The retirement readiness battle: Baby boomers vs. Gen X

When they leave the workforce, Generation X may be in a similar, not worse, retirement situation than baby boomers given their access to automatic enrollment in defined contribution plans and the growth of their future plan contributions, according to the Employee Benefit Research Institute.

“Every single year we run this we find that the Gen Xers are going to be in as good as shape as the [baby] boomers when it comes to retirement,” explains Jack L. VanDerhei, Ph.D., research director at EBRI.

Prior reports from the Center for Retirement Research at Boston College and The Pew Charitable Trusts – which showed Gen Xers would be worse off in retirement than baby boomers – were challenged recently by EBRI, which says new auto-enrollment and auto-escalation functions have proven to help Gen Xers, despite their lack of access to a traditional employer-sponsored defined benefit pension plans.

Also see: Simplifying retiree benefits: Where less is more

“If you do correctly factor in auto-enrollment and auto-escalation – and Gen Xers do have more of the retirement income coming from DC plans than the older generations – they [Gen Xers] still do just as well,” VanDerhei tells EBN.

According to Nevin Adams, former co-director of EBRI’s Center for Research on Retirement Income, Gen Xers and millennials in the workforce are likely to bask in the benefits of new retirement structure advancements.

“They’re not only likely to get the benefit of those automatic program designs, but to get them over a full career – and that will have an impact, not just in terms of their contributions, but on the asset allocation of those balances,” says Adams, who now works as communications chief at the American Society of Pension Professionals and Actuaries, a national retirement plan professional organization.

Pew could not comment on EBRI’s data, but Boston College explains that half of today’s working families are “at risk” of not being able to hold onto to their current standard of living when they retire. The organization cites in a July research paper that this assessment is not a surprise given that only half of private sector workers have access to employer-sponsored retirement plans or save relatively little if they are enrolled.

“Auto-enrollment is only going to help people whose employers offer the plan in the first place. One half of private sector workers are indeed not in the plan,” Anthony Webb, senior research economist at the Center for Retirement Research, tells EBN.

Falling short of recommending that the industry-generic savings rate of about 15% of income could be sufficient to satisfy retirement income targets for employees, Webb explains that “it’s really dangerous to lay down a one-size-fits-all savings rate.”

But as employees, regardless of age and demographic, figure out how to best sock away sufficiently for retirement, Webb says there is an opportunity for employers to educate through simple messaging. 

Also see: Fourth Circuit decision spells more uncertainty for retirement plan fiduciaries

“I definitely think that auto-escalation and auto-enrollment doesn’t do any harm, and can help some,” Webb notes. “The problem about education is that there are really some people that don’t want to be educated, and for whom too much information just creates anxiety.”

“There is merit in keeping it simple,” Webb continues.

Both CRR and Pew note that they will issue new retirement studies this fall.