30% of the global Generation X fears never retiring, according to Natixis IM
21 JUN, 2024
Despite the fact that the first members of Generation X will start turning 60 in 2025, 30% of them globally fear they may never be able to retire. This is indicated by the results of the Global Survey of Individual Investors by Natixis Investment Managers, which also show that many feel pressured when thinking about preparing for retirement: almost half of them (48%) claim they will need a miracle to retire securely and half (50%) claim they try to completely avoid thinking about retirement. According to the same survey, Gen Xers are increasingly worried about falling short, so 60% of respondents accept that they may have to work longer, although many are aware that work offers no guarantees: 47% are worried about not being able to work long enough.
The report paints a bleak picture of Generation X's retirement plans (born between 1965 and 1980), highlighting the disparity between their expectations and reality.
When asked about their retirement goals, the surveyed members of Generation X claim they plan to retire at 60, an early age by many global standards, and anticipate that retirement will last 20 years, a shorter period than many retirees experience. To achieve this, they save an average of 17% of their annual income. However, if Generation X is looking for an edge in their retirement savings, the results show that the best place to start will be by analyzing their investment plans and habits. The results of recent surveys by Natixis Investment Managers show that, on average, members of Generation X are optimistic about their investments and have long-term return expectations of 13% (10.4% in the case of Spain), a hope that may be hindered by misguided views on risk, misconceptions about passive investments, and a critical knowledge gap about bonds.
Short-term prices, long-term debt
Two critical issues seem to be shaping Generation X's thinking about retirement: inflation and debt. In the short term, they are facing the reality of inflation. Overall, 83% of Generation X investors say that the recent inflation surge has highlighted the great threat that rising prices pose to their retirement security. Thus, nearly seven out of ten (69%) say that inflation has harmed their ability to save for retirement, 41% indicate that inflation is ending their retirement dreams, and more than half (55%) say they are saving less due to rising everyday costs.
Although inflation is a relatively short-term phenomenon, Generation X's retirement prospects are also conditioned by a key long-term problem: public debt. In fact, more than three-quarters of Generation X (77%) are concerned that the increase in public debt will result in a reduction in retirement benefits (75% in the case of Spain). Even the smallest cuts can have a big impact, as 58% believe it will be difficult to make ends meet without benefits.
Generation X has more to learn about bonds
In this new macroeconomic environment, the rise in rates has come at an opportune time for individuals, who suddenly find themselves at a stage in life where bonds usually play a more prominent role in portfolio plans. However, data from Natixis IM reveal that Generation X is allocating more money in cash and has less knowledge about how bonds work, given the low interest rate environment that has prevailed for so long.
When asked about rates and bonds, only 2% of Generation X knew that higher rates could cause a drop in the prices of the bonds they currently own, and that the potential for future income would be greater with new bonds acquired at current rates.
As a result, 39% say they want more information on how different types of bonds work and, currently, six out of ten (61%) say it is more fun to invest in stocks than in bonds, a sentiment reinforced by the significant market gains achieved since the end of the global financial crisis.
In addition, the results show that there is also a need for greater education around indexed funds, as members of Generation X, like other investors, are making erroneous general assumptions about the risks of passive investment. Thus, more than six out of ten (61%) Gen Xers think that indexed funds are less risky and almost two-thirds (67%) believe they will protect them from falls. These conclusions highlight potentially risky beliefs, as indexed funds offer returns similar to those of the market both on the rise and also on the fall.
Growth in the use of automated platforms and digital advice
Faced with this complex scenario, 56% of Generation X claims that they will need professional advice on issues ranging from achieving broad financial planning goals (48%) to more specific retirement income plans (44%).
However, although many trust in a relationship with a traditional financial advisor (36%), Generation X is increasingly incorporating automated platforms into the mix. In fact, the number of Generation X members who claim to prefer digital advice to face-to-face has increased significantly in the last 5 years, going from 35% to 49%.
However, that does not mean that Generation X relies solely on digital advice. Those who turn to online advice usually combine it with a relationship with a traditional advisor, whom they hold in high esteem. When asked who they trust when making financial decisions, Generation X members are as likely to answer "in my advisor" (91%) as "in myself" (91%). In fact, respondents are more likely to trust their advisors than their family (76%) and close friends (63%).
As retirement approaches, Generation X will need to start having more concrete conversations about how they can put the assets they have accumulated to work to obtain sustainable income during retirement. Although many members of this generation accept that they will have to work later than they would like, it may be easier said than done. A layoff at the end of a career can disrupt retirement savings plans, as can stopping work to care for an elderly parent or a sick child, or a personal illness or disability that prevents the individual from performing their job”.
Although they also face a volatile economic landscape, it is not too late to act. This new milestone should be seen as an opportunity to test assumptions about retirement funding and spending and to develop a realistic financial plan that takes into account not only how income will change after the working years, but also how expenses will likely change.
Javier García de Vinuesa, head of Natixis IM in Spain
