At age 30, Bryan Short has, by any standard, achieved professional success since graduating from Boston College and law school at the College of William and Mary. Yet despite his job as a Washington mergers-and-acquisitions lawyer, he's nowhere near as financially secure as he expected to be by now.
He and his wife own one car and rent a 500-square-foot studio apartment. More than one-third of his take-home pay is gobbled up by repayment of college and law-school debt. Children are unaffordable right now. And retirement savings? They've barely begun.
"Despite being what most would consider clearly upper-middle class, highly educated and almost assuredly on no one's pity party list, I can assure you we live an extremely modest life," says Short, whose wife, Regina, is pursuing an MBA at Johns Hopkins University.
For years, experts have warned that too many of the USA's 79 million baby boomers aren't financially ready for their coming retirements. Yet, if the boomers have had it hard, it's nothing compared with those next in line: Generation X — people such as the Shorts. The Gen Xers, generally defined as those born from 1965 through 1980 — now 27 to 43 years old — have even less assurance than the boomers of receiving company pensions and projected Social Security benefits.
In 1979, when the oldest Gen Xers were teenagers, the sole retirement plan for 62% of workers was a traditional pension, according to the Employee Benefit Research Institute (EBRI). By 2005, when most of the Gen Xers had joined the workforce, that number had flipped: 63% of employees found themselves covered only by voluntary 401(k) plans. So much for the corporate safety net.
On top of that, the Gen Xers' life expectancies, and thus their retirements, will likely exceed even the boomers'. They'll need to save more aggressively. Yet, burdened by high housing costs, stifling college debt, stagnating wages and outsize health insurance and gas prices, Gen Xers are saving too little for retirement, just as workplace benefits have shrunk.
According to the EBRI, more than one in three workers ages 35 to 44 aren't setting aside any money for retirement. Among those ages 25 to 34, 45% aren't saving.
The Center for Retirement Research at Boston College has calculated that 48% of Gen Xers are at risk of being unable to maintain their standard of living in retirement, says Andrew Eschtruth, the center's communication's director. Compared with the boomers, Eschtruth adds, the Gen Xers "always have the highest at-risk scores. The changing retirement landscape is gradually becoming more challenging."
"One of the biggest issues facing the Gen Xers," observes Pam Hess, director of retirement research at Hewitt Associates and a Gen Xer herself, "is lots of competing priorities, juggling lots of different costs and financial priorities. It will continue to be a struggle."
Consumer debt is one of the main reasons. Nine out of 10 consumers in their 30s are in debt, compared with 76% of those in their 20s, according to the Federal Reserve's Survey of Consumer Finances. In a recent Charles Schwab study of more than 2,000 Gen Xers nationwide, 45% of respondents said they had too much debt to think about saving.
Gen Xers also are the first generation to graduate from college with significant student loan debt. About 20% of adults in their 30s are still paying college loans, according to the Federal Reserve study; the median balance exceeds $13,000. Yet, even as Gen Xers continue to grapple with college debt, experts tell them they need to be putting aside money for retirement, as well as for college savings for their children.
"This generation is in the ironic position of paying for their own student loans and feeling the pressure to put away for their own kids for college," says Tamara Draut, a Gen Xer herself, a new mom and author of Strapped: Why America's 20- and 30-Somethings Can't Get Ahead.
Reduced living standards
Gen Xers also face this harsh reality: The standard of living that most of them have so far managed to achieve falls short of their own parents' standard at the same age. The median income for men now in their 30s, when adjusted for inflation, is 12% lower than what their dads earned three decades earlier, a report by the Economic Mobility Project, an initiative of The Pew Charitable Trusts, concluded.
The mobility project found that from 1974, when many Gen Xers were children, until 2004, when most were in the workforce, family income rose only 9%. And most of that gain came from 1964 to 1994 — before the Gen Xers even started thinking about résumés.
Why did income decline just as Gen Xers began their careers? A key reason is that pay had risen so steadily while many of them were children — thanks to women entering the workforce in greater numbers — that pressure for wage growth had declined by the time the Gen Xers began working.
