An Examination of Retirement Savings Among Different
Generations
An Honors Thesis (HONRS 499)
by
Amanda R. Cope
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Dr. Michael Goldsby
Ball State University
Muncie, Indiana
May 2002
Graduation: May 4 th , 2002
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ACKNOWLEDGEMENTS
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I'd like to take this opportunity to thank Dr. Michael Goldsby, my thesis advisor,
for all the time and help given to me on this project. It is unfathomable how I could have
accomplished such a feat without Dr. Goldsby there every step of the way. His
dedication to teaching and helping students grow intellectually is far superior to any other
in his field. It is for this selflessness and dedication that I would like to formally thank
Dr. Goldsby for partaking in this project with me.
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ABSTRACT
This purpose of this study conducted is to examine the saving habits of the baby
boomer generation as compared to other generations. The first section of the study looks
at retirement planning in general to give an understanding of how an individual can
effectively save for retirement. Next, the study deals specifically with the saving habits
of the baby boomer generation. This section discusses the relevant statistics concerning
the baby boomer generation and their lack of retirement savin~.
The last half of the study deals with a survey conducted about saving habits of
individuals. This section looks at the generational differences in five factors of
retirement savings: Social Security, aversion to technology, expected age of retirement,
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self-leadership, and perception of risk. Conclusions were then draw from the findings of
the study to give reason why the baby boomer generation is not savings adequately for
retirement.
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INTRODUCTION
Retirement can be conventional1y defined as the termination of full-time
employment with a source of income from a pension earned by virtue of long-term
participation in the workforce. Within the next five years, the oldest of the baby boomer
generation will enter into the age of retirement. The baby boomers, born between 1946
and 1964, have profoundly affected societal institutions and public policy issues. The
next obstacle for baby boomers will be funding for retirement.
Studies have shown that most baby boomers haven't saved enough for their
golden years. The 2001 Retirement Confidence Survey shows the percentage of
individuals who say they have personally saved for retirement decreased from 75 percent
in 2000 to 71 percent in 2001 i . With a combination of increased longevity and better,
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more expensive medical care, baby boomers have found themselves in a retirement crisis.
Why don't baby boomers just save more if they are not ready for retirement?
When baby boomers are drawing retirement there will be as few as two workers for each
retiree. ii What factors affect savers? How secure do people feel about Social Security?
This means that Social Security benefits could decrease in the future. Are baby boomers
aware of how little Social Security could provide for the retirement fund?
Risk plays a big role when making investment decisions. People have different
perceptions of risk, which is why investing can be a difficult task. Are people's different
perceptions of risk a factor as to how much baby boomers are saving for retirement? The
question to be asked here is why the baby boomer generation is more averse to taking
risk?
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When baby boomers were born, there were no computers or even a concept of the
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Internet. The vast amount of information that is available over the Internet today was not
present during baby boomers younger years. Before the technology explosion,
investment was done by sitting down face to face with a broker that would help make
investments. With the recent technology that has been made available, many people now
invest through the Internet. Are baby boomers so apprehensive to the idea of investing
over the Internet that it hinders their retirement planning?
It is not mandatory that workers retire at the age of 65. Baby boomers have been
shown to change societal institutions and public policy issues. Could baby boomers also
change the accepted age of retirement? Surveys conducted have shown a desire to
continue working at retirement age, but are people continuing to work because they
desire to or because they have to?
Another factor that may affect a society's savings pattern is a person's degree of
self-leadership. Self-leadership is the way people manage themselves in reaching their
goals. Are self-leaders more apt to save for retirement than people without a high degree
of self-leadership?
It is apparent that many different factors affect in retirement planning, but to what
degree does each factor really affect the amount of savings? By finding the significant
factors, workers will be able to concentrate more on those factors necessary to
successfully save for retirement.
RETIREMENT PLANNING
Many studies have been conducted about retirement savings, however more
emphasis has been put on the retirement savings of the baby boomer generation and with
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good reason. Statistics show that fewer American workers classified as baby boomers are
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saving for retirement. The 2001 Retirement Confidence Survey reports 63 percent of
workers feel confident that they will have enough money to live comfortably in
retirement, compared with 65 percent in 1994,67 percent in 1998, and 72 percent last
year. iii This 9 percent decline is a concern because the baby boomer generation is the
biggest ever to go through retirement.
The problem not only lies in how many people are confident in their retirement
savings, but in the staggering number of people who do not know how much money is
needed for retirement. "The portions of Americans who say they have tried to calculate
how much money they need to save for a comfortable retirement fell from 51 percent in
2000 to 46 percent in 2001. "iv This statistic is amazingly low. How is a person to know
how much money is needed for retirement without doing any form of calculations? As
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Devine (2001) observes, "Half of workers who say they did a savings need calculation
say they changed their retirement planning as a result. "v These statistics make a clear
statement that the baby boomer generation is not preparing adequately for retirement.
The calculations to plan for retirement are not complex or detailed by any means. In fact
the American Savings Education Council has prepared a six-question worksheet to help
people calculate retirement needs. This simplified worksheet can be a start to correctly
save for a household's retirement needs.
