MONEY 401(k)s

What Bill Gross’s Pimco Departure Means for Your 401(k)

The people who tell companies what retirement-plan investments to offer employees are questioning the value of the giant Pimco Total Return bond fund.

Bill Gross’s sudden departure from Pimco and the Total Return Fund he ran for 27 years was the last straw for Jim Phillips, president of Retirement Resources, a Peabody, Mass. firm that advises 401(k) plans with $50 million to $100 million in assets. He’s advising clients to head for the exits.

After 16 straight months of outflows and a 3.5% return over the past year, worse than 75% of its peers, the $222 billion Total Return Fund is failing Phillip’s standards when it comes to meeting the retirement needs of his customers.

“We do not have ongoing confidence in the way the fund is being managed,” Phillips said. “We are recommending to clients that we replace this fund with another one.”

Philips said he joined a conference call Monday with Pimco chief executive Doug Hodge and some of the company’s portfolio managers, but said the conversation “doesn’t change any actions that we have planned.”

About 27,000 of the largest corporate 401(k) plans in the country had money in the Total Return Fund as of the end of 2012, according to the most recent data from BrightScope, which ranks retirement plans. The roster includes Walmart’s $18 billion plan, the largest in the country by assets, as well as Raytheon’s and Verizon’s.

Total Return holds $88.3 billion of the $3 trillion in 401(k) assets listed in BrightScope’s database of more than 50,000 of the largest plans, the biggest mutual fund in the database.

Walmart didn’t return calls, and Raytheon and Verizon declined to comment for this article.

Phillips isn’t alone in his dissatisfaction with the fund — investors have pulled $25 billion from Total Return Fund so far this year. But a bad year that began with a public falling out between Gross and top deputy Mohamed El-Erian in January and has now seen the Pimco co-founder quit is causing many 401(k) plan consultants and advisers to put the Total Return Fund on their watch lists, and in some cases start replacing it.

Though companies usually make decisions about where to invest their retirement funds during investment committee meetings, which typically occur quarterly, Gross’ exit could prompt companies to have meetings or calls sooner than scheduled, said Martin Schmidt of H2Solutions, a Wheaton, Ill. consultant for 401(k) plans with assets from $150 million to $4 billion.

“I have sent out emails to clients telling them that we need to start looking at alternatives,” Schmidt said. He said he hasn’t heard from anyone at Pimco.

Once an employer decides to switch a fund out of its plan, it can take three to five months to make the change and give employees the required 30-days’ notice.

Jump Ship

Gross’s new fund, the $13 million Unconstrained Bond Fund from Janus Capital, is unlikely to be the destination for any funds that decide to jump ship on Total Return, given that it’s only been in operation since May and has produced a negative 0.95% return since inception, according to Morningstar.

“We have to see at least a three-year track record and we actually prefer five,” said Troy Hammond, president and chief executive officer of Pensionmark Retirement Group, a Santa Barbara, Calif. adviser that serves over 2,000 small 401(k) plans across the country.

There is also the question of whether Gross will have the same level of support and resources at Janus as he did at Pimco.

“If Bill were leaving with the top 10 people from Pimco, like Jeffrey Gundlach did when he left TCW, that would be different,” said Mendel Melzer, chief investment officer for the Newport Group, a Heathrow, Fla. consultant to institutional investors, including 401(k) plans with assets between $20 million and $1.5 billion. “But this is just Bill Gross leaving on his own, and it is hard to say that the track record he accumulated at Pimco should translate into the Janus fund.”

Melzer is advising clients to see how the new Pimco team does with the Total Return Fund, which has been on Newport’s watch list since earlier this year.

“We will keep it on a very short leash,” Melzer said. “If it does not improve in the next two quarters we will look at alternatives.”

