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Less than half of Americans are sufficiently prepared for retirement, the Vanguard Retirement Outlook study found. Vanguard expects that this group of Americans won’t be able to maintain their current lifestyles in retirement.
It serves as another reminder of how important it is to plan for your retirement early. Relying on Social Security won’t cut it for most people, especially if you don’t want to make any lifestyle changes.
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Vanguard estimates that only 40% of baby boomers are on track for retirement, while it’s actually more favorable for other generations. Gen Z is the most prepared for retirement, with Vanguard finding that 47% of them are on track. Vanguard defines Gen Z as individuals who are 24 to 28 years old. Millennials and Gen X are in the middle, at 42% and 41%, respectively.
Technology may have played a role in Gen Z’s lead over other generations. Automatic wealth-building strategies, brokerage accounts, and bank accounts became more accessible over time, allowing Gen Z to tap into more wealth-building strategies earlier than baby boomers.
“Features like autoenrollment, automatic escalation of saving rates over time, and target-date funds have helped significantly improve savings behavior and investment outcomes,” Vanguard said.
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Although Gen Z and other generations have an edge on baby boomers when it comes to retirement preparation, homeownership is a decisive factor that can shift the momentum to baby boomers.
Vanguard found that nearly 90% of baby boomers own a home, which gives them more flexibility in how they pursue retirement. Baby boomers can take out home equity loans, use reverse mortgages, or downsize to make their retirements go more smoothly.
Home equity gives baby boomers a significant advantage. It doesn’t make much of a difference for the wealthiest baby boomers. However, baby boomers in the lower 30th percentile of income levels see their retirement preparedness soar from 15% to 42% if they have home equity, according to Vanguard. This finding further highlights the importance of buying a home in the long run versus renting a property.
