Economy Changes Retirement Plans for Even Generation X

Suzanna de Baca -- Expert Business Source, 10/24/2008 8:11:00 AM

“Will I have to work until the day I drop dead?” asked a friend of mine in the newspaper business. In his early 40s, he has plenty of time to plan and save for retirement, but after taking a peek at his current 401(k) balance after one more particularly devastating day in the markets, he was genuinely worried.

Not surprisingly, the current economic situation has many retirees wondering how they’re going to make ends meet and many Boomers pondering how long they’ll have to keep working. What is surprising, however, is that younger Americans are feeling insecure about retirements which might be decades away. A new survey by AARP indicates that even Americans in their mid-40s, at the top end of Generation Xers, are rethinking retirement dates, current savings routines, and future spending habits.

The new research report, entitled “Retirement Security or Insecurity? The Experience of Workers Aged 45 and Older,”* by Colette Thayer, Ph.D., of AARP Knowledge Management, was released earlier this month. Author Thayer writes, “People are now changing their behavior in significant ways to deal with their financial pressures, which they believe will undermine their future retirement security.”

The survey found that over 60% of workers age 45 and older say that if the economy doesn’t get better, they’ll probably end up delaying retirement, working longer, and spending less in retirement. Nearly 70% say they’ll likely need to reduce spending in retirement.

Over the last twelve months, 24% of workers age 45 and older say they’ve worked longer hours, yet have still reduced retirement savings, according to the study. 20% indicated that they have “actually stopped putting money into a 401(k), IRA, or other retirement account.” This slowdown in savings is leaving respondents feeling behind on retirement savings, and nearly 60% indicated that they are not saving enough for retirement years.

In situations where employers do not offer a retirement plan, the onus is on the worker to save in an IRA, Roth IRA or other non-employer sponsored retirement plan. A wide majority (63%) of survey respondents say that they would take advantage of an employer-sponsored plan if their employer had one.

What does this all mean? The survey backs up what my newspaper editor friend is feeling – that this economy is causing worry for many that extends far into the future. It suggests that people are taking this downturn seriously enough that they may change their habits now and down the road. However, it also says that despite fear, middle age workers are still not making retirement savings a priority or their obligations are so fixed that they cannot cut spending enough to continue savings. It says that instead of cutting costs, most workers are simply working more hours and think they will probably need to continue doing so.

When my friend asked if he’d have to work forever, I told him, no, you probably won’t but a lot of it will be up to you, not the economy. The economy will eventually improve and your 401(k) will rebound, but when and how you retire is largely a function of the choices you make now, in middle age. If you begin saving aggressively and living a lifestyle that enables you to sock money away, you’ll be fine. If you invest wisely, you’ll likely weather the inevitable future turndowns that will occur in the next few decades. But if you stop saving now, at this crucial time in your life, then you will have problems.

So, beat the retirement worries. Start saving.

According to the press release published by AARP, the study was conducted for AARP via telephone by International Communications Research (ICR). Interviews were conducted during September 3-21, 2008, among a nationally representative sample of 1,628 employed respondents age 45 and older, including 333 Hispanic respondents.

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Financial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor.  Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.