TIME society

The Right Way to Ask Boomers to Retire

Millenials Baby Boomers retirement
Jacob Wackerhausen—Getty Images

How ‘polite’ Millennials can convince a generation of workaholics to give up their jobs

Millennials (born 1982-2003) have a problem when it comes to their path to promotions and career advancement. Unless more members of the Baby Boom generation (born 1946-1964) start stepping down soon, younger generations will find themselves blocked in their careers by people who haven’t shown any inclination to leave, especially after the Great Recession devastated many Boomers’ retirement portfolios.

It’s time for Millennials to have that tough talk about retirement with Boomers. But using logic or making appeals to intergenerational fairness aren’t likely to be successful strategies. And suggesting that it’s time for Boomers to shuffle off the stage might seem selfish or cold-hearted to most members of the remarkably well-mannered Millennial generation. Nor is any suggestion that Boomers retire likely to meet with a positive response from that generation of workaholics. Instead, the talk needs to be couched in the language of Boomers and attuned to their fundamental values.

We have written three books on the Millennial generation in which we used the theory of generational cycles, first proposed in 1991 by authors William Strauss and Neil Howe, to make our own predictions about America’s political future. Along the way, we studied volumes of research data, and created some of our own, on each of the current generations of Americans and the dynamics of their interactions with each other.

Boomers are an “Idealist generation” to use Strauss’ and Howe’s name for a generational archetype that is focused on deeply held ideological beliefs. Previous American Idealist generations—the Transcendental generation (born 1792-1821) and the Missionary generation (born 1860-1882)—had one key characteristic that is clearly evident in Boomer behavior today. All Idealist generations are driven by strong beliefs about what is right and wrong and what is good and evil. Members of this type of generation resist compromise and are determined to impose their beliefs on the rest of society—even if it means tearing down existing institutions.

By contrast, Millennials are a “civic generation” in Strauss’ and Howe’s categorization. Their historical predecessors were the GI generation that came of age during the Great Depression and World War II and the Republican generation that won the American Revolution and developed the constitutional order by which America has been governed since 1787. All of these civic generations can be characterized as “pragmatic idealists.” Today’s version, Millennials, is interested in working together to make the world better. It is this desire to find mutually agreeable solutions to problems that makes having the “talk” with their Boomer colleagues so hard for Millennials.

But there is a way to turn the discussion into the type of “win-win” outcome that Millennials favor. The key is to appeal to the very ideals that have driven Boomers’ lives ever since they first burst upon the nation’s consciousness in the 1960s. Since then, no matter on which side of the Cultural Revolution they have fought, Boomers have devoted themselves to their work. They are the source of the term “workaholic” and take pride in what they accomplish at work each day. They define their very self-worth by their work, leading them to start conversations with new acquaintances by asking, “So what do you do?” To suggest to Boomers that it might be time for them to retire is almost the equivalent of asking them to die—clearly not the way to start a productive conversation.

Instead, Millennials should begin the conversation by asking Boomers about their ideals and values. Get them to talk about what motivated them when they were young to make the life and career choices they did. Most Boomers love to talk about their youth. They think of it as the best time in their lives. So starting the conversation in this way is likely to make the opening of the “talk” both pleasant and productive.

The next step would be to pivot from the past into the future by asking Boomers what they believe they have yet to accomplish. This should be followed by a suggestion that now might be the time for the Boomer to take up the work that remains undone on their ideological bucket list before it is too late and they lose their ability to make a difference. Assure them that there are other people, maybe from Generation X, if not the even younger Millennial generation, that can pick up the work in which Boomers are now engaged and see it through to completion.

But, crucially, Millennials should also make it clear that no one but Boomers have the wisdom and experience, coupled with the ideals, to take on the challenges they have been too busy to tackle. At that point, moving out of their jobs—and on to their unfinished business—will become something Boomers think they should do, rather than something that is being forced upon them.

