Most current retirees say they rely primarily on Social Security or a pension to fund their retirement, but a new study finds that younger generations have a different mindset altogether.
More than 8 in 10 (86%) retirees fund their retirement primarily with Social Security or a pension. By contrast, 45% of Millennial workers say the top source of funding for their future retirement will come from a 401(k) or IRA, compared to just 25% who say they expect to rely on Social Security or a pension for their retirement income.
These findings are contained in the 2019 Wells Fargo Retirement study, now in its 10th year, which is based on a survey examining the attitudes and savings of more than 2,700 workers age 18 to 75 and 1,004 retirees.
In fact, there is a fear across all working generations in the survey that Social Security may not be available for retirement, with 71% indicating they are “afraid” it won’t be available when they retire. What’s more, 6 in 10 workers (63%) say they would have no idea what they would do if Social Security were not available “when they need it,” a concern that jumps to 71% for current retirees.
Moreover, the survey found that workers have much more faith in their personal savings than in Social Security. Only 55% of retirees have more faith in personal savings than in Social Security, which compares to 79% of workers.
“Our survey clearly shows stark differences between current retirees and younger generations and how they will fund retirement,” says Fredrik Axsater, head of the Institutional Client Group for Wells Fargo Asset Management. “For those still in the workforce, saving for a viable retirement lies almost entirely in their own hands, which requires a vastly different strategy and approach.”
At the same time, workers recognize that retirement is increasingly their own responsibility – but they believe that public policy can still play a role. Ninety percent say that Congress needs to make it easier for workers to have access to tax-friendly retirement plans and 79% say that companies should automatically enroll new employees in their employer-sponsored retirement plans.
Debt Challenges
The survey also finds that financial challenges are negatively impacting the ability of nearly half of workers to adequately save for retirement, with debt playing a crucial role.
According to the study, 31% of Millennials say they have an “unmanageable amount of debt,” followed by Generation X (26%), Generation Z (25%) and Baby Boomers (14%). Additionally, among all workers, nearly half (46%) say they are putting off saving for retirement due to current financial challenges and 67% of workers paying student loans say the burden of student loans is getting in the way of saving for retirement.
As a result, Wells Fargo notes that many workers appear to be falling well short of what they will need to fund their retirement. Nearly 30% of respondents have personally saved less than $25,000; 13% have saved between $25,000 and $100,000; and 11% have saved between $100,000 and $250,000. Moreover, the study notes that 32% of workers can’t estimate what they have saved for retirement and only 15% of workers have saved $250,000 or more.
Overall, just over half (55%) of workers say they are saving enough for retirement. By generation, 61% of Baby Boomers say they are saving enough, followed by Millennials (55%), Generation X (51%) and Generation Z (48%).
On the bright side, Wells Fargo emphasizes that younger workers are starting to save much earlier than older generations of workers. Though Baby Boomers started saving around age 36 on average, Generation X started at age 31, Millennials at age 25 and Generation Z at 18, according to the survey.
Planning Mindset
Like the previous year’s findings, current workers with a “planning mindset” start saving at a younger age, save more each month for retirement and have saved more for retirement than workers without the planning mindset, Wells Fargo notes.
Workers with this mindset prioritize saving for retirement after paying monthly expenses (71% versus 53% of those without the planning mindset), say they are in control of or happy about their financial life (82% versus 46%) and are confident they will have enough savings to live comfortably in retirement (80% versus 42%).
The attitudes and behaviors that contribute to what Wells Fargo calls a planning mindset are:
- Setting and achieving a goal or set of goals during the past six months to support their financial life
- Working diligently toward a long-term goal
- Feeling better about having finances planned out over the next one to two years
- Preferring to save for retirement now to ensure they have a better life in retirement
“Once again, our survey shows that workers and retirees with a planning mindset say they have better outcomes, both in terms of actual income but also in their overall enjoyment of their life and retirement,” said Axsater. “If more workers adopt these behaviors, more retirees should be better prepared for the rapidly changing reality of retirement.”
The survey was conducted by the Harris Poll on behalf of Wells Fargo from June 21 – July 17, 2019.
