It’s proverbial that with age comes wisdom. Recent research doesn’t vouch for that, but does suggest that at the very least, confidence in a financially secure retirement is more likely among generations that have been around longer.
Confidence Goes Boom
“Over the past several years, there has been a great deal of attention given to the huge number of Baby Boomers who have been retiring,” said Bryan Hodges, Head of LIMRA Research at the April 24 LIMRA LinkedIn webinar, “Future Retirees Face a Different Reality: How Can the Industry Help them Succeed?” He added that retirees from that generation are more likely to enjoy financial security in retirement.
The TIAA Institute in its 2024 GFLEC Personal Finance Index makes a similar report. In their January 2024 survey of 3,876 U.S. adults ages 18 and older, they found that those who have a higher degree of “retirement fluency”—that is, knowledge that promotes financial well-being in retirement—were far more likely to be very confident that they will have sufficient funds to live comfortably in retirement than those who are not as fluent. And it is older generations, they report, whose functional knowledge is higher.
The Employee Benefit Research Institute (EBRI), too, has found higher confidence among older generations. In its 2024 Retirement Confidence Survey it surveyed 2,521 Americans, including 1,255 who were employed and 1,255 who were retired, EBRI found that retirees were more confident than those who are still working—to the tune of 74% of those who have left the workforce feeling at least somewhat confident.
Overall, EBRI says, 68% of American workers expressed confidence that their funds would be sufficient to live comfortably throughout retirement. But LIMRA suggests that sentiment is higher with age—and declines as age does. Hodges said that LIMRA found that 45% of pre-retirees feel comfortable about retirement preparedness, which he said suggests that a majority of those who are not yet retired “really are not confident in their retirement security.”
“More than one half of employees are very concerned about sufficient funds for retirement,” said Hodges.
Why?
A variety of factors are behind the drop in confidence and the generational differences.
Source of retirement income. Most retirees today—most of whom belong to the Baby Boom generation—depend on both Social Security and pensions, said Hodges. But that is shifting, he said, telling attendees that “8 out of 10 of today’s employees expect that defined contribution plans and Social Security will fund their retirement,” and that “less than 40% expect pension income to be part of retirement financing.”
EBRI in its 2024 compensation survey notes the high level of expectation that Social Security will be a source of retirement income. It’s almost the same for respondents who are working (88%) and those who retired (91%). Those groups differ, however, regarding their expectation that Social Security will be a major source of income: 61% of retired respondents think it will be, but just 35% of employed respondents do.
Debt. LIMRA found that pre-retirees are twice as likely as retirees to have mortgage debt (58% versus 30%); they also are “considerably more likely” to have student debt—13% of them do, as opposed to 1% of those who are retired.
Comprehension. U.S. adults “struggle” with retirement-related matters, according to TIAA. They posed five questions to gauge retirement fluency, and on average, respondents answered 40% correctly. They add that those whose financial literacy is very low are “three times more likely to not be at all confident” that they will have sufficient funds in retirement.
EBRI also reports that most respondents in its 2024 compensation survey said they understand Social Security, but less than half of those currently employed have reviewed the amount of their Social Security benefits at their planned retirement age. They add that fewer respondents said they understand Social Security than expect it to be a major source of their retirement income.
And TIAA says that functional knowledge of retirement financing is “substantially lower” among the youngest members of the workforce—those who belong to Generation Z—than among the Millennials, Generation X and the Baby Boomers.
More specifically, they found that the percentages of those in each generation who answered 76% to 100% of the financial literacy questions they were asked correctly were as follows: Baby Boomers, 18%; Generation X, 19%; Generation Y, 17%; Generation Z, 8%.
Similarly, TIAA says that functional knowledge of saving decreased with age. The percentage of correct answers related to questions about saving, by generation, were as follows: Baby Boomers, 60%; Generation X, 56%; Generation Y, 52%; Generation Z, 43%.
The Economy. The economy, too, is a factor, EBRI says. Almost 30% of their employed respondents, and 42% of the retirees who responded to them, cited inflation as a reason for their lack of confidence. Further, 80% of them expressed concern that inflation will stay high for at least another year.
Education Is Key
“Knowledge matters,” says TIAA.
EBRI’s 2023 compensation survey results suggest at least a tacit understanding among their respondents that they need to know more. They report that just 22% felt very confident that they are doing a good job preparing for retirement, and almost two-thirds said that they feel stress over preparing for retirement.
TIAA argues that their study shows how useful targeted initiatives are in improving financial literacy, and that one important step would be to improve young people’s knowledge of financial matters. Hodges struck a similar and hopeful tone in the April 24 presentation, remarking that “Younger generations may not know all the ins and outs,” but that “any generation can get their head around that.”