The history of previous Idealist generations underlines the importance of having these conversations sooner rather than later. Strauss and Howe, in their book Generations, summarize the very different outcomes that resulted from the choices made by members of Idealist generations at this crucial point in their lives: “Where the angry spiritualism of Transcendental youth (born 1792-1821) culminated in the apocalypse of the Civil War, the Missionaries (born 1860-1882) demonstrated how a youthful generation of muckrakers, evangelicals, and bomb-throwers could mature into revered and principled elders—wise old men and women capable of leading the young through grave peril to a better world beyond.” Members of this generation, such as Franklin Delano Roosevelt, Winston Churchill, Douglas MacArthur, and George C. Marshall successfully mobilized the civic-minded GI generation to undertake and complete the task of remaking the world according to our democratic ideals.

By analogy, suggesting that it’s time for the current generation of Idealists, Boomers, to lead this increasingly dangerous world to a better place by putting aside their current work and taking on their last and most important challenge is the best way for Millennials to convince Boomers it’s time to move on. The current state of affairs makes it clear that it is way past time for Millennials to start this difficult conversation. Our advice to Millennials: Don’t wait another minute to have the “talk” with a Boomer you know.

Mike Hais and Morley Winograd of Mike & Morley, LLC are business partners whose combined careers include entertainment and media market research (Frank N. Magid Associates), a stint in the White House (Clinton-Gore second term), technology and communications (AT&T), and academia (USC’s Marshall School of Business and the University of Detroit). Based in Los Angeles, Mike & Morley speak, write and consult on the role of Millennials in remaking America. They are the co-authors of Millennial Makeover (2008), Millennial Momentum (2011), and Millennial Majority (2013).

This article originally appeared on Zócalo Public Square.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY Investing

Why We Feel So Good About the Markets—and So Bad—at the Same Time

Investor and retirement optimism is at a seven-year high. Yet most people believe their personal income has topped out. What gives?

Investors are feeling better about the markets than at any time since the financial crisis, a new poll shows. But most also believe they have topped out in terms of earning power, and that the Great Recession continues to weigh on their finances.

Buoyed by stronger GDP growth, record high stock prices, and a falling unemployment rate, investors in the third quarter pushed the Wells Fargo/Gallup Investor and Retirement Optimism index to its highest mark since December 2007. Yet 56% of workers expect only inflation-rate pay raises the rest of their career, and half believe they are destined to end up living on Social Security benefits.

“At the macro level, people are feeling pretty good,” says Karen Wimbish, director of Retail Retirement at Wells Fargo. “But at the personal level, the Great Recession left a deeper wound than a lot of us realize.” The average worker believes that wage growth, which has been stagnant for decades, won’t rebound before they retire. This feeling is especially acute among the upper middle class, those making more than $100,000 a year.

The gloom is partly attributable to the national discussion about wage inequality and some evidence that only the top 1% is getting ahead. It may also reflect a sense that the U.S. is losing ground to the faster growing developing world and experiencing an inevitable relative decline in standard of living.

The Federal Reserve has been battling anemic growth for seven years through an aggressive stimulus program that includes rock-bottom short-term interest rates. This week, the two Fed governors most outspoken and critical of this policy confirmed that they would retire next year, essentially putting the Fed all-in on a growth and jobs agenda with diminishing concern over inflation and underscoring the sense of stagnation so many feel.

Most investors polled (58%) said they are doing about as well or worse than five years ago. Similarly, 63% said they are saving about the same or less than five years ago. These figures are essentially unchanged from two years ago, suggesting that investors have not made much financial headway in the recovery. Roughly half said they are still feeling the effects of the recession.

“Is it real?” Wimbish says. “Or is it emotional?” If our prospects are really so dire, how do you explain record high stock prices, strong quarterly growth, a pickup in consumer borrowing, and an improving jobs picture?

Whatever is causing the gloom, one result is that nearly a third of investors continue to shun the stock market. Those with less than $100,000 in assets avoid stocks at twice the rate as those with more than that level of savings. Arguably, those with fewer assets are precisely the ones who need to be in stocks to take advantage of their superior long-run gains and build a nest egg.

They may be worried that they have missed the rally and that it is too late to get in. But the overriding concern—expressed by 60%—is that stocks are just too risky. So as the average stock has more than doubled from the bottom and recovered all its losses, and as those who remained true to their 401(k) contribution plan through thick and thin have become flush with gains, the truly risk averse have lost valuable time. Seeing this now may be part of what makes them so glum.

