Apparently We Have Not Learned Our Lesson

Last week I received the results of two interesting studies. I am not vouching for the accuracy of either since they were both press releases from firms with a vested interest in the financial planning and investment industries. But that doesn't necessarily disqualify the data. I found the information worth reading and thinking about. I trust you will, too.

I found the first release startling. After all the problems of the last few years and all the bad press about Baby Boomers being unprepared to financially retire, this is the last thing I thought I'd read:

Younger workers continue to delay retirement savings

When it comes to saving for retirement, Generation Y is not taking a cue from their Boomer parents, many of whom are facing financial challenges as retirement looms. The majority (55 percent) of Gen Yers have not started to save for retirement, and fewer than a quarter (21 percent) are actively planning for retirement.

A new survey, commissioned by on line investing firm Scottrade, shows that 60 percent of Gen Yers (born 1983-1991) saved nothing toward retirement last year and 40 percent plan to save nothing in 2011. An additional 21 percent plan to save only one to two percent of their income this year.

“What Gen Y may not realize is that older generations based their retirement planning on the three-legged stool of Social Security, savings and employer pensions,” said Craig Hogan, director of customer intelligence at Scottrade.

“The approach their parents and grandparents took toward saving is no longer appropriate because the old model doesn’t exist. By the time Gen Y retires, they may have only one reliable leg to stand on – their own savings – and they need to plan accordingly.”

When asked what age they’d recommend people start saving for retirement, Gen Yers recommended a mean age of 29.2 years old, giving even the oldest of the group two more years before this generation thinks they need to start saving.
As the first class of Baby Boomers (born 1945-1966) turns 65 and evaluates whether they can retire, many have regrets that can provide an important lesson for Gen Y. Nearly half (46 percent) of Boomers didn’t start saving for retirement until age 35 or older. However, if given a second chance:

• The majority of Boomers (58 percent) would have started saving at a younger age
• Nearly half (45 percent) would have saved more
• Fifty percent would recommend starting to save earlier than age 25
  

Gen Y need look no further than Boomers’ current retirement picture to see the effects of delaying saving for retirement. Almost half (47 percent) of Boomers have $100,000 or less saved, and more than a third (37 percent) are concerned that they will have to work in their retirement years. Almost a quarter (23 percent) think they’ll still be working at age 75 or older.

“Considering the Boomers’ plight and how easy it is to invest on your own in a very low-cost way, we would have expected to see Gen Y reacting by increasing its savings,” Hogan said. “But our data shows that the vast majority – 73 percent – currently has less than $25,000 saved for retirement. And that number has been about the same for the past three years.”

There is no shortage of lessons to be learned from the Boomers’ retirement planning experiences,” Hogan said. “The good news for Gen Y is that they have the advantage of Boomers’ hindsight, youth and enthusiasm. If Gen Yers focus their interest in investing toward their retirement portfolios, there is still plenty of time for them to get where they need to go.”

Gen Y’s lack of action doesn’t stem from lack of awareness or interest. Almost three-fourths of Gen Yers (73 percent) realize that they are not saving enough for retirement, and previous Scottrade survey data revealed that Gen Y finds investing fun and interesting. In addition, they are the most likely to manage their own investments.

The survey was commissioned by Scottrade and conducted on line  Fielded with a nationally representative sample of 1,000 respondents between January 13-18, 2011, the survey examined attitudes, behaviors and trends related to retirement. All participants were at least 18 years of age that were involved in making investment decisions in their households. Margin of error for the overall poll is +/- 3.1 percent at 95 percent confidence. (That last bit of statistical detail tells me the results are valid for the type of person surveyed).


Employer Matching Contributions

In a glimmer of somewhat better news this survey notes that approximately 30% of employers plan on reinstating matching contributions this year. The relevant portions of that press release are as follows:

Despite high unemployment rates, signs of economic recovery are surfacing according to the 7th annual Retirement Plan Survey, conducted by Grant Thornton LLP, Drinker Biddle & Reath LLP and Plan Sponsor Advisors LLC. After significant cutbacks in employer matching contributions over the past few years, 30 percent are planning to reinstate previously eliminated or reduced matching contributions during 2011. Forty two percent do not have plans to reinstate their match this year.

It should be noted that when asked this question one year ago, over half (53%) of the employers had not decided whether to return to previous contribution levels and 33 percent had no plans to do so. This indicates a significant shift in plan sponsors’ outlook on matching contributions since a year ago.  Despite cutbacks by both plan sponsors and participants, 83 percent of plan sponsors reported that either very few or none of their employees had expressed concerns about their retirement readiness.

“Considering the issues facing participants, including reduced employer contributions, decreased plan balances, economic uncertainty and regulatory/administrative updates such as Roth conversions, participants may not be aware that they need to be concerned,” said Jennifer Flodin, Chief Operation Officer of Planned Sponsor Advisors LLC.


My initial reaction was 30% seems rather paltry. But, in retrospect, the economy is not out of the woods by any means. Japan and the Mideast problems will have consequences. Importantly, compared to a year ago positive movement is quite clear.


As regular readers know I usually don't delve very deeply into financial issues; there are plenty of blogs that specialize in that. But, these two studies seemed worth sharing. The first, frankly, baffles me. What Else has to happen for folks to understand their own responsibility to prepare for their future?

Any comments to what they say? Are we incapable of learning from past mistakes?