The retirement generation gap

New way to save for retirement
New way to save for retirement

Few milestones in life are as laden with dreams and fantasies as the day when a person retires. Will it be a slow downshift into a life of travel and time with grandchildren? A chance for gradually increasing immersion in a lifelong hobby? Perhaps it will be all of the above.

Or perhaps future retirees' experience will be more in line with the reality of retirement as depicted in a new report by the Transamerica Center for Retirement Studies. The study found that two-thirds of workers aged 50 or older expect to work past 65, at least part time, but the median age at which current retirees left the workforce was 62.

Not only that, two-thirds of those who did leave the workforce did so because of work-related reasons like job loss, a reorganization, or a buyout. And only 5 percent of retirees actually are working in retirement.

"So many workers want to work longer, or transition into retirement, yet very few say their current employers have practices in place to facilitate this," said Catherine Collinson, president of the Transamerica Center. Many, she said, "are ill prepared for life's unforeseen circumstances."

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Many 50-somethings have only limited retirement nest eggs: the center found just $135,000 in median savings in retirement accounts for that age cohort. That may explain why their worries about retirement tend to relate to outliving their savings. They are also nervous about not being able to support their families or maintain access to reasonably priced health care.

Retirees tend to be less worried about running out of money and more concerned about experiencing cognitive decline and being unable to find meaningful ways to spend their time, the study found.

But a sizable minority of both groups is worried about paying off debt, with 18 percent of workers aged 50 or older and 13 percent of retirees saying that paying down credit card or consumer debt is a key priority.

"Working longer and retiring at an older age seems like a sensible option for workers to earn money and bridge savings shortfalls," the report concluded, but "many retirees retired sooner than expected, before age 65, for employment–related reasons, including job loss, reorganizations and others. The variables in the equation simply don't add up."

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Millennials, by contrast, appear to be doing more to prepare for retirement. Some 68 percent are currently saving for retirement, according to a recent study by the Insured Retirement Institute and the Center for Generational Kinetics. That is an improvement on the 64 percent of workers aged 50 or older who told the Transamerica Center surveyors they were doing so.

Then again, only 29 percent of millennials are actually planning for retirement, the IRI survey found, and 15 percent listed winning the lottery as an element of their retirement strategy. In addition, more than half of millennials think they will never retire or will not be able to retire when they want to.

Millennials also demonstrated a skewed perception of the cost of living in retirement. Some 70 percent thought they would spend less than $36,000 per year, but according to the Bureau of Labor Statistics, annual spending by people aged 65 to 74 in 2013 averaged $46,757.

The millennial generation "is largely not on track to attain financial security in retirement," the IRI researchers concluded.

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One reason for boomers' and millennials' skewed view of retirement finances may be their shifting financial circumstances. Boomers in their 50s are more likely than current retirees to have little or nothing in the way of pension income, for example. Roughly three-fourths of the boomers in the Transamerica Center survey said they wished they had saved more consistently and been more knowledgeable, since for them, it will matter more.

As for millennials, many are contending with heavy student debt burdens. The Institute for College Access and Success found that among the 69 percent of students who graduated from public and nonprofit colleges with debt in 2014, the average amount owed was $28,950.

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There are reforms in the works to improve retirement security in the future. For example, the Treasury Department in November announced the creation of the myRA, a type of retirement account that Collinson believes could prove quite helpful to part-time workers and people just starting out in the workforce. In addition, a number of states are considering or implementing state-based retirement plans to help those without retirement programs at work put money away.

Still, for now the disconnect between boomers' hopes for remaining in the workforce and the age when retirees step out is cause for alarm, Collinson said.

"The red warning lights are flashing. We are facing major issues up ahead and the sooner we can recognize them and address them, the better positioned we are societally to solve them."