MONEY early retirement

It’s Time to Rename Retirement

Senior doing yoga on beach
Image Source—Alamy

People change their minds — a lot — when it's time to stop working. Let's acknowledge how flexible retirement can be.

Some clients dream of retiring early. Others would like to work forever if they could. And a third set of clients…well, they’re on the fence.

Let me tell you about one of my clients who falls in that third category, and what my experience with him says about retirement.

When John and his wife (I’ll call them John and Jane) became clients of my firm two years ago, they were both in their early 50s. John, who had been retired for eight months, wanted us to evaluate whether he would be able to stay retired comfortably. Jane, who was still working, planned to stay at her job for another five years.

After crunching the numbers and running through several scenarios, we found that John — and Jane, too, if she wanted to — could retire immediately and most likely not have to work again.

The joy in the room was palpable as John described all the things he wanted to do with his time: Spend more time with his aging parents and his college-age daughter, spend more time fishing, and manage his real estate investment properties.

Fast-forward six months later. John called to let us know that he was going back to work for the same company from which he had retired. “One myth I’ve found out: You think you’re going to catch up on all those projects you’ve put off,” he told us. “You don’t.”

So we revisited John and Jane’s financial plan. Of course, more income made their situation look even better. John felt satisfied and happy to have his old routine back.

Ten months later, we got another phone call from John. He had changed his mind. Once again, he decided he was ready to retire. So we revisited the plan another time. Again, it was all systems go.

“Man, you just made my day,” said John. “No, I take that back. You just made my year!”

Sometimes, like John, we don’t know what we truly want. We grow up thinking we will work as hard as we can, so we can reach our golden years and retire to a life of vacationing, fishing, biking or fill-in-the-blank. And then, like John, we realize we’re not so sure.

For many retirees this is becoming more common. Having time to truly dissect your desires often helps to further clarify your true passions and what fulfills you on a deeper level. Walking through options can help provide peace of mind through these transitions. In today’s world we are seeing more and more of this type of trial-and-error decision-making about retirement. Retire for a while, only to go back to work, and then retire again so you can have control of your time and do things you truly enjoy.

Retiring these days is really just gaining the freedom to do what you want, when you want. It could be part-time work, volunteering, starting a business, or, in John’s case, going back to your old employer for a while.

Going forward, maybe retirement should be renamed “flexibility,” since that seems to be a more appropriate description for the way retirees are actually treating it. So right now, I think I will go spend some time planning my own “flexibility.”

——————–

Smith is a certified financial planner, partner, and adviser with Financial Symmetry, a fee-only financial planning and invesment management firm in Raleigh, N.C. He enjoys helping people do more things they enjoy. His biggest priority is that of a husband and a dad to the three lovely ladies in his life. He is an active member of NAPFA, FPA and a proud graduate of North Carolina State University.

MONEY 401(k)s

Why Americans Keep Treating Their 401(k)s Like Piggy Banks

Smashed piggy bank
Dan Saelinger—Getty Images

Borrowing from your 401(k) plan has advantages. But it should not be your first option.

Consumer borrowing is on the rise again, jumping nearly 10% in July—the biggest gain in three years. The largest loan sources were related to auto financings and credit cards. But since the recession, 401(k) plan loans have been rising as well.

One in four American workers with a 401(k) or other defined contribution plan taps their retirement account for current expenses, according to a report from financial website HelloWallet. Much of this money never gets repaid.

Such borrowing has significant consequences. Loans that go unpaid are subject to penalties and taxes. Penalized 401(k) distributions increased from $36 billion to almost $60 billion from 2004 to 2010. The penalties aren’t even the worst part. Money pulled from a 401(k) plan may result in years of lost growth, leaving you far short of your savings goals.

