Young Americans Saving Earlier For Future - Brief Article

USA Today (Society for the Advancement of Education), August, 1999

Contrary to conventional wisdom, young adults are far more savings-conscious than their elders were at their age and are preparing for their retirements earlier and with unmatched zeal. A survey for Lincoln Financial Group and Money magazine by Roper Starch Worldwide Inc. shows that 64% of Americans 18 to 34 are saving for retirement. Of these, the average age for starting is 23--about 13 years earlier than those who are now 65 and older began.

In addition, 18- to 34-year-olds are significantly more likely to believe that it is important to sacrifice immediate pleasures--such as vacations and dining out--to achieve long-term goals. Contrary to stereotypes, the survey shows that people tend to become less willing to make sacrifices as they age.

The survey also found a high degree of financial contentment among those who are retired already. Approximately 79% of retirees, most of whom are 65 or older, reported they are financially comfortable. Retirees on average are managing on 50% of their pre-retirement household income--less than the two-thirds to three-fourths of what most financial advisers recommend today. "At least part of the reason that retirees are getting by so well is that Medicare is picking up the bulk of their health care costs," notes Fleming Meeks, assistant managing editor at Money. "And many retirees have relatively generous health insurance programs from their former employers, to boot. But future generations may not have that same kind of security."

The survey contained some disturbing findings for Americans' future wellbeing. Twenty-seven percent of full-time employed people aren't saving anything for retirement. In households where income is less than $30,000, average monthly savings are $200, of which just $50 is allocated to retirement. Even in households where income is between $50,000 and $75,000, average monthly savings are a mere $350, and just 65% of that--$227.50--is earmarked for retirement. The median monthly savings for full-time employed people currently saving is $300, with $150 designated for retirement.

Important as the roles of age and attitude are in shaping savings behavior, key life circumstances can be more powerful. Life events such as divorce, parenthood, and job change tend to have more impact on saving patterns than a person's value system or age, the survey indicates.

There is a consistent diligence about saving across the entire 18- to 34-year-old spectrum. Forty-four percent of those 18 to 34 start saving for retirement before age 25, while 18% do so before they hit 20. In contrast, more than one-third of current retirees did not start saving or investing until they were more than 40; their average age was 36.

Moreover, members of Generation X and the baby boomers embrace sacrifice more willingly than any other group. To save money, 45% say they are willing to eat out less; 44%, to invest aggressively; 32%, to buy less expensive housing; 33%, to cut back on vacations; and 25%, to take a second job. On all these measures, willingness declines consistently as people age.

Despite their efforts, 18- to 34-year-olds show considerable concern that they are not saving enough. Sixty-two percent feel they are saving less than they should, placing them just ahead of baby boomers (61%) as the generation most dissatisfied with their overall rate of savings. These rates are significantly higher than for those 65 and older (35%).

Uncertainty over the future of Social Security is fueling concerns. Faith in the contribution of Social Security to one's financial future is inversely proportional with age. Whereas the younger group has time--and, especially with 401(k)s, the means--to compensate with personal savings, many baby boomers may find themselves caught in a dilemma. "For baby boomers, the rules have changed as companies have moved away from defined benefit pension plans and as the outlook for both Social Security and Medicare has deteriorated," Jon Boscia, CEO of the Lincoln Financial Group, explains. "In addition, many baby boomers .delayed having families, which means they are still faced with college costs. Their concerns about savings are well-founded."

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