3/12/2013 3:45 PM ET|
Boomers: Do as I say, not as I do
The adult children of baby boomers are turning to their parents for retirement advice. Here's how to respond wisely.
The children of baby boomers score low on financial literacy tests, but they have one thing right when it comes to money: More young adults in the workforce are saving for retirement than any generation before them.
The amounts they are putting in funds are still low, so there's no guarantee of success. To be sure, the new generation of savers faces a challenge in building a nest egg when investing choices are bleak: Do they go with risky stocks or superlow bond yields? Is there any other choice?
Increasingly, they are going to their parents with questions about savings plans. When they do, it's creates a dilemma familiar to many baby boomers --another potential "Don't do what I did, do what I say" situation like bad grades and partying.
What should parents say? "It's difficult," says economist Anthony Webb of the Center for Retirement Research at Boston College. "Young people should not be made to feel bad if they are not doing enough for their retirement. Nobody wants another lecture."
He says some of the popular literature on the topic is not very helpful and worse, misleading, with either get-rich-quick schemes or homespun myths from the old school -- sometimes both in the same package.
"These people write books saying if you just cut out a cup of coffee a day and invest it in the stock market, you can make millions over the years. First of all, it's not true. Second, it's up to individuals to make their own priorities," says the British-born economist. "And it's impertinent of me to say coffee is less important than something else."
Financial literacy overrated
Experts also say it's not clear exactly how much financial knowledge younger savers have. Webb does not put much stock in those financial literacy tests, either, since they often focus on arcane issues that have little bearing on the basics of saving money. "For most of us, it's a matter of following simple rules to save money and get advice," Webb says.
When young adults do ask parents for their two cents on saving, they often do so with a heavy dose of skepticism, says Lisa Szykman, associate professor at William & Mary School of Business, who has run focus-group research exploring young adults' personal finance behavior. They are likely to filter out stories that sound too facile, or just too parental. Support and encouragement in the right measure, however, could be the right tactic, she says.
"The good thing is that they are putting away money, and that's positive. But they are already feeling like it's never going to be enough," says Szykman. "They are getting discouraged, and those who lost savings in the market in recent years feel like it was a bait-and-switch."
White lies and real savings
At the root of the skepticism is the pervasive view among young people that they will never get the breaks of previous generations. In some cases, they will mistrust parents, whom they feel squandered opportunities in boom times, she says, while others from wealthier upbringings may think their family's good life is hopelessly out of reach.
Doug Lockwood, a financial planner at Hefty Wealth Partners in Auburn, Ind., says he is having many more conversations with clients lately about young people saving money -- although these tend to involve affluent parents expressing their fears over how their grown children will get by in more trying times. Few clients of firms like Hefty are in the under-35 demographic, Lockwood concedes. The bulge bracket is largely a baby-boomer-and-older phenomenon. Or as Webb puts it, boomers are "the python that swallowed the pig," metaphorically speaking.
"The conversation right now is reflective of the times," says Lockwood. "People want to see their kids save more and have less debt. But what young people are seeing with their parents is the product of the great boom of the 1980s and the 1990s and they can't see how they can get it. They want to have the same things. But they do not see the sacrifices that their parents made to get there."
When it comes to parents giving advice, there are good reasons for skepticism. An International Journal of Psychology study released in January found that 84% of U.S. parents lie to children get them to do the right thing, especially when it comes to food and money. But experts say "white lies" will not help when it comes to advising grown children on managing savings. Szykman says her research has found that young adults don't know about money but won't accept tall tales. They are "the most media-savvy and skeptical generation ever and they are skilled at getting at the truth," she says.
Fortunately for boomer parents, step one -- saving money -- has already been taken care of in some cases. New U.S. regulations are pushing retirement plans toward setting up automatic enrollments. So the decision on whether save at least something will often have been made by employers.
"When it's an opt-out (automatic-enrollment plan), it is more like a benefit, and they are more likely to stick with it," Szykman says. "Young people are already so overloaded with information, it's just one more overload if they have to think about getting out, and that means they are more likely to stay put for a while."