Roughly a quarter of those who borrow from their plan need the money to pay monthly bills. But a lot of this money is going other places. The most common uses of money from a 401(k) plan, other than monthly expenses, according to a Schwab survey:

  • Down payment on a house (23%)
  • Home improvement (19%)
  • Medical expenses (13%)
  • Discretionary purchase (9%)
  • Vacation (4%)
  • Pay down student loans (2%)

Plan loans are not all bad. They are quick, and you need not win credit approval from a bank or other lender. You must pay yourself back, plus interest. So over a loan period when stocks have fallen you might end up with more savings, not less. And the often-repeated issue of double taxation on money used to repay the loan is overstated. You pay the loan back with after-tax dollars, which are taxed again in retirement. But you’d pay off any type of non-mortgage loan with after-tax money. That’s hardly a deal breaker.

The real problem with these loans, and the reason they should not be your first option, has to do with the penalties and lost growth. If you switch employers you may have to repay the loan in full in as little as a month. If you can’t, the loan converts to a distribution subject to a 10% penalty and regular income tax. Meanwhile, many people stop contributing to their 401(k) plan during the repayment period, losing out on years of contributions and growth, notes Catherine Golladay, vice president of 401(k) Participant Services at Schwab.

New York Life found that the average contribution rate for a worker who takes out a loan from their 401(k) is 5.63%, compared with 7.23% for workers without loans, and that two-thirds of workers with a loan who leave their employer take a cash distribution from their plan rather than pay back the loan.

For these reasons, retirement experts have been pushing for 401(k) loan reform, among other things giving those who lose their job more time and incentive to repay the loan. But for now the risks remain and, certainly, borrowing from a plan to pay for a vacation or other discretionary item is probably a poor decision.

Get answers to you 401(k) questions in MONEY’s Ultimate Retirement Guide:
What If I Need My 401(k) Money Before I Retire?
What Happens to My 401(k) If I Leave My Job?
When Do I Have to Take the Money Out of My 401(k)?

 

 

MONEY Health Care

The Easy Way to Beat the High Cost of Health Care in Retirement

Senior couple riding bicycles
Ariel Skelley—Getty Images

Out-of-pocket healthcare costs may total $318,000 in your retirement, new research shows. This expense is most peoples' biggest worry. But it needn't be.

Americans’ top financial concern in retirement is paying for healthcare, which has been rising at twice the rate of inflation and will reach more than $318,000 in out-of-pocket expenses per retiree over a 30-year stretch, new research shows. And those out-pocket costs do not include potential further expenses associated with long-term care.

Strikingly, the fear factor is most acute among the affluent. Perhaps because they have more to lose (or fewer things to worry about), 60% of folks with investable assets greater than $5 million name healthcare costs as their top retirement concern, compared with 35% of those with less than $250,000 in investable assets.

The findings come from a health and retirement report out today from Bank of America Merrill Lynch and aging consultants Age Wave. Overall, 41% of those age 50-plus name healthcare costs as their top financial concern; 29% say it’s outliving their money; and just 11% cite Social Security cuts.

Three major health-related forces are conspiring to change the face of retirement planning, according to the report:

  • Boomers, now all 50-plus, have high expectations for wellness and will demand care that may be costly but keeps them vital and feeling young.
  • Longer life spans will give rise to greater numbers of retirees suffering from chronic diseases including hypertension, heart disease, diabetes, cancer, Alzheimer’s and arthritis.
  • Long-term care costs are unpredictable and can run into many tens of thousands of dollars in a short time, potentially putting a lifetime of saving and planning at risk.

These forces present a huge challenge to government, which must try to keep costs from rising too fast, and to the scientific community, which could make longer lives a joy by discovering treatments for chronic diseases. The report notes:

“If we could find an effective treatment or cure for Alzheimer’s the future health and financial landscape for almost every family would be dramatically improved. The goal is to match our health spans (how long we can expect to be healthy) with our increasing life spans.”

A more readily solved problem may be the dearth of medical professionals focused on healthy aging. Today, there is only one certified geriatrician for every 13 pediatricians, even though the 65-plus population is growing four times faster than any other cohort and is most likely to suffer from some kind of ailment, according to the report. Put another way: We have one pediatrician for every 1,200 children, but just one geriatrician for every 9,400 older adults.

