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By Omar Mohammed
Reporter, Economy & Finance
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Government policies have helped American millennials, the largest age group in the country, set themselves up better for retirement than their boomer parents, new research shows.
Millennials have endured turbulent economic times. There was the September 11th attacks in 2001 that contributed to a recession. Then there was the housing crisis that began in 2007 and ballooned into a systemic financial crisis that sparked the deepest economic calamity since the Great Depression in the 1930s.
The emerging Great Recession lasted for a year and a half, the longest downturn since World War II.
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And over the last three years, a pandemic and the ensuing health and economic volatility it induced added more pressure to their financial security.
However, new research shows that a group of millennials aged between 37 and 41 years old have set themselves up quite well for retirement. Those at the 70th percentile of earnings (Americans with a median income of $61,000) are on track to get to a place where they will replace 66 percent of their income when they retire, just below their spending needs, according to research from Vanguard, an investment management firm.
That's better than what Vanguard describes as "late" baby boomers (between the ages of 61 and 65 years old), who at a similar earning bracket will only be able to replace about half of their earnings after retirement, significantly lower than the 68 percent of the income they will need to afford their spending. The Millennials were also doing better than their Gen X counterparts (49-53 year olds).
The research revealed a concern across demographic groups for those earning $22,000 who are way below the ability to meet their spending needs after they retire, Vanguard said.
Americans are having to think more keenly about retirement at a time when the Social Security Trust Fund, the government program that supports retirees, is expected to run out of money in a little more than a decade, according to the Committee for a Responsible Federal Budget.
"At that point, revenues coming into the program will be insufficient to cover scheduled benefits," the think tank pointed out.
Dependents of the program will suffer a 20 percent cut to their benefits "regardless of their age, income level, or how much they depend on the program," the Committee for a Responsible Federal Budget said. "That cut would generally grow over time until someone born this year would have a 25 percent cut in their lifetime benefits."
Millennials have had help to get to a good place in their retirement even though they have had to grapple with unsettling economic shocks.
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The Pension Protection Act passed in 2006 provided pathways for retirement investment funds which are diverse and from multi-asset portfolios, Vanguard pointed out. The law aimed to get employers to be better at complying with pension funds requirements, according to the Council on Foundations.
"The combination of these enhancements has made it easier for retirement savers to join their workplace plans, increase their savings rates over time, and invest in diversified portfolios," Vanguard analysts wrote.
"The interplay between financial challenges and changes in employer-sponsored retirement plans has resulted in different levels of net wealth for each generation at our starting point in 2019 and modest improvements to the retirement outlook for millennials and Generation X."
Millennials are projected to live longer, Vanguard said, and therefore will need their savings to sustain them for longer, as well. In 2022, they became the largest generation of Americans surpassing boomers for the first time, according to data analysis firm Statista.
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