Generation X Strikes Out
Traditionally, the 45-55 age group has been the most fervent retirement savers, but that has changed drastically in the last 25 years. As you can see in this chart, the most rapid declines in participation rate for the black line (age 45-54) coincide with major dips in the market, such as in 2001 and 2007.
To make matters worse, Gen-Xers (born 1965 – 1980) are also the most debt-ridden generation of the past century.
According to the Pew Research Center, Gen-Xers and Baby Boomers alike have much lower asset-to-debt ratios than older groups. Whereas War and Depression babies got rid of debt over the past 20 years, Boomers and Gen-Xers were adding to their load:
- War babies: 27x more assets than debt
- Late Boomers: 4x more assets than debt
- Gen-Xers: 2x more assets than debt
That situation deteriorated further in the last six years; while all groups lost money in the Great Recession, the Gen-Xers were the hardest-hit.
As Early and Late Boomers struggled with asset depreciation of 28% and 25%, respectively, Gen-Xers lost almost half (45%) of their already smaller wealth. They also lost 27% of home equity during the crisis, the largest percentage loss of the groups studied by Pew.
Millennials: Down a Well and Refusing the Rope
The effects of a prolonged period of low interest rates on current and near-term retirees are obvious. But the long-term effects on those now in their early years of working and saving may be much greater.
We’ve all been taught about the power of compound interest. Put away $10,000 today, compounding at 7%, and in 20 years you have about $40,000 and in 30 years nearly $80,000.
As powerful a tool as long-term compounding is, though, nothing can cut the legs out from under it more than saving less early on or earning less in the first few years. Any small change to the input has a drastic effect on what comes out the far end.
The Millennials—those born between 1981 and 2000—are suffering from both right now. It’s no secret that interest rates are low, and there is little that their generation, whose oldest members are now in their early thirties, can do about it.
Shrinking interest rates are wreaking real havoc on the Boomers’ children, extending the time to retirement for that generation by nearly a decade.
Why would any politician pass legislation to change Social Security eligibility, a measure that usually doesn’t bode well for reelection, if they can simply rely on fiscal policy to accomplish the same net effect?
To make matters worse, the years of financial turmoil, a tough post-college job market, high levels of student loans, and numerous other factors have kept most Millennials out of the stock markets.
Millennials are far less likely to open a retirement savings account than previous generations. According to a recent Wells Fargo survey, “In companies that do not automatically enroll eligible employees, just 13.4% of Millennials participate in the plan.”
This is worse even than the number EBRI collected in the graph presented earlier, which still pegged retirement plan participation rates at all-time lows for the 20-something set. Only a small percentage of Millennials are taking even the most basic step toward taking charge of their own retirement.
With their parents and grandparents showing them the failure of the pension system and Social Security first-hand, one would think the opposite might be true. But the numbers clearly show that Millennials are less interested in saving for their future retirement than their parents were.
Having seen it happen to their own grandparents, maybe they are just resigned to the idea that they’ll have to work well into their golden years anyway. And who could blame their generation for not trusting the stock markets with their capital after seeing what happened to their parents’ nest eggs so many times during their own childhoods?
The youngest working generation is eschewing investment, at what might be a great cost down the road.