Institutional change will not come fast. So it is important that, as part of taking charge of your financial future, you also take charge of your health. This includes:

  • Exercise People who begin exercising in their 60s or 70s are three times more likely than those who don’t exercise to age in good health.
  • Diet A healthy diet improves heart health, fortifies bones, and reduces the risk of stroke, type 2 diabetes and cancer.
  • Weight People 45 to 64 who eat well, maintain a healthy weight, and exercise a few hours a week can reduce risk of cardiovascular disease by 35%.
  • Connections A low level of social interaction is just as unhealthy as smoking and can be unhealthier than lack of exercise or obesity.
  • Lifestyle It’s never too late to quit smoking, and the benefits are almost immediate. People who consume more than two drinks a day have a 62% greater risk of stroke.

Your money and your health are all part of the same equation in retirement. The good news is that anyone can choose to live healthier—and doing so can make a big difference as to how well you live your last 20 or 30 years.

Do you want help getting your retirement planning off the ground? Email makeover@moneymail.com for a chance at a makeover from a financial pro and to appear in the pages of MONEY magazine.

Related:
Live a Little, Your Kids Will Make Their Own Money
Our Retirement Savings Crisis—and the Easy Solution
Why Gen X Feels Lousiest About the Recession and Retirement

MONEY housing

How the Financial Crisis Put Up Two More Barriers to a Secure Retirement

Two new studies underline housing and income challenges facing older Americans.

Monday marks the sixth anniversary of the bankruptcy filing of Lehman Brothers, a key event in the Wall Street meltdown that led to the Great Recession. The recession wreaked havoc on the retirement plans of millions of Americans, and two studies released last week suggest that most of us haven’t recovered well.

To be more precise: Middle- and lower-income Americans haven’t recovered at all, while the wealthiest households have done fine.

The Joint Center for Housing Studies of Harvard University (JCHS) issued its findings on the challenges we face meeting the housing needs of an aging population in the years ahead. Meanwhile, the Federal Reserve Board released its triennial Survey of Consumer Finances (SCF), a highly regarded resource for understanding American households’ finances.

The Harvard study found that our existing housing stock is ill-suited to meet seniors’ needs, including affordability, accessibility, social connectivity and support services. And high housing costs are eating into the ability of low-income older adults to pay for necessities like food and healthcare.

Housing is the largest expenditure in most household budgets, and so is a linchpin of financial security and well-being. “It’s really at the nexus of your financial health, physical health and healthcare,” says Jennifer Molinsky, research associate at the JCHS and principal author of the study.

Harvard found that a third of adults over age 50 pay more than 30% of their income for housing—including 37% of people over age 80. Harvard defines that group as “housing cost burdened.” Another group of “severely burdened” older Americans spend more than 50% of income on housing. That group spends 43% less on food, and 59% less on healthcare, compared with households that can afford their housing.

Homeowners are much less likely to be cost-burdened than renters, the study found. But more homeowners are carrying mortgages well into retirement. More than 70% of homeowners aged 50 to 64 were still paying off mortgages in 2010.

The Federal Reserve findings on middle-class retirement prospects are equally troubling. Despite the economy’s gradual mending, the SCF found a widening gap in income and net worth. The top 10% of households was the only income band registering rising income (up 2% since 2010). Households between the 40th and 90th percentiles of income saw little change in average real incomes from 2010 to 2013. And the rate of homeownership was 65%, down from 69% in 2004 and 67% in 2010.

Ownership of retirement plan accounts also fell sharply. In the bottom half of income distribution, just 40% of households owned any type of account—IRA, 401(k) or traditional pension—in 2013, down from 48% in the 2007 survey. The Fed attributes the drop mainly to declining IRA and 401(k) coverage, since defined benefit coverage remained flat. Meanwhile, coverage in the top half of income distribution was much higher. In the top 10%, 95% of families are covered.

