Many Baby Boomers, those born between 1946 and 1964, are on track for financial independence, but the generation behind them often has problems.
That’s the concern of advisor Beth Blecker. She says most of her clients are saving and investing enough, but she worries about the next generation.
“The children of my clients are often the ones with the biggest issues,” says Blecker, a registered financial analyst in Nanuet, New York.
It’s a Big Issue
The issues of under saving and excessive debt are widespread as recently documented by a new Charles Schwab study. It shows “59 percent of Americans live paycheck to paycheck, 44 percent have revolving card debts and “struggle to keep up with bills/payments.”
The study also showed that “only 38 percent have built up an emergency fund to protect themselves from hard times,” according to Schwab. The study also noted that people saving for retirement are much likely to reach goals if they have an adviser. And lots of them need help, according to the nation’s central bank.
A 2018 Federal Reserve found that 40% of adults, “if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money.” Americans often draw upon their retirement savings to deal with unexpected costs, the study found.
How do you help someone change these troubling trends?
First Things First
“The number one thing is to get these young people to pay themselves first; to automatically put money aside for savings and retirement,” Blecker says.
Blecker advocates using something that dazzles tens of millions of young people today: Use technology.
“Young people use apps today for everything. But they often lose track of how much they are spending and that causes problems. They don’t realize how much debt they have run up,” Blecker says. She says young people trying to build up wealth can and should use apps that track monthly spending.
“You open up the app and you see the numbers in the red and you automatically know you are overspending for the month,” she notes. “You see them in the green and you see what you have left for the month.”
Blecker adds technology should be used so young people can employ the pay yourself first strategy employed by many generations.
“You set it up so that money is taken out of their paychecks automatically each pay period,” according to Blecker.
Aim for starting out at a big amount, if you can, adds another advisor, but the top priority is getting young people started on a savings habit as soon as possible.
Judith Ward, a CFP with T. Rowe Price, thinks 15 percent is a healthy goal. But she adds “that it’s okay if you can’t save the full amount today. Simply getting started and then steadily increasing your contributions can help get your savings strategy on track.”
Achieving adequate savings outside of qualified plans is critical, advisors say. Otherwise many young people will be tempted to break into plans whenever there is some problem.
Where Are the Schools?
“The problem is ultimately that investment education isn’t being taught in schools; young people need help as soon as possible,” according to Ryan Brinks, assistant publisher of Finder.com, a financial advisory web site.
So Brinks argues that it is critical that young people are taught to have saving and payment systems in place that will automatically help them to save.
“Without them, without a pay yourself system that automatically puts money aside,” Brinks adds, “the average young person will be often be overwhelmed by messages to buy now.”
However, the problem of under saving for retirement is more widespread, according to a new survey of workplace professionals.
It Can Be Anyone’s Problem
Under saving and retirement saving woes are not only a young person’s problem. The increasing use of freelancers has meant millions of American workers have irregular incomes. This can make it more challenging to save and invest on a regular basis, advisors say. So lots of Americans don’t save enough.
That’s what a recent Organization for Economic Cooperation and Development (OECD) study reported. Americans generally save just 6.88 percent of their disposable income, more than those in Canada or Australia, but less than those in countries like Germany, Switzerland, Korea and Ireland, according to the OECD.
“The research shows there is definitely room for improvement. Americans have the highest average disposable income of all the nationalities included in the study, yet we save less than seven percent of it,” says Jon Brodsky, CEO USA of Finder. He noted that some countries are saving almost 20 percent of their disposable income.
Look Out! You’re Not on the Track!
A recent survey by Express Employment Professionals of white, blue collar and grey collar workers found many are not on track for retirement planning goals.
“The majority of the workforces are worried about saving enough for retirement,” according to the survey, which explained why save they too little. “Almost one in three are drowning in debt.”
The survey also found that 62 percent of blue-collar workers still paying student loans, 45 percent of grey collar and 40 percent of white-collar workers.
Look for More
So perhaps those trying to help those not saving enough, often the children of Baby Boomers, need to aim for a higher retirement saving figure than 10 percent. The latter was a number often suggested as a good beginning amount. It is possible, Price’s Ward says, to do fifty percent better than that over the long term.
Ward says it is possible to reach the 15 percent savings goal by working towards it in steps. Moving toward that goal, Ward adds, can happen in the workplace. She adds that many offer a service that will automatically increase retirement plan contributions by one percentage point each year.
She says the message that advisors and others working with young people should stress is taking the first step; taking the positive process as soon as possible.
“One of the most important things you can do is to start saving when you can right now,” according to Ward. “Once you get started, you can work toward saving enough to fully fund your retirement.”
Brodsky agrees. He says that this is the same message that advisors should send to clients or anyone needing help.
“Ideally, he argues, “save some of your income before it ever hits your normal bank account by routing part of it to a 401(k) or savings account. That was, you’re not tempted to spend the money and you’ll start saving without realizing it.”
Once an effective automatic saving and investing game plan is in place, and the longer it goes on, the better the next generation will do. Then the children of the Baby Boomers will more likely be able to look toward the same comfortable retirement many of their parents had.