A survey from the Pew Research Center and the Federal Reserve Board's Survey of Consumer Finances showed an unsurprising result about Americans' opinion of their retirements: it stinks. Some 38 percent of Americans lack confidence about their retirement income and assets, an increase from the 2009 survey, where only 25 percent lacked confidence. Furthermore, the most Eeyore-esque generation is now late 30-somethings--36 to 40 year olds, who are surpassing the gloominess of the 51-55 age group that worried the most in the 2009 survey.
Why the shift? After all, the previous gloom-and-doom group is now three years older and right on the cusp of retirement.
--The older generation is probably paying much more attention to their pending retirement and figuring out what they need to do to be able to retire, if they can at all. The closer you are to a certain goal, the more accurately you can estimate what's left to be done. Think of when you're rushing to meet a friend. You still have to get ready and fight traffic before you arrive. You can probably estimate within a half an hour as to how long it will take. However, when you take the last exit off of the interstate, you can probably estimate real travel time to within a couple of minutes. The same holds true with retirement planning. The variables are myriad in your 30s, and include unknowns ranging from the real worth of your human capital, the number of kids you'll have, your health, or unexpected events like layoffs, which you simply cannot foresee with real accuracy. If you're approaching 60, the number of obstacles are simply fewer, so accurate estimates are easier.
--The younger generation got slammed by the decline in real estate prices. People tend to lump in their homes in their net worth and into what they think that they can use for retirement. For a lot of 30-somethings, home worth represented a disproportionate percentage of total assets, whereas people in their fifties have had more time to accumulate other investment assets. This means that the drop in home prices didn't hurt the 50-somethings as much. Additionally, those approaching retirement age aren't tying equating retirement income with their home values, since many aren't planning to move.
--The younger generation may be more engaged with the news cycle. Thirtysomethings have grown up on the Internet, with cable news, and now with instant gratification via social media. As a result, we're more likely to have read about and contributed to a doom and gloom meme.
--The younger generation really isn't saving enough. With high student loan debts, high unemployment, and core consumer goods inflation, a nickel ain't worth a dime anymore. The 30-something generation is going to have to make some tough choices about immediate wants and future needs and doesn't have as much wiggle room as they'd expected when they were tossing their hats at high school and college graduations.
Yet, if the retirement age is likely to be between 66-70 for this generation, there's still more than three decades for them to prepare. What can today's 30-somethings do to be more optimistic about their future retirement?
--Automatic investments. Save more. Good intentions to put away money left over at the end of the month only work if you have any money left. If you automatically invest a percentage of your paycheck when you receive it, or automatically have it invested in a 401(k), you'll adjust your budgets to meet your needs even if you have less money available to spend. The rule of thumb is that by age 40, you should have close to two times your annual income in investments. That should be your target to figure out how much you need to set aside.
--Diversify. Because a lot of 30-somethings had a significant portion of their assets tied up in a house, when that sector tanked, they felt the pinch. Instead of buying more house every few years, try putting more of that money to work in other investments such as index funds.
--Don't try to hit a seven-run home run. If your net worth is now lower than it was in 2008, don't try to make it all back up with one investment. How many people bought Facebook stock because it was the next big thing? You're going to expose yourself to a lot of unnecessary risk and to your own personal biases. The endowment effect means that people don't like to take losses, so they will hold on to losing positions to avoid a loss, but will sell winning positions so that they can say that they made money. It's a recipe for disaster. It'll lead to overtrading, being eaten alive by commissions, and taking outsized risky positions.
If you're a 30-something, this is no time to panic. You still have plenty of time, and your most productive period is likely yet to come. However, by either cowering and doing nothing, letting inflation eat your net worth up, or by trying to make it all up with one grand investment, you can make things worse. If you've found yourself on the hedonic treadmill in a never-ending attempt to keep up with the Joneses, now is the time to get off that ride. Stick to the basics and don't overcomplicate things, and in thirty years, you'll probably be wondering what all of the fuss was about.
Jason Hull is a candidate for the CFP(R) Board's certification, is a Series 65 securities license holder, and owns Hull Financial Planning.
More From US News & World Report