Overall, the average value of retirement accounts jumped a substantial 10% from 2010 to 2013, to $201,300. The Fed attributed that to the strong stock market and larger contributions. But for the lowest-income group that owned accounts, the average combined IRA and 401(k) value was just $39,100—and that is down more than 20% from 2007.

Considering the stock market’s strong performance in the intervening years, that suggests many of these households either sold while the market was depressed, drew down savings—or both. Meanwhile, upper-middle-income households saw a gain of 20% since 2007.

In Washington, lobbyists and policymakers have been debating about whether a retirement crisis really is looming. The various sides typically filter the data to support their viewpoints and agendas. But it’s difficult to think of two sources aligned than the Federal Reserve Board and Harvard. The SCF, in particular, is widely viewed as a gold standard survey that will be relied on for many economic reports in the months ahead. It includes information on the household balance sheets, pensions, income and demographic characteristics of about 6,500 families.

The JCHS study was funded by the AARP Foundation and The Hartford insurance company, so there’s a possible agenda there, if you doubt Harvard’s independence as researchers. (I don’t.)

Taken together, the studies paint the portrait of a widening divide in the retirement prospects of working Americans. No matter how the data is sliced, we’ve got problems that need to be addressed.

MONEY 401(k)s

How Do I Choose Investments for My 401(k)?

What's the the right mix of stocks and bonds for your retirement account? Financial planners explain.

MONEY Kids and Money

The Surprising Thing Gen Z Wants to Do With Its Money

Teen in front of home
Getty Images

More than half of teens would give up social media for a year and do double the homework if it guaranteed they’d be able to buy a house when they're older.

During the Great Recession, home ownership took a beating as the ideal for the American dream. The median home nationally lost a quarter of its value, prompting adults of all ages to adopt other elusive goals—like retiring on time for boomers or working on their own terms for millennials.

Just 65% of Americans own their home, down from 69% pre-bust. And four out of five Americans are rethinking the reasons they’d want to buy a house in the first place. But Generation Z—also known as post-millennials, born after the 1990s Internet bubble— seems to prize home ownership like no generation since their great-grandparents.

An astounding 97% of post-millennials believe they will one day own a home; 82% say it is the most important part of the American dream, according to a survey of teens age 13 to 17 by Better Homes and Gardens Real Estate. More than half would give up social media for a year and do double the homework if it guaranteed they’d be able to buy a house.

This yearning stands in starkest contrast to the aspirations of millennials, older cousins who pretty much created the sharing economy and in large numbers prefer to rent. The housing bust and foreclosure epidemic scarred millennials, probably for life, as some watched parents and neighbors lose everything. In a key part of this generation—heads of households age 25 to 34—renters increased by more than 1 million in the years following the crisis, while the number who own a home fell by 1.4 million.

Post-millennials saw the carnage, too, though at a tender age that left them more confused than traumatized. Where millennials hardened and vowed never to repeat the errors of their parents, post-millennials sought the comfort of family and togetherness, says Sherry Chris, CEO of Better Homes and Gardens. “Many of these Gen Z teens were 7 to 11 years old when the recession hit,” Chris said. “At that age, children equate home with stability.”

The innate quest for stability leads them to prize a family home above things like going to college, getting married, having children, or owning a business, according to the survey. And the dream appears firmly grounded in reality. Chris observed that today’s teens have more information than any previous generation at their age and show early signs of financial awareness. Asked for an estimate of what they might spend on a house, the 97% who aspire to be owners gave an average response of $274,323—strikingly close to the median home value of $273,500.

Half say they know more about money than their parents did at their age. Two-thirds attribute their knowledge of money matters to discussions in the home, and two in five credit discussions in school. Three in five teens have already begun saving, the survey found. Post-millennials, on average, aim to own a home by age 28—three years earlier than the median age of first-time homebuyers reported by the National Association of Realtors.

