Survey after survey reaches the same gloomy conclusion about savings: Americans are clueless about the importance of putting money away for their retirement years. Little wonder families are still saving barely 4% of their after-tax income, despite six years of economic growth. But now comes a glimmer of hope from--of all people--the nose-ring set. Members of Generation X, those 45 million Americans in their 20s and early 30s, seem more anxious to save than their baby boomer parents.
According to a survey released Oct. 16 by the Employee Benefit Research Institute, 65% of Gen Xers say they've already begun investing for retirement and 19% say they have stashed away more than $50,000. By contrast, only a third of those 50 and older have saved that much--and they've had a 20-year head start. "Xers see the future differently," says EBRI President Dallas L. Salisbury. "The message they've gotten is, `You better look out for yourself."'
Even those who have put aside just a few bucks are thinking about long-term savings. EBRI reports that 26% of Gen Xers have set a retirement savings goal. That's more than boomers aged 33 to 43--and pretty impressive for folks who could be working another 40 years. A separate survey by pollsters Yankelovich Partners Inc. reports that 69% of Xers feel the need to plan for retirement. Back in 1974, only half of baby boomers felt that way.
For now, the contributions of Gen Xers haven't budged the overall savings rate. But if they keep at it, the rate could rise, sparking more capital investment and strong economic growth well into the next century. And that could take some of the pressure off Social Security, since a robust economy will be essential to finance the boomers' retirement.
Why is Generation X more focused on the need to save? Much of it has to do with self-reliance. They believe they'll succeed only on their own initiative and have little confidence that either Social Security or traditional employer pensions will be around to support them in retirement. "They've learned they can't take these things for granted," says Yankelovich Managing Partner J. Walker Smith. And they seem to be more materialistic. Yankelovich reports that a third felt "the only meaningful measure of success is money," far more than any other age group.
The shift to 401(k) retirement plans also may be spurring Generation X to save. Payroll deductions make it easy to invest, and the plans allow employers to promote retirement savings. Participation by workers aged 21-30 is still lower than that of others--no surprise, because they make less money. But from 1983 to 1993, the age group's participation more than doubled--the biggest increase of any age group (chart).
Xers may be bullish on savings because many have never seen a down stock market and perceive investing in equities as a sure way to get rich. Wall Street is slowly discovering these young investors: Mutual funds offer low- or no-minimum investments, and some brokers cut commissions for those under 35. "They are subsidizing this market in hopes they'll attract investors who will grow with them," says Peter Starr of Boston consultants Cerulli Associates.
The magic of compounding makes such early savings decisions especially valuable. A 30-year-old who eschews double lattes to put $25 a week in an automatic investment plan would have $231,000 by 65, assuming an 8% annual return.
Still, economists aren't running off to Starbucks to toast the Xers' thrift--the savings outlook remains grim. EBRI says three-fourths of all workers have no idea how much they'll need to save for retirement. And Yankelovich finds that despite their interest in long-term savings, Xers are still more likely to put their money aside for cars and vacations. Worse, 20% of them haven't invested a dime for retirement.
But at least young adults are headed in the right direction. And maybe, 50 years from now, when they're reminiscing about the Squirrel Nut Zippers' greatest hits, the Gen Xers won't have to worry whether their Social Security check is going to arrive on time.