Why Seniors Have the Greatest Financial Security
By Maryalene LaPonsie
A recent study from the Stanford Center on Longevity unearthed an interesting anomaly. While the financial security of Millennials and Gen Xers had dropped significantly from 2000 to 2014, it has risen slightly for baby boomers ages 65 to 74, according to The Sightlines Project.
"No change is probably more accurate," says Steve Vernon, a consulting research scholar for the center's financial security division. The increase registered only 1 percent, but it was in contrast to the 8 percent drop in financial security measured for 25- to 34-year-olds, the greatest decline among all age groups.
What's more, seniors have the greatest financial security of any group surveyed. In 2000, 45- to 54-year-olds topped the index, with 75 percent being financially secure. By 2014, that group dropped to 68 percent, while the score for 65- to 74-year-olds increased to 69 percent. The group with the lowest financial security is 25- to 34-year-olds, with only about half (56 percent) being financially secure in 2014. Stanford researchers calculated the financial security index by averaging nine financial metrics including cash flow, emergency savings, assets and insurance coverage.
Social Security, pensions and jobs stabilize finances. The financial security of seniors is likely holding steady for several reasons. "Social Security does a good job of keeping you out of abject poverty," Vernon says. "People over 65 are also working longer."
Access to traditional pensions is another factor that helps retirees. "When you look at that older population, a number of them have a traditional pension," says Kevin Crain, managing director and retirement services executive for Bank of America Merrill Lynch. "There is some predictable income post-retirement."
Beyond a steady source of income, older Americans may have greater financial security because they typically carry less debt and are more likely to own a home. Many people in their 60s may also find themselves on the receiving end of an inheritance, which could further buoy their finances.
Senior fortunes could change later in life. While 65- to 74-year-olds are experiencing relatively stable financial security now, it may not last. Kathleen Hastings, a certified financial planner with FBB Capital Partners in Bethesda, Maryland, cautions that as seniors age, they may strain their resources.
"If you're looking at the group that's 80 and older, their economic security is deteriorating," Hastings says. She attributes declining financial security among the elderly to increased medical and long-term care costs coupled with Social Security increases that haven't kept pace with health care inflation.
Financial security tends to decline slightly as people age. The Sightlines Project found that 62 percent of people age 75 and older were financially secure in 2014, compared to 69 percent of people age 65 to 74. While younger seniors may be relatively healthy and able to continue working if needed, the elderly may need expensive care and have dwindling resources to pay for it. "Once you get past age 75, you'll probably see a shift [in security] to the other direction," Crain says.
Younger generations may not follow in their parents' footsteps. Although the financial security of 65- to 74-year-olds seems stable today, future generations shouldn't necessarily expect the same. "I do think this age group right now is in a unique situation," Crain says. That's because many of today's retirees have Social Security, a traditional pension and their own savings from 401(k) plans and IRAs.
Millennials and Gen Xers likely won't have traditional pensions to fall back on. They may also have delayed home ownership and taken out significant student loans, increasing their chances of carrying debt into retirement. And with boomer parents living longer, there may be little chance of anything being left over to pass along as an inheritance.
Vernon and the other collaborators on the Stanford study agree younger generations may be headed for trouble, but they are quick to say they aren't passing judgement. "We're very careful that we're not shaking our fingers at individuals," Vernon says. Instead, he hopes The Sightlines Project report will raise awareness of the need to take action, both individually and collectively through policy changes, to improve financial security for all generations.
Steve Martin, a senior managing advisor with BKD Wealth Advisors in Oakbrook Terrace, Illinois, says the best takeaway may be this: "The sooner people start planning for retirement, the better off they'll be."