Originally Published by TIAA.
A new survey from TIAA finds Americans who lack confidence in their parents’ financial security in retirement (27 percent) are twice as likely to lack confidence in their own retirement as those who are confident in their parents’ (72 percent versus 36 percent).
More than half of respondents (57 percent) also indicate that their parents’ financial planning for retirement has impacted their own, with almost half (44 percent) avoiding taking on significant debt, and nearly four in ten (38 percent) saying they have adopted a more conservative approach to everyday spending by consciously limiting their spending on non-essentials.
“We’ve seen firsthand what the data shows: people who are concerned about their parents’ financial well-being in retirement may be sacrificing their quality of life today out of concern for their own financial future,” said Dan Keady, chief financial planning strategist at TIAA. “A good financial plan that includes education, advice and lifetime income options for retirement can help build confidence that allows people to enjoy life today, without forfeiting their future retirement security.”
The TIAA survey shows that Generation X and baby boomers are significantly less optimistic than millennials about their parents’ financial outlook. Just over one-third of Gen X adults (35 percent) and only one in four baby boomers (26 percent) describe their parents’ financial outlook as very good or excellent, compared to more than half (52 percent) of millennials.
The same applies when it comes to confidence in their parents’ current or future financial security in retirement. Only 47 percent of Gen X and 34 percent of baby boomers say they are confident in their parents’ current or future financial security, compared to nearly double the number of millennials (60 percent).
These confidence levels mirror how these generations view their parents’ approach to saving and investing. Nearly four in ten Gen X and baby boomers (39 percent and 35 percent) disagree that their parents’ approach to saving and investing is admirable and one to emulate, compared to just a quarter of millennials.
Even among adults who say they are confident in their retired parents’ long-term financial security (20 percent), one in five (21 percent) indicate that they have some or a lot of concern about their parents running out of money in retirement.
“This concern highlights the possibility that running out of money in retirement might mean having to assume the financial burden of supporting their parents. That is why it’s so important to include guaranteed lifetime income sources as part of a comprehensive retirement plan,” said Shelly-Ann Eweka, a director of financial planning for TIAA. “As the realities of financial planning change through life, parents and their children need to discuss their financial plans and concerns together to ensure they are on the same page about the future they’re envisioning.”
The survey also found that the perceptions people have about their parents’ financial plans may not always match reality. Seven in ten millennials rate their parents’ financial outlook as good to excellent (72 percent), yet just over half of Gen X and boomers – those likely to represent their parents – rate their own financial outlook the same (57 and 58 percent respectively).
“It is evident that people’s financial habits and retirement planning are shaped by the experiences of their parents,” said Keady. “The confidence that millennials have about their parents’ finances may actually create a false sense of security, especially when individuals mistakenly believe they will receive an inheritance (and plan their finances around it) when their parents don’t have the same plans or intention.”
Individuals can take the first step by initiating a financial discussion with their families to better understand how each other’s financial needs compare. If people are overwhelmed by the thought of putting together a financial plan, they can turn to a financial advisor for help. Advisors can help individuals create a retirement plan that seeks to minimize uncertainty and boost financial confidence by building lifetime income.
“Open dialogues and a well-planned retirement can help alleviate family stress and may give you permission to live your life without the worry of outliving your savings or becoming a financial burden to others,” said Keady.