Census Bureau statistics show that the percentage of under-35 participation in savings plans is already twice the level of the 1990s, and experts expect it to be higher still with the new auto-enrollment of workplace savings. Experts expect auto-enrollment to boost savings even as young people faces huge challenges in paying back $1 trillion in college debt and finding solid footing in a difficult workplace.
One piece of smart advice parents can offer
Another change in retirement plans is that many more are starting to offer Roth-style workplace savings plans. For young people, the Roths are almost a "no-brainer," financial experts say, and parents can offer it as a smart idea that can help maximize early saving. Roths allow savings to grow tax-free and are not taxed at withdrawal time. Traditional savings plans allow tax-free contributions but savings are taxed as normal income at withdrawal.
"This is especially good for young people in lower tax brackets who don't need the deduction as much right now," says Lockwood. "They can really capture the full benefit of long-term savings plans."
And with the first step completed by auto-enrollment, parents can step back from dispensing stern warnings about the life of ruin that awaits people who do not save.
"People are afraid already," says Webb, facing, as they are, a difficult economy and a tough workplace. "The trouble is that fear is not a call to action. Fear is a justification for hunkering down and doing nothing."
For high-achieving millennials, Lockwood suggests another subtle tactic to help to jar the competitive instinct that already got kids through college or put them into the workforce, which is no small feat. "You can let them know the reality," says Lockwood. "If you don't start early putting saving funds into your spending priorities, you are going to have a hard time later catching up to everyone else."
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I can tell you one thing: worrying about this stuff won't help. I'm not going to say that things are going to be rosy but I do know that a kid starting out in life right now will have 30-40 years until retirement. The real key to growing wealth is to start early. Don't squander your younger years. Put off buying that expensive car, the big house, etc. Those things will come later. Trust me. I'm 43-years old now, and I look back and am amazed at how quickly the last 20 years of my life went by. Amazing.
We started saving for retirement in 1997. We have been through the internet/Y2K bubble and the real estate bubble and our 401(k) is still a decent amount (really big when compared to what the average boomer has saved up). Just get started and DON'T CASH IT OUT!
Both wife and I are savers, always lived well below our means. We carry no credit card debt, house and cars paid off. At the begining of this new year, we had both lost our jobs, which both though that were "secure."
Thank Goodness we DID save the way we did, otherwise we would be screwed. Please learn from our lesson. We have freinds who would loose their house after 2 monnths if this had happened to them.
BTW, we are fairly comfortable, and I just went on two secod interviews, so I should be bak to work soon, but it was a stress free time
God Bless all, and keep saving!!!
My sons (ages 25 and 23) have not asked us much about investing, but I have found a way to sneak in financial advice on them.
Each year I sit down with my sons and update them on where my wife and I are in our retirement savings. I tell them if I die they will need to help and protect mom.
We discuss the types of investments and how much we have in each. Then I update them on any changes I will be making this year and why. The rebalancing of the accounts. I also review with them how we started investing. The development of our asset allocation, how it has changed over the years and the future asset allocations. I let them know of any mistakes we have made over the years and our response to different economic news. I also make sure they know where the Wills are located and any updates to our end of life issues.
It has resulted in them talking about what they have and asking questions.
Felt I needed to say something here as this article is flawed both from the viewpoint of the "Boomers" and from the viewpoint of their children. No "generation" is perfect or "the best". One learns many lessons from history; multiple generations.
I've read several articles now of Msn's re: retirement and they are all either no real advice or really bad advice. Won't read any more.
The larger majority of the 64 million baby bommers were not drop-out hippies who then also went nowhere in life. The majority are also not greedy-me-driven wealthy people who saw big money in the 80s and 90s and squandered it away on mansions and cars. (Note: There are the greedy rich like this in every generation back to the 1800s in this country and being a capatalistic nation, this will likely continue to be the case.)
Secondly, everyone needs to save whatever they can, whenever they are able to, no matter what their income is - and make wise choices when it comes to any kind of investments (stocks or otherwise) for potential big emergencies and retirement years. It is really no more complicated than that.