These are encouraging findings. A home remains most Americans’ single largest asset, and while the housing bust will have lingering effects, home prices nationally tend to rise every year—and have been trending up again the past few years. Not all of the news is good: Only 17% of post-millennials believe stocks are the best long-term investment; half prefer a simple savings account, TD Ameritrade found in a survey that defines the generation as slightly older (up to age 24).

But the TD survey also found that post-millennials have half the post-college credit card debt of millennials. And the Better Homes survey suggests that our youngest generation is at last learning more about money at an early age, which is the goal of a broad public-private financial education movement. A generation of financially adept youth who begin to save and gather assets that will grow for four or five decades is the surest way to avoid another meltdown and solve the retirement savings crisis.

Related:
Why Gen X Feels Lousy About the Recession and Retirement
Our Retirement Savings Crisis—and the Easy Solution

MONEY Retirement

Live a Little: Your Kids Will Make Their Own Money

Some of us are saving too much. Really. Here's how to live a little and not shortchange your retirement.

The only thing worse than saving too little is saving too much. Most people who oversave do so at a stiff price in terms of the lifestyle they enjoy. Forgoing travel and nice meals to wind up with a modestly larger estate for heirs is a lousy trade.

Lawrence Kotlikoff, a Boston University economics professor, was among the first to begin raising this red flag. He recognizes that the vast majority of the population is undersaving. The U.S. has one of the lowest savings rates in the developed world, and fewer than one in five retirees has as much as $250,000. Those who diligently save in a 401(k) plan, on the other hand, are doing much better—and along with some others may be overdoing it.

He blames the retirement industry for spooking people into saving too much and shortchanging their daily lifestyle. From his blog:

“Economics has an enormous amount to offer the financial planning industry. But the industry has ignored economics, providing millions of Americans with what I and other economists view as truly awful advice.”

Around 1.5 million Americans will retire each year through 2025, according to the LIMRA Secure Retirement Institute. More than half of preretirees expect to live less comfortably than they had planned. Granted, a small portion of that is due to scrimping and saving—but if you suspect you are in that crowd, here are some ways you can avoid compromising your lifestyle unnecessarily:

Don’t plan for perfection. Most advisers and savings models rely on Monte Carlo simulations to estimate how long your money will last under various scenarios. You want to end up with a plan that gives you an 80% to 90% chance of not outliving your money. Reaching for, say, 97% certainty gets expensive in terms of the money you must save and may leave you cheaping out for no reason.

Writes Christine Fahlund, senior financial planner for T. Rowe Price: “If you are acknowledging that between 10% and 20% of the time, if you use this strategy, that you might run out in advance, now you are in a good place because you are not leaving too much money on the table.” You want to use that money to enjoy retirement, knowing you can always adjust along the way.

Lock in longevity insurance. An increasingly popular strategy is to use a portion of your savings to purchase a deferred fixed annuity, known as longevity insurance. If you spend $200,000 on this insurance at 65, you can begin collecting around $5,000 a month for the rest of your life at age 85. This provides absolute certainty for how long the rest of your savings must last. There are other considerations like emergency funds and potential healthcare costs. But if you have those bases covered, you can go broke throwing an 85th birthday party.

Stop saving at 60 Saving in small increments over three or four decades is smart because compounding works magic in the later years. But any money you put away past the age of 60 will have little time to grow if you retire at, say, 67. Putting away $5,000 a year for seven years, or a total of $35,000, would result in just $44,200 with a 6% average annual return. Is the $9,200 gain over that span worth the all the cruises you passed up?

Delay Social Security Every year you delay Social Security between ages 62 and 70 results in a certain benefit that is 8% higher. In today’s low rate environment, that’s the best deal around and basically means that if you are in good health and do not need the income you can spend more freely in your 60s knowing the added benefit will pay for some of it. Your kids will make their own money. Don’t play it so safe that you fail to enjoy your retirement years.

Related:
Our Retirement Savings Crisis—and the Easy Solution
Boomers Are Hoarding Cash in Their 401(k)s, Here’s a Better Solution
Why Gen X Feels Lousiest About the Recession and Retirement

 

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