Generational spending and saving habits are profoundly influenced by life experiences, economic conditions, and the financial opportunities available at different points in time. Among these, baby boomers and millennials stand out for their sharply contrasting behaviors—especially when it comes to saving.
For millennials, factors like inflation and student debt have been persistent challenges to building retirement savings. Yet, this generation is on track to potentially experience a more comfortable retirement than their predecessors. Let’s dive into the generational trends shaping retirement savings, examining the distinct habits of boomers and millennials.
Retirement Savings by Generation: Understanding the Habits of Boomers
Over half of boomers are expected to run short on money during retirement. In fact, 27% of those 59 and older don’t have retirement savings. As boomers launched into adulthood and entered the working class, no one could have predicted the economic changes that would occur over the next few decades. Shifting retirement responsibilities, the Great Recession, and a lack of financial literacy fed into the challenges this generation faced in saving for retirement.
Contributing Factors
Unexpected economic and workplace changes contributed heavily to boomers’ saving habits and readiness for retirement. When comparing retirement savings by generation, here are some of the greatest contributing factors in boomers’ saving habits:
- The shift of pension plans to 401(k)s: During the decades the boomers joined the workforce, defined pension plans slowly shifted to 401(k)s. The change required boomers to be responsible for funding their retirement through optional deductions with little education or guidance.
- The Great Recession: The 2008 recession occurred in the peak earning years of boomers. As a result, many were forced to tap into retirement savings to stay afloat.
- Lack of financial literacy: Boomers came of age at a time when discussing finances was uncommon. They were left uneducated about saving and navigating financial hardship.
- Confidence in Social Security: During the peak earning years for boomers, the promise of Social Security acted as a safety net. It assured individuals that they would have access to some income during retirement. Unfortunately, Social Security alone is not typically enough to meet the needs of any individual in today’s economy.
Retirement Savings by Generation: Reflecting on the Habits of Millennials
43% percent of millennials say they’re very confident they’ll be able to meet retirement goals. Millennials grew up in a storm of economic uncertainty. They had the mixed blessing of having the world’s information at their fingertips. Additionally, they witnessed the struggles of their parents and grandparents during the Great Recession, educated themselves on financial stability, and benefited from automated programs.
Contributing Factors
Like boomers, millennials faced a plethora of economic changes during their lifetime. As a result, many millennials chose to focus on saving for the future. When comparing retirement savings by generation, these factors stand out for millennials:
- Witnessing the Great Recession: Millennials had a front seat to the challenges faced by their parents and grandparents during the 2008 financial crisis. The impact of the stark change in lifestyle prompted millennials to recognize the importance of saving for the future.
- Concerns about dwindling government funds: Unlike previous generations, millennials are aware that they may not have Social Security to rely on. In fact, a portion of the funds going into the program is expected to be depleted in 2041.
- Improved financial literacy: Millennials came of age in an environment where discussing finances was more common. The influx of information from family experiences, the ability to conduct research online, and financial apps help millennials automatically save money.
- Auto-enrollment in 401k: The SECURE 2.0 Act requires all 401(k) plans established after December 2022 to include automatic enrollment. This legislation helped millennials start saving earlier.
Navigating the Financial Challenges of Saving for Retirement
Saving for the future is always difficult. It forces earners to balance between their present and future needs. While the boomers’ retirement story is already mostly written, millennials have substantial time to save (and face impending future challenges).
Financial Challenges for Boomers
Boomers faced many retirement challenges, including the Great Recession and limited financial education. However, the homeownership rate is much higher among boomers than in other generations. This provides increased income opportunities in the form of downsizing or a reverse mortgage. Younger boomers also have time to safely delay collecting Social Security benefits to increase their lifetime payout before the program’s funds are cut.
Financial Challenges for Millennials
Millennials typically start saving for retirement much earlier than other generations. However, they face substantial economic challenges that could diminish the impact of their savings over time. Student debt payments are a major obstacle for millennials attempting to save for retirement.
All generations feel the impact of record-breaking inflation. However, it comes during peak earning years for millennials, diminishing the amount they can set aside for the future. The barriers to homeownership for millennials also have the potential to impact retirement years, increasing their cost of living during retirement and eliminating the potential earnings related to home equity.
Although we always hope younger generations will face fewer financial obstacles, changing economic times always present financial challenges. When nearly 50% of the private workforce doesn’t have access to a retirement plan through their employer, finding ways to personally fund retirement savings is a necessity.
Stretching Your Retirement Income to Achieve the Lifestyle You Want
Forecasting significant economic changes over the next 50 years—or even the next decade—is nearly impossible. While saving for retirement remains crucial, finding ways to make your budget go further is equally important to ensuring a fulfilling retirement.
For many retirees, choosing a dream location plays a key role in creating a satisfying lifestyle. Exploring the cost of living in various destinations can help you discover a place that checks all your boxes while staying within your financial means. Likewise, considering diverse housing options can maximize your retirement budget and enhance your quality of life.
Exploring 55+ Communities Within Your Budget
Exploring different types of homes, including single-family homes, condos, and townhomes, in affordable 55+ communities can help you expand your retirement home options without breaking your budget. These communities often provide a range of amenities that enhance your lifestyle without stretching your entertainment budget. If you’re looking for the ideal 55+ community for your dream retirement, the expert agents at 55places can help. Visit our website to explore 55+ communities across the U.S. or contact us today if you’re ready to take the next step!
