Are Americans Ready for Retirement?

A new report by Vanguard analyzed the readiness of three generations: early millennials, mid-Generation X, and late baby boomers.


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The retirement outcomes for Americans remain a mixed bag, with high-income workers —those in the top 5 percent of the income distribution — able to readily finance life after retirement. The rest may struggle, according to a new report by Vanguard.

“A secure retirement is part of the American dream,” said Joe Davis, chief global economist, and head of Investment Strategy Group at Vanguard, in a statement. “This report aims to heighten industry and national attention around finding more solutions to foster retirement readiness for all Americans.”

The manager forecasted the retirement readiness for three generations: early millennials (ages 37-41); mid-Generation X (ages 49-53); and late baby boomers (ages 61-65). Vanguard calculated American workers’ retirement readiness by comparing the percentage of pre-retirement income that a worker can replace throughout their retirement to the projected spending needs published by the University of Michigan’s Health and Retirement Survey. The difference between these two figures was the projected savings gap that Vanguard used to assess retirement readiness.

According to the report, high-income families across all three generations had a projected savings surplus of 20 percent when compared to their expected spending needs. Comparatively, workers in the 25th and 50th percentiles of national income distribution across all generations had a projected retirement savings gap of between 32 to 33 percent when compared to their expected spending needs.

Overall, Vanguard found that low-, middle-, and upper-middle-income workers, who had annual earnings in the 25th, 50th, and 70th income percentiles, could fail to accumulate enough to meet the spending levels typical of today’s retirees. Younger generations fared slightly better than their older counterparts.

According to the report, millennials at the 50th income percentile will be able to generate sustainable retirement income equal to 58 percent of their pre-retirement earnings. This is eight percentage points more than the pre-retirement earnings estimated for median-income late boomers. For higher-income workers, the generational gain was even larger.

According to the report, early millennials at the 70th percentile of the income distribution are on track to reach a sustainable replacement rate of 66 percent, 15 percentage points higher than late baby boomers.

“Notably, although many portray younger generations as facing more hurdles for retirement savings, this Vanguard research demonstrates that millennial and Gen X savers have benefitted significantly from improved defined contribution plan design that encourages saving and investing in age-appropriate asset allocations,” Fiona Greig, global head of investor research and policy at Vanguard, said in a statement.

The report highlights that additional progress to close the retirement savings gap can be made.

According to the report, workers about to retire can boost retirement income by delaying retirement or tapping into their home equity. The Vanguard analysis found that an additional year of work enhances retirement income across all generations and increases their sustainable retirement replacement rate by 2 to 5 percentage points. Delaying retirement also increases the number of years a worker can rely on wage income and reduces the number of years they need to rely on their portfolio or savings. If needed retirees can use their home equity to help supplement income.

Advisors can help investors prepare for retirement. According to a recent Natixis survey, retirement planning assistance was one of the most requested services by Millennials of their advisor and a recent report by Schroders found that retirees with a financial advisor had on average nearly double the monthly income of those without a financial advisor.

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