The Great Recession Took a Bite out of Retirement Savings, Especially for Generation X

The Great Recession Took a Bite out of Retirement Savings Especially for Generation XThe financial crisis and the "Great Recession" took a big bite out of retirement accounts for Boomers, Generation X and Generation Y. A new study released by Pew Charitable Trusts showed the late boomer generation  (those born after 1955) and Generation X  (born between 1966 and 1975) will have less for retirement that previous early boomers (those born between 1946 and 1955). The report showed most of us are not financially prepared for retirement years and younger generations will face the "greatest prospect of downward mobility in their golden years."

In the Retirement Security Across Generations report, the early boomers, right now are in the best financial shape to retire, thanks to the dot-com boom and the housing bubble. This is understandable since they have higher net worth and the most equity in their homes than the following generations. They bought their homes before the housing bubble and enjoyed the 1990s bull market run in stocks.

A neighbor of mine who is an early boomer and about to retire paid one seventh the price for his home I paid for mine. The one area the younger generations are faring better in is interest rates. Current mortgage rates are just above record lows which helps the late boomers and Gen-Xers with financing mortgages.

While the early boomers mostly have their homes paid for, they are not benefiting from low mortgage rates. Early boomers are also getting hit on savings rates, CD rates, and bond yields. Rates on interest-bearing assets are also near record lows, so they are getting killed on interest earnings. Late boomers are about to retire so they should have a very small percentage of their retirement portfolio in risky assets and most of their portfolio in safe interest bearing assets.

The opposite is true for late boomers and Generation X. These generations were behind in saving for retirement even before the recession hit. When the recession did hit, millions of them were out of work, saw their 401k's plummet in value and the value of their homes decline as well.

Granted, early boomers also lived through declining stock prices, home prices, and loss of jobs but again, the big difference for early boomers is that they were in the game of life a lot earlier. That enabled them to weather the storm better since they invested in stocks earlier and owned their homes earlier then the later generations. They basically had a better financial cushion heading into the recession.

The only thing younger generations have on their side is time. Starting out with a solid financial plan earlier in life is the key to having a successful retirement.
Author: Brian McKay
May 22nd, 2013