"Now that women's workforce participation has stabilized, where will the next bump in family income come from?" asks John Morton, director of the Economic Mobility Project. "With rapidly rising costs at a time of stagnating income, the question is, 'What do you have left?' "
Gen Xers also had the unfortunate timing of becoming adults in a period when the share of income that Americans spend on what most people see as essential needs, such as a home, health insurance and cars, has soared. Elizabeth Warren, a Harvard law professor and expert on middle-class finances, has concluded that the soaring inflation-adjusted price of such necessities has negated the extra spending power that female workers provided.
Relying on government figures, Warren found that health insurance soared 74%, in inflation-adjusted dollars, since 1970 and that the mortgage payment that a median-income family is paying for a three-bedroom, one-bath house jumped 76%.
On an inflation-adjusted basis, the average cost of owning a car has declined from a generation ago. But auto-related expenses jumped 52% because the typical family now owns at least two vehicles.
Gen Xers don't need experts to tell them what they already know. Their optimism is already flagging. The 2007 Retirement Confidence Survey by the EBRI found that just 28% of workers between ages 35 and 44 were "very confident" of having enough money to retire comfortably. In the 2008 survey, even fewer — 16% — felt so sanguine.
Lori Brown, 40, a hairdresser in DeKalb, Ill., who's married to a sheet-metal worker, is one of millions of Gen Xers who have struggled to raise their living standard without the means to do so. The Browns, who earn around $75,000 a year, have talked repeatedly through the years about buying a home. Yet, they've never managed to do it.
The couple pay a fairly modest $645 a month to rent one floor of a house. But taking on a mortgage seems too risky, especially when Lori depends on commissions, and her husband's work is seasonal. Lori says her clients needle her about it.
"Some of them," she says, "hound me about why we don't have a home, and we're throwing money down the drain and making the landlord rich."
With so many Gen Xers struggling to set aside money for retirement, Congress has tried to make the savings habit routine. Landmark legislation — the Pension Protection Act of 2006 — is turning more Gen Xers, along with other Americans, into savers. One way the law is beginning to achieve that goal is by encouraging employers to automatically enroll new workers in 401(k) plans.
Just as important, the pension act paved the way for more businesses to set a default 401(k) investment option for participants that delivers more octane in the long run than an ultra-safe money market. Hewitt Associates found that money funds were the default option for 68% of 401(k) plans in 2001, compared with 17% in 2007.
Employers are embracing target-retirement mutual funds, which contain a mix of stock and bond funds that turns more conservative as a participant nears a target retirement year. Today, 78% of surveyed companies use such funds for their default investment.
If you look at Gen X-related research conducted by Charles Schwab, it's easy to appreciate why making the act of investing as simple as possible is necessary.
Robert O'Neill, a senior vice president at Charles Schwab who oversees the firm's Gen X initiative, said Schwab found that Gen Xers often don't understand investment basics. Many, for instance, don't realize that an investor can contribute to both a 401(k) plan and an IRA. This might help explain why 82% of Gen Xers have no IRA, according to a Schwab survey.
Schwab also found that many Gen Xers are more comfortable initially investing beyond their workplace retirement plan through checking and savings accounts. Consequently, Schwab launched a high-yield checking account aimed at Gen Xers, and a website (www.schwabmoneyandmore.com) tailored for them.
For now, most Gen Xers, according to Schwab, are receiving their investment advice from the very people who used to nag them to clean their room and take out the garbage: their parents.
Not feeling so safe
Some Gen Xers say they hold fewer illusions than previous generations did about the stability of whatever job they hold — or might hold in the future.
Skepticism about job stability, for example, led Melissa Garland, 37, who works as a multimedia developer in Baltimore, to become a part-time entrepreneur. She launched a ghost-tour-guide business in Baltimore that she says is flourishing.
"Companies have no loyalty, which is why I wanted to start my own business," she says. "Anybody could be out on the street at any time."
Some specialists suggest that Gen Xers, faced with escalating financial obligations and shakier job situations, have developed a wary, skeptical stance toward the corporate world.
"They want to make the most of their opportunities," says Rebecca Schreiber, a financial planner in Silver Spring, Md., who specializes in counseling Gen X clients. "They've got the dot-com boom and Enron behind them, which makes them skeptical about relying on any corporation entities.
"The previous generation is panicked about retirement, and this fear has wormed its way into the hearts of Gen X," she says. "Gen Xers are constantly reminded of the mounting cost to retire."
Schreiber says she remains optimistic about Generation X. "They just need a little education," she says hopefully.