refused to answer

26%

$200,000 or more

23%

$100,000-$199,999

14% 11%

$50,000-$99,999

18% 18%

Less than $50,000

46% 30%

30-34

22%

35-44

45-49

Survey population: Americans currently age 30-49. Source: Insured Retirement Institute.

Amount Saved for Retirement, Generation X, by Household Income 15% 5%

17%

19% 22%

Don't know/refused to answer $200,000 or more

18%

$100,000-$199,999

7% 20%

80% 22%

53%

$50,000-$99,999 Less than $50,000

20%