By Dr. Lynn Reaser
As Generation Y (those born between 1978 and 2000) enters college and the work force, the ultimate challenge for saving and retirement is likely to be even greater than that now facing Baby Boomers (those born between 1946 and 1964). Gen Y is likely to be “the first do-it-yourself retirement generation,” according to Catherine Collinson, president of the Transamerica Center for Retirement Studies in Los Angeles.
Companies have rapidly shifted away from defined benefit programs, in which retirees are guaranteed monthly stipends after retirement. Instead, they have moved to defined contribution—401(k)—plans, which places a greater responsibility on employees to save and invest for their retirement years. State and local governments, which have been much slower to convert to 401(k) programs, can be expected to increasingly place new hires in such plans.
Although social security will provide some support for Gen Yers reaching retirement age, other funds will be necessary. Addressing the federal deficit will require a less generous benefit schedule for future retirees, higher taxes, or both. Private saving will be critical.
Investment firms, such as Vanguard and Fidelity, are beginning to use the social media, including Facebook and Twitter, to help young people think about saving and financial planning. It is never too early to begin those efforts, but it could easily be too late.