Debt/Savings Challenges Cripple Retirement Plans, Survey Finds

Working in retirement may be the new norm, and a snapshot of consumers’ financial predicament may help explain why.

The challenges posed by managing debt, boosting emergency savings and balancing financial priorities are consistent across baby boomers, Gen Xers and millennials, said Catherine Collinson, president of the Transamerica Center for Retirement Studies.

The extent of the debt management challenge is widespread, according to the Transamerica Retirement Survey, a deep dive into the state of workers’ finances in 2017.

• 33 percent of baby boomers, 32 percent of Gen Xers and 27 percent of millennials say paying off debt is their greatest financial priority now, the survey found.
• All three generations rank paying off different kinds of debt as their priority in the following order: credit card debt, mortgage debt, student loans.
• 19 percent of baby boomers reported no household debt, compared to 8 percent of Gen Xers and 13 percent of millennials reporting no household debt.

“Across all three generations many workers say they have some form of debt and financial advisors can be very helpful in helping them pay off debt while saving for retirement,” Collinson said.

Emergency Savings

Emergency savings are scant, and headlines serve regular reminders of how many households don’t have enough to pay for an unexpected hardship like car or home repairs or a big medical expense.

• The median amount in emergency savings was $10,000 for baby boomers, $4,000 for Gen Xers and $2,000 for millennials, the survey found.
• 22 percent of baby boomers, 24 percent of Gen Xers and 26 percent of millennials were “not sure” of how much they have stashed away in emergency savings.
• Households with less than $1,000 in emergency savings: 13 percent of baby boomers, 21 percent of Gen Xers and 27 percent of millennials.
• Households with more than $100,000 in emergency savings: 6 percent of baby boomers, 4 percent of Gen Xers and 3 percent of millennials.

Households are exposed and vulnerable to unforeseen hardships and most people have few avenues to turn to if they don’t have enough to cover a financial hardship out of liquid savings, Collinson said.

For help, households typically look to credit cards, family or friends and withdrawals from retirement savings, she said.

Loans and Withdrawals

Low levels of liquid savings are connected to why people find themselves dipping into retirement plans to pay for emergencies.

“Cashing into their 401(k) to buy a boat isn’t what’s going on,” Collinson said.

Relying on early retirement account withdrawals amounts to a double hit as the amount withdrawn is taxed and investors younger than 59-and-a-half incur a 10 percent early-withdrawal penalty.

• 26 percent of boomers, 34 percent of Gen Xers and 28 percent of millennials have taken a loan, early or hardship withdrawal from a 401(k), IRA or similar plan, the survey found.
• 5 percent of baby boomers, 8 percent of Gen Xers and 7 percent of millennials said they had taken a hardship withdrawal and incurred taxes and penalties.
• 3 percent of boomers, 5 percent of Gen Xers and 8 percent of millennials took a loan from a 401(k) or similar plan but couldn’t pay it back and were hit with taxes and penalties due to the early withdrawal.
• Baby boomers have the highest median household retirement savings at $164,000, Gen Xers are next at $37,000 and millennials at $37,000.

Survey data was compiled from 6,372 U.S. workers, ages 18 and older, and collected between Aug. 9, 2017, through Oct. 28, 2017.

All of the workers worked full time or part time at for-profit companies with five or more workers.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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