It has become a cliché to label baby boomers as a charmed generation, but their retirement fortunes are certainly more straightforward, than the generation that succeeds them.

Many of the baby boomers (those born between 1946 and 1964) are now settled into a comfortable retirement. It has become a cliché to label them a charmed generation, but their retirement fortunes are certainly better, and more straightforward, than the generation that succeeds them. Generation X (born between 1965 and 1980) starts to hit 60 next year and has a more complex path to a prosperous retirement.

Demographics is not an exact science: older Gen-Xers may retain some of the privileges of the boomers, while younger boomers may face some of the challenges of Gen X. However, there are clear trends in how retirement paths have evolved across generations, shaped by new working patterns, changing family dynamics and shifting patterns of wealth.

Working life

Baby boomers tend to have had more stable working lives. For much of their career, ‘jobs for life’ were still available, usually with the security of a defined benefit pension. Gen X’s careers have been more wandering in nature. They have more jobs in their lifetime , and are more likely to have periods of self-employment, entrepreneurship, education and employment. Nearly half of all self-employed people in the UK are over 50.

​Gen X are also likely to work longer. The Institute for Fiscal Studies (IFS) has found that patterns of employment among people in their 50s and 60s are dramatically different to those seen a few decades ago.   This is both preference and necessity. The state pension will kick in far later for Generation X. A woman born in 1946 would have been able to claim her state pension at 60; a woman born in 1978 will have to wait until she is 68.

For those currently considering retirement, this situation has been exacerbated further. In BNY Mellon Investment Management’s 2023 research report, Life Beyond Work: The changing face of retirement, 67% of advisers surveyed said that the current challenging economic environment means that clients will have to work longer. In addition, 15% of respondents felt current economic pressures could mean some of their retirement advice clients having to go back to work.   While some clients may have jumped the gun by deciding to retire after the upheaval of the pandemic, that any advised client might have to return to work must be a concern.

“While boomers often have healthy workplace pensions, and the fall-back position of property wealth, Gen X are likely to have more disparate sources of income, including property, ISAs, workplace and personal pensions”

Commitments

Boomers were often free to enjoy their wealth: their children did not need the same support on education costs, and their parents often didn’t live long enough to require expensive care. The next generation of retirees may have had children later, and have had to pay tuition and maintenance fees. They are likely to inherit later, as their parents live longer, and may be on the hook for care costs for their elderly parents.

​In our survey, 27% of advisers said the cost of supporting family is an important consideration for their clients. The problem is becoming more acute, as inflation pushes up the cost of supporting both elderly relatives and ‘boomerang’ children – 29% of advisers said this concern is rising for their clients.   Gen-Xers may also have more debt. Having bought their homes later and at higher cost, they may still be paying down a mortgage in retirement.

Disparate wealth

While boomers often have healthy workplace pensions, and the fall-back position of property wealth, Gen X are likely to have more disparate sources of income, including property, ISAs, workplace and personal pensions. Many of this generation entered the workplace just as companies realised they could no longer afford generous final salary schemes. However, neither did they benefit from auto-enrolment in the same way as Millennials. Auto-enrolment started in 2012, so it came relatively late into most Gen-Xers’ careers. Caught between two regimes, many do not have the same generous pension provision as those either side of them and the balance of their wealth may be different.

​Yet many Gen-Xers will still have been able to get on the property ladder and participate in housing market growth. For example, a Gen-Xer who bought a house for £200,000 in 2000, would have seen an average gain of 226%, raising their house price to £652,72.   They may have higher mortgages at retirement than the previous generation, but are likely to still have a lot of capital tied up in their homes.

​The result of these disparate sources of wealth is a retirement pot that can be difficult to manage. Advisers may find themselves trying to impose order on multiple pots of capital, managed in different ways.

Changing family structures

While boomers are more socially progressive than the generations that went before, the model of a single breadwinner with a large workplace pension is still the norm for this generation. This is far less likely to be the case for Generation X. Female participation in the workforce has notably expanded, with the female employment rate rising from 54% in 1983, when the first Gen-Xers started to hit the workplace, to over 71.9% today.

​Households are far more likely to have two people working and contributing to a pension. The latest data from 2021 shows 74% of families had both parents working with 50% of families having both working full time, up from 42% just 9 years earlier.   This means many households will have two pots of wealth to draw on for retirement.

​Also, the family unit is more fluid for Generation X. Back in 1965, 1 in 10 couples who married that year were divorced by their 10th anniversary. This increased to 1 in 4 couples for those married in 1995 though it has now fallen back to 1 in 5 for those married in 2012. This creates complexity – step-families, divorce settlements, multiple properties – with added challenges around inheritance.

​It is clear that Generation X is likely to need more help, perhaps at an earlier stage, to knit together its various income sources and build a coherent plan for retirement. The need to plan holistically and imaginatively to ensure assets are utilised in the most effective and efficient way will only grow. It represents a golden opportunity for advisers.

Source: PA