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Published: Oct 04, 2023 5 min read
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By one measure, millennials and Gen Xers are in better financial shape than boomers when it comes to saving for retirement.

Both older millennials (ages 37 to 41) and Gen Xers (ages 49 to 53) are better equipped to meet their retirement-spending needs than young boomers (ages 61 to 65), according to a retirement outlook report by the financial firm Vanguard.

In particular, millennials are faring better than both older groups when it comes to saving enough money to replace their income during retirement, and that holds true across the income spectrum.

Wealthy millennials — the top 5% of earners, with a median income of $173,000 — are on track to far exceed their spending needs in retirement and are notably outpacing the savings of the Gen Xers and boomers in Vanguard’s study.

Of the lower- and middle-income earners across generations — those who earn median incomes between $22,000 and $61,000 — none are expected to have adequate savings to meet their spending needs in retirement, according to Vanguard's analysis. Still, millennials fare better than their elders here, too.

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Why younger retirement savers are pulling ahead

What’s fueling the trend and giving an advantage to younger savers? More employer-sponsored retirement plans are automatically enrolling workers and in effect socking away a portion of each paycheck into their 401(k) plans — without them having to take any action.

Today, about 60% of employers using Vanguard’s retirement plans automatically enroll new workers. That’s a stark contrast from 2006, when Congress passed the Pension Protection Act to encourage automatic enrollment. Then, only 10% of employers were doing so.

Vanguard analysts point to these types of retirement trends and policies as a key reason why younger savers are on sounder financial footing than boomers, who worked most of their careers without automatic enrollment.

“Although many portray younger generations as facing more hurdles for retirement savings,” Fiona Greig, Vanguard’s head of investor research, said in a news release, “millennial and Gen X savers have benefited significantly” from these developments and generally appear to be better off compared to boomers.

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Will millennials and Gen X stay ahead?

While younger boomers aren’t as prepared for retirement as the other age groups that Vanguard analyzed, they’re not necessarily in dire financial straits.

They have several options. For one, the homeownership rate for boomers is much higher than Gen Xers — whose rate is much higher than millennials.

Vanguard notes that one strategy for boomers to bridge their retirement-savings gap is to tap into their home’s equity. One option is to take out a reverse mortgage, which can provide tax-free monthly payments to supplement one’s retirement income.

Boomers may also want to move to a lower-cost housing market. This “retire and relocate” strategy can particularly benefit homeowners in Washington, D.C., Hawaii, California, Colorado, Massachusetts and other in-demand states who sell and move to less-expensive areas, particularly in the Midwest

Folks nearing retirement age can choose to delay collecting Social Security benefits, a strategy that in some cases can increase their lifetime payout by hundreds of thousands of dollars.

Meanwhile, a major retirement obstacle is resurfacing for younger generations: student debt payments. Millennials and Gen Xers far and away hold the most debt from student loans, and monthly payments are due again starting this month. According to a study from the financial firm Nationwide, two-thirds of surveyed student loan borrowers said that restarted payments will “significantly” hinder their ability to save for retirement.

The SECURE Act 2.0 also has a provision to ease the burden of student debt for these retirement savers by allowing employers to contribute to a worker’s retirement account for each student loan payment they make.

While helpful, forthcoming provisions like this and broader adoption of automatic enrollment can’t fill the entire retirement-savings gap, though, as about 50% of the private workforce doesn’t have access to a retirement plan through their employer. Many of these folks will rely on Social Security benefits as their main source of income.

For them, “the outlook is challenging,” the authors wrote.

More from Money:

How Much Does Retirement Cost? Many Savers Are Guessing

How State Automated IRAs Could Boost Retirement Savings

Social Security and the 2024 COLA: Everything You Need to Know

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