Gen Y May Face Least Secure Retirement
Think of retirement as a family dinner table. It's an heirloom that is meant to weather the years, and a central fixture in the lives of each relative.
On the whole, grandparents, or Baby Boomers, had it pretty good. The table's four legs were sturdy: a job, a home, Social Security , and a pension.
But Generation X essentially experienced a house fire.
They were the first to see their pension leg replaced by 401(k) plans, which were widely adopted in the 1980s.
Meant as an alternative to pensions paid by employers, 401(k)s are funds based on worker contributions that put the investment risk, and control, in employees hands. Many lost this leg in the Great Recession as US equities lost about 45 percent of their value by the low in March 2009.
The housing bubble took another leg from Gen Xers' table. Home prices have fallen 34 percent since their peak in July of 2006, according the Case-Schiller home price index , and nearly eight million Americans have faced foreclosure since.
"We used to talk about the three legs of retirement, including social security, pensions, and a 401k. Pensions guaranteed defined benefits. But much more weight and pressure applies to the 401k and personal savings now," says Suzanna de Baca, vice president of wealth strategies for Ameriprise.
Indeed. In 2006, then-President George Bush passed the Pension Protection Act, which allowed companies to automatically enroll employees into 401(k) plans. By 2012, 401(k) assets outnumbered traditional pension assets, according to State Street financial advisors.
Enter Generation Y. Roughly between 18 and 34 years old, this generation's table is wobbling on its last two legs: a job and a 401(k), which are co-dependent. Thus instead of protection, Gen Yers have inherited a great deal of pressure.
More than ever, they know they better be employable, and they better be skilled 401(k) investors. The trouble is, it is quite difficult to do this when faced with high unemployment, and ever-higher student loan debt.
“My chances of succeeding are based on what I can do. It's every man for himself, unless somebody passes it down to you,” says Roxanna Rabbie, a 23-year-old sales rep for an IT consulting firm. With a 401(k) and three individual retirement accounts (IRAs), she says, “It’s important to be able to plan from a very young age.”
Clearly, saving for retirement is largely a factor of consistent work – currently a more elusive achievement for Gen Yers than the other generations, according to the Bureau of Labor Statistics.
Gen Yers began entering the work force in the early 2000s, when the national unemployment rate was at a low of 4.0 percent. Since then they’ve watched it rise, peaking in 2009 at 10.2 percent. At the moment, the unemployment rate among Gen Yers stands at 9 percent, according to the Bureau of Labor Statistics. That's 0.8 percent higher than the national average of 8.2 percent.
“My biggest concern is job security, because as expensive as health care and education can be, trying to find a job right now is even harder, even when you have a good resume,” says Jamie Righetti, 28, a Columbia University graduate.
Not surprisingly job security is Gen Y’s first and foremost financial concern, according to a new study by Ameriprise Financial.
“They’re seeing classmates in college not getting jobs. Unemployment has really hit home with Gen Y,” said Ameriprise's de Baca.
Without a job, retirement savings stops. Righetti has a 401(k) plan from a previous employer, but while job-hunting, says “I can't afford to invest anything in it.”