The economy may be rebounding, but the effects of the Great Recession will continue to be felt for years, particularly when it comes to retirement.
The retirement outlook is especially ominous for older generations who should theoretically have a line of sight for their exit from the workforce, as Generation-Xers (ages 38 – 47) lost 45% of their net worth during the downturn, while young Baby Boomers (ages 48 – 57) saw a 28% decline, according to a recent report from the Pew Charitable Trusts.
Retirement Outlook: Overcast with a Distinct Chance of Substantial Work
The report – titled Retirement Security Across Generations: Are Americans Prepared for Their Golden Years? – is based on a triennial survey of family finances which has been conducted by the Federal Reserve and the Panel Study of Income Dynamics since 1968. The survey tracks and compares financial assets, nonfinancial assets, and home equity to debt, and its most recent findings offer a resounding “No” to the aforementioned question that Pew posits at the outset of its report.
In other words, Americans are by and large prepared to work into their golden years, not enjoy them.
“The evidence strongly suggests that early boomers may be the last generation on track to exceed the wealth of the cohorts that came before them and to enjoy a secure retirement,” Pew concluded. “Gen-Xers are the least financially secure and the most likely to experience downward mobility in retirement. In their 30s/40s, the Gen-X cohort was behind where late boomers had been at the same age with respect to financial net worth, and they lost nearly half of their overall wealth in the recession.”
The Great Recession clearly is a big reason for our recent financial difficulties, but it’s only one piece of the puzzle and must not be viewed as a blanket justification for the uphill battle we now face, according to Richard Himelfarb, an associate professor of Political Science at Hofstra University. Himelfarb believes the recession magnified a shift in cultural values away from the dutiful saving habits of those who grew up in the shadow of the Great Depression to the spend it now (even if you don’t have it yet) attitudes of modern consumers. Apparently, we’d prefer to enjoy the American Dream lifestyle today and worry about tomorrow when it comes. But much like you could get caught without an umbrella if you don’t check the forecast, this strategy leaves us far less prepared to weather financial storms than our predecessors who readied themselves for that amorphous “rainy day,” knowing full well it might never come.
Perhaps that is why the Pew study also found a “lack of savings and wealth accumulation among Gen-Xers even before the economic downturn,” which led its authors to recommend that “as policymakers focus attention on Americans’ retirement security, particular consideration should be paid to helping the youngest cohorts change course and prepare for financial security over the long term.”
How Did We Get Here?
CardHub sought the opinions of leading retirement studies and public policy experts for additional insight into why the future is so bleak for aging generations as well as what, if anything, we can do to alter our fate. And as you can see below, we can’t ignore the role of shifting cultural values or poor financial literacy when it comes to the why.
The Question: Is the poor retirement outlook for Gen-Xers mainly attributable to the effects of recession or are there more substantial underlying issues in play as well?
What Can We Do About It?
Most of us need not be resigned to a lifetime of work, with no respite during our so-called glory years. There is still time to revamp our financial plans in order to secure a comfortable retirement, even if it might neither come as soon as we’d previously hoped nor offer quite the same type of lifestyle.
The question is how, and again we turned to leading retirement planning experts for advice.
Ask The Experts
Takeaways – How Did We get Here?
At the end of the day, there are a few things we can say for sure about the retirement predicament that we’ve gotten ourselves into:
- The Great Recession had a devastating effect on the average person’s net worth.
- The lack of financial literacy in this country contributed to both the severity of the economic downturn and the bleak retirement outlook.
- We weren’t managing our money responsibly from either an everyday spending or retirement planning perspective prior to the recession.
- Our fate is not yet sealed. With increased education, values adjustments, and a bit of strategic planning, we can divert our course from a rocky retirement to a secure one.
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