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Rethinking Retirement from a Generational Perspective

Retirement through a Generational Lens

• For Baby Boomers, born between 1946 and 1964, retirement is often seen as a well-deserved reward after years of hard work and is typically associated with a desire for financial security and time to pursue hobbies and interests. Many of these Boomers grew up during a time of economic prosperity and some of them may still benefit from a company pension.
   

• Generation X, born between 1965 and 1980, this generation witnessed significant economic shifts, including recessions, the rise of technology, the decline of company pensions, and the introduction of defined contribution plans. As a result, their views on retirement differ from those of their predecessors. Generation X tends to be more pragmatic and self-reliant, recognizing the need to save and plan for retirement early on. They often prioritize financial stability and independence, aiming to retire comfortably without relying solely on government or employer funded pensions, which were not available to many of them anyway. Some of them may also be the “sandwich generation,” looking after aged parents and growing children at the same time.
   
• Millennials, born between 1981 and 1996, have grown up in a rapidly changing world, characterized by technological advancements, economic uncertainty, and a greater emphasis on work-life balance. Millennials often prioritize flexibility, personal fulfillment, and social impact in their careers. Consequently, their perspectives on retirement may differ from those of previous generations. Rather than viewing retirement as a fixed endpoint, Millennials may envision a more flexible and dynamic transition into different phases of life, such as pursuing new passions, starting businesses, or engaging in meaningful work.
   
• Generation Z, born between 1997 and 2012, the oldest of this generation will reach their late 20s in 2024. Many of them are out of college, getting married, and starting families. Gen Z workers are more likely to say they're just getting by, covering basic living expenses, and paying off student loans, as compared to older generations. But what is interesting about Gen Zers, is that although they may be on shaky financial ground, they invest in retirement plans. According to a recent Transamerica survey, 70% of those surveyed are saving for retirement through employer-sponsored plans such as a 401(k) or outside the workplace in an IRA. The survey also notes that they started saving for retirement much earlier than older generations.

Facing Challenges Across the Board

Saving for retirement is a challenge that varies across generations due to various economic, social, and technological factors. The following are key issues that different generations face when it comes to saving for retirement:

• Economic Conditions - Baby boomers may have had the advantage of a strong job market and stable pensions, while younger generations face student debt and higher living costs, making it harder for them to save.
   
• Pension vs. 401(k) - Older generations often had defined benefit plans, while younger workers primarily rely on 401(k)s, which shifts investment contribution and risk to individuals.
   
• Job Market Stability - Millennials and Gen Z frequently encounter gig economy jobs or short-term contracts, leading to inconsistent income and challenges in saving for retirement.
   
• Technology and Resources - While younger generations have access to many digital tools and resources for investing and saving, this can lead to information overload.
   
• Social Security Concerns - Younger individuals may doubt the future viability of Social Security, prompting them to save more aggressively or worry more about retirement funding.
   
• Rising Healthcare Costs - Impacts all generations and will be a significant part of retirement expenses.
   

A Word about the Evolution of Work Post-Pandemic

The COVID-19 pandemic has brought significant changes to the workplace, including a broader evolution in workplace culture, emphasizing adaptability, employee well-being, and the integration of technology:

• Technology Adoption - There has been a rapid increase in the use of digital tools for communication and collaboration, including video conferencing and project management software.
   

• Flexibility and Hybrid Models - Many organizations now offer flexible hours and hybrid work environments, accommodating employees' preferences for in-person and remote work. Remote work has expanded the talent pool, allowing companies to hire talent from different geographical areas, and changing recruitment strategies.
   
• Employee & Employer Approaches - Workers now prioritize work-life balance, flexibility, and a positive workplace culture, influencing how companies attract and retain talent.

Taking sabbaticals or breaks between years of work has become more popular among Millennials and Gen Z. Both generations prioritize work-life balance and personal development outside of traditional employment. Sabbaticals for travel, personal growth, or further education are increasingly common among these groups.

This contrasts with older generations who may have adhered more strictly to traditional career trajectories and worked straight through their careers. The challenge that this less linear approach to work presents is how to consistently save to ensure a comfortable retirement is achieved.

Retirement Flexibility Post-Pandemic

The COVID-19 pandemic has also influenced retirement planning. Many individuals have reevaluated their priorities and aspirations, leading to a shift in retirement goals. Traditional retirement is no longer the sole focus, with some individuals hoping for a phased retirement that includes part-time work and pursuing personal passions. The pandemic has highlighted the importance of flexibility and the pursuit of meaningful experiences in retirement.

For example, Fidelity Investments' 2024 State of Retirement Planning study found that two-thirds of respondents said the pandemic has changed how they think about retirement and made them more intentional about pursuing personal passions and dreams. A traditional retirement doesn't hold the appeal it once did for many respondents. Across generations, two-thirds of respondents surveyed said they hope for a phased retirement, including part-time work and working for pleasure while in retirement.

Consider Spectrum Your Resource

Understanding these varied generational perspectives is essential to ensure that retirement plans and participant align with each generation's evolving needs and aspirations. As always, your local Spectrum representative is available to help with any questions you may have.