10 Aug Generation X is struggling to save – 1/3 have no funds for golden years

Franklin Templeton Investments Canada today released its 2018 Retirement Income Strategies and Expectations (RISE) survey, which found that the often overlooked generation X is struggling to save for retirement.

Surprisingly, over a quarter of Canadian gen-Xers haven’t saved anything for retirement, though there are still more retirement savers among them than in the US, where over a third of American gen-Xers haven’t contributed anything towards their retirement nest egg (28 percent versus 37 percent).

Perhaps this could be why more than half of North American gen-Xers would consider retiring later than planned if they do not have enough income (56 percent in Canada and 59 percent in the US). Even millennials who are likely decades away from retirement would consider retiring later, with over half of North American millennials open to pushing out their retirement timelines (51 percent in Canada and 54 percent in the US).

This reliance on retiring later is concerning as nearly a quarter of North American retirees actually retired earlier due to circumstances beyond their control, like health issues and company downsizing (23 percent in Canada and 22 percent in the US).

“With the rising cost of living—coupled with school-aged children, their own student loans or aging parents to attend to—generation X is being stretched beyond their financial limits in many cases, which hasn’t left much room for contributions to their retirement savings,” said Duane Green, president and CEO, Franklin Templeton Investments Canada. “This reinforces the importance of financial planning advice that takes retirement savings into account and incorporates tools like setting up automatic contributions—with whatever you can afford when you can afford it—to help ensure you are better prepared for the future.”

Canadian gen-Xers, who do not maximize or know their annual contribution limits in all of their registered accounts, say they cannot save more for retirement because nearly half (47 percent) claim their income is too low and over a quarter (29 percent) say their expenses are too high; while nearly a quarter (24 percent) have prioritized paying down debt. Almost half (46 percent) of Canadian gen-Xers have a mortgage and over a quarter (28 percent) are renting their place.

“With not enough income, high expenses and large consumer and mortgage debt loads, generation X is struggling to save. This may have been the case for some baby boomers, but their saving grace was that some were able to sell in a high-flying housing market and many had pensions,” said Matthew Williams, senior vice president, Franklin Templeton Investments Canada. “Generation X may not be as lucky given they have hefty mortgages that they can barely afford—especially if interest rates increase—and some do not even have home equity as they are renting.”

Yet, even with an ability to rely on housing market gains in many cases, it is still shocking that one-fifth (20 percent) of pre-retiree baby boomers have saved nothing for retirement. This could be why nearly three quarters (74 percent) of them are stressed and anxious about their retirement savings and investments.

Future retirement expenses weighing on minds of young people

As the generation most concerned (88 percent) about retirement expenses, gen-Xers’ top concern is paying for lifestyle expenses (23 percent) in retirement. Their second highest concern is paying for medical and pharmaceutical expenses (21 percent) in retirement, but over half (59 percent) do not know how they will pay for those expenses.

For millennials, lifestyle also ranks as the top concern for over a quarter (27 percent) of them and paying off debt (22 percent) is their second highest worry.

Financial advice helps reduce stress and anxiety about retirement savings

Nearly two thirds (65 percent) of Canadians experience stress and anxiety when thinking about their investments. Yet, Canadians who have never had an advisor are much more likely to have some kind of stress and anxiety compared to those who currently have advice (71 percent versus 56 percent). Those who have never had an advisor are four times more likely to experience significant stress and anxiety about their retirement savings, than those who currently have one (16 percent versus 4 percent).

One aspect that holds true across generations is the correlation between working with a financial advisor and saving more for retirement. Canadians who are not retired and have an advisor are three times more likely to have saved over $100,000 for retirement, than those who currently do not have one (49 percent versus 16 percent).

When asked if they have a strategy to generate income for retirement that could last thirty years or more, those with an advisor are over twice as likely to have a strategy compared to those who have never had advice (72 percent versus 32 percent).

Other Key Findings

Generational

Nearly half (48 percent) of millennials haven’t saved anything for retirement.
Over a quarter (28 percent) of millennials live with their parent(s) or their spouse’s parent(s).
47 percent of millennials, who do not maximize or know their annual contribution limits in all of their registered accounts, claim their income is too low to save for retirement.
Twice as many pre-retiree baby boomers expect that the government pension will be their primary or secondary source of retirement income compared to millennials (40 percent versus 19 percent).
Over half of pre-retiree baby boomers would retire later if they had to, but when faced with the reality of that choice, only one-third of retired baby boomers did leave the workforce later due to insufficient income (52 percent versus 33 percent).
Retired versus not retired

Twice as many retired people are relying on a government pension as their primary and secondary source of retirement income, compared to pre-retirees expecting to rely on it (51 per cent versus 25 percent).
Nearly twice as many retired baby boomers are relying on a workplace pension plan as their primary source of retirement income, compared to pre-retiree baby boomers expecting to rely on it (39 percent versus 21 percent).
Over a quarter (27 percent) of pre-retiree boomers, who do not maximize or know their annual contribution limits in all of their registered accounts, said they are prioritizing paying down debt over saving more for retirement.
41 percent of pre-retiree women say their top concern about retirement is running out of money, compared to only 15 percent of retired women.
Over a quarter of those newly retired (one to five years into retirement) said their expenses increased since they retired, yet this increased as people aged because over a third of those 11 or more years into retirement said the same (27 percent versus 38 percent).
Regional findings

Twice as many Ontario and Quebec residents haven’t saved anything for retirement, compared to Manitoba residents (31 percent each versus 15 percent).
55 percent of Alberta residents did or would consider retiring later due to insufficient income, compared to 40 percent of Quebec residents.
Saskatchewan residents are most concerned about running out of money in retirement, and both Alberta and Quebec residents are least concerned (39 percent versus 28 percent each).
British Columbia residents are most concerned about health issues in retirement, and Saskatchewan residents are least concerned (35 percent versus 19 percent).
Quebec residents are most concerned about lifestyle expenses in retirement and Atlantic Canadians are least concerned (27 per cent versus 17 per cent).