And live life to its fullest while you are alive and here, regardless of your age or income level, as you nor anyone else knows how long you will live. It is a balance. Yes, focus on goals and the future, but not to the degree you don't also take the time to "stop and smell the roses" from time to time (advice from 2-3 generations back, depending on your age.) In other words, slow down once in a while to appreciate and enjoy who and what you have in your life.
And as regards "the future", life happens. You need to be able to roll with the punches and come out on top as best possible for the situation; dry your tears, dust yourself off and go at it again a different way. I know hundreds of Boomers who are decent, hard working people with close families, with adult kids and no resentment between the two generations. They saved "towards retirement" and had small or larger nest egg built up, but most/all went to medical bills or some other catastrophic emergency later in life - that their insurance did not cover or cover fully. Or they recently lost all/part of their next egg in the 2008 crash and have had to re-invent their life at 55-70 (the actual majority).
Some had catastrophic emergencies with their adult children or have had to help support them or their grandkids too (another large majority) as families generally try to take care of each other.
But every situation; every life is different.
We do NOT all fit into the same box when it comes to families, savings, emergencies and retirement!!
Best advice regarding previous generations would be to talk to the older folks you know; get their actual stories and learn what you may from such to avoid having the same pitfalls - or similar success, depending on what you find out.
Do your own research; listen to your own heart before you make any big moves with your money.
Be as mentally prepared for the unforseen future and emergencies as best you can be so that when one hits, you are not knocked so flat you don't ever get up again.-- And as mentally prepared for wealth when you do have it.
Yes, there is a tremendous and growing burden on the current generation and their children too, but personally, what I see in them is impressive and very promising for a much better world ahead.
A HISTORY LESSON
FIRST IRA WAS CREATED WHEN THE FIRST BOOMERS WERE 40 YEARS OLD.
THE IDEA OF SAVINGS FOR RETIREMENT WAS LEFT TO THOSE NOT ELIGIBLE FOR A PENSION.
SOME BOOMERS LIKE MYSELF (1946) EMBRACED THE IRA AND HAVE RETIRED WITH A LOT OF ASSETS FOR A VERY COMFORTABLE RETIREMENT. AS I ONLY HAD A HIGH SCHOOL DIPLOMA(DRAFTED OUT OF COLLEGE IN 1968) I WAS STILL ABLE TO ACCUMULATE OVER 2MM
MY KIDS HAVE HAD ROTH'S SINCE THEY STARTED WORKING AND WILL HAVE AN EVEN MORE COMFORTABLE RETIREMENT
The world that the American baby-boomer was born into and in which it raised offspring was an accident. It was a Cornucopia R Us world born of great good fortune from the outcome of WWII: The world was in smoking ruins and we alone stood undamaged and tall astride the whole planet.
But America squandered the comparatively fat circumstances in which it found itself 1945-1950. Regardless of political persuasion, the average American spent, borrowed, and expected of tomorrow as if the glorious season of Good Life had no end. The American Good Life was based on borrowing as a necessary way of life, with an expectation (and requirement!) that tomorrow would always be at least as sunny as today.
The irrevocable end of that consumer religion quickened during Reagan's second term. All those years ago it reached the tipping point. All those years since it has continued to unravel.
Were your parents "cash and carry"? Did they teach to you chronically live on less than you have? If you have been their attentive student, thank them often for saving your life.
You have the boomer generation, and then you have the mine! mine! Mine! generation! Wean your kids early and give them good work ethics if their still hanging around the house at age thirty your pretty much failed! Make them pay their own way through college, and their more likely put an effort to succeed! Encourage them to go in the service when Obama isn’t president when you have a commander and chief that’s worth at least a hill of beans, and takes care of his people! And I don’t mean by buying their loyalty! All people ever want in their life time is to be treated with respect and work and keep what they earn it keeps them motivated! I leave the rest to you to figure out! Oh, yeah stay away from the governments te-at! It may look appetizing but there are always conditions involved and they usually involve a ball and chain!
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