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Studies have shown that current and future retirees are retiring without enough
money to live on. The Retirement Confidence Survey indicates that" ... an increasing
proportion of workers indicate they expect to work for pay i~ retirement ... Workers, more
so than retirees, also say major reasons they will work in retirement are to keep health
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Copy of the worksheet can be found in the appendix
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insurance and other benefits, to have money to make ends meet, and to be able to afford
extras. "vi An interesting section of this quote is the beginning of the last sentence, which
says "Workers, more so than retirees." This could be an indirect way of describing the
baby boomer generation. The retirees right now would not be classified as baby
boomers, and the majority of the working class right now is comprised of the baby
boomer generation. This statement certainly rings true with the rest of the studies, such
as Duff (1998) and Devine (200 I), which describes the apathy and the lack of financial
readiness plaguing the baby boomer generation.
Each of the studies mentioned emphasizes the idea that the baby boomers are not
saving for
retirement~
yet, no study examined why the baby boomers are not saving for
retirement. This paper attempts to serve as a catalyst for finding the factors that affect the
saving habits of the baby boomers.
SAVING HABITS OF BABY BOOMERS
This study has developed a survey to find out what characteristics and attributes
help or hinder a person's saving habits, concentrating speCifically on the baby boomer
generation. From this survey, I will compare the baby boomer generation to other
generations to discover similar and dissimilar attributes. The characteristics I will be
evaluating are the Social Security program, adverse behavior towards technology,
retirement age, self-leadership skills, and perceptions of risk.
Social Security is a controversial issue that is of the utmost importance to many
working class people. The biggest issues at hand are how long the program will last and
how much the program will pay retirees. The retirement crisis is a complicated issue
because there is no consensus as to when the retirement fund will run out. As Frank
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(1999) states:
Since the 1980s, American workers have been paying more into the
Social Security system than retirees are taking out.
These excess
payroll taxes, now running at about $100 billion per year, go to the
Social Security Trust Fund, saved for the coming baby-boom
retirement, when there will be as few as two workers for every retiree.
The Trust Fund now contains some $900
billion~
by 2021, it will be
worth nearly $4 trillion dollars. "vii
The Social Security Administration predicts that sometime in the early 21 st
century, worker's payroll taxes will only amount to three-fourths of the benefits that
retirees receive. viii To cover this deficit, the Social Security Administration plans on
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using the trust fund that has been created until the trust fund is fully liquidated. The
amount of time that this liquidation will take is the key source of uncertainty in the
retirement crisis. Since forecasts vary regarding the workers payrolls taxes, it is
impossible to predict exactly how long the trust fund will last.
FACTORS AFFECTING SAVINGS
With regard to this crisis, on may ask, how this affects workers savings patterns.
Does the average worker even know about this crisis and how it will impact their
retirement? The American Council of Life Insurers conducted a survey regarding
Americans' confidence in the Social Security system and found, "In the 2000 survey,
fielded in May-June, 50 percent of Americans reported they were "very" or "somewhat"
confident in the future of Social Security ... This level of confidence was 15 percentage
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points higher than in 1998 and 17 percentage points higher than in 1996. "IX It can be said
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that there is an increase in confidence, yet the percentages are still at or below 50%. This
lack of confidence tends to support the idea that people are not counting on Social
Security as a major source of retirement funds.
THE ROLE OF INFORMATION TECHNOLOGY
Information technology has grown rapidly in a relatively short amount of time.
The baby boomer generation lived many years without the lUXUry of computers and the
Internet. In fact, the baby boomer generation is the first generation that will retire in the
new technology craze. Could technology adversely affect retirement savings patterns?
The generation before the baby boomers had no computers or Internet to invest with, so
all the financial interactions were done at a face-to-face meeting. Today, a person can do
all his/her investments via the Internet without having to ever talk to a person. However,
is the baby boomer generation keeping pace with the new wave of investing? Could the
baby boomer's possible aversion to technology contribute to the lack of retirement
savings?
Viswanath Venkatesh (2000) conducted a study researching six different variables
that deal with user attitudes toward technology. x Venkatesh states that "the six variables
deal with user attitudes toward technology rather than how the particular system operates,
and it was demonstrated that they account for 60 percent of the variance in the way in
which users perceive ease ofuse."Xl The six variables could contribute to aversion to
investing via computers and the Internet. The six variables causing technology aversion
that Venkatesh found are computer self-efficacy, facilitating conditions, intrinsic
motivation/computer playfulness, emotion/level of computer anxiety, objective usability,
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and perceived enjoyment. Although these six variables were used to conduct a study
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with computers in the workplace, many of these variables could carry over to the
personal usage of computers as well.
Computer self-efficacy is a user's confidence in learning a new system or new
technology in general. If a person does not believe that he/she has the ability to learn to
use a computer, then that person will never put forth the effort to actually learn. The
emotion/level of computer anxiety correlates with a person's computer self-efficacy. A
person with a high level of computer anxiety does not feel comfortable using a computer
or similar technology. Perceived enjoyment also affects a person's willingness to adapt
to new technology. Concisely put, "perceived enjoyment is the degree to which users
gain satisfaction simply from the act of using a system. "xii Each of these factors
contributes to the apprehension toward technology. Another factor worth considering
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specifically with baby boomers would be their age. Undoubtedly, some baby boomers
believe that they have made it 45 years without a computer, and do not need to depend on
one. This attitude toward technology could negatively impact their retirement savings.
THE ROLE OF RETIREMENT AGE
The age that people intend to retire is also on the rise for the baby boomer
generation. In 1998, The National Center for Policy Analysis states that "Baby Boomers
shun retirement. Four out of five Americans now between the ages f 34 and 52-the
baby boomers-say they want to keep on working at least part~time after the normal
retirement age. "xiii The increase in age when baby boomers retire c uld be a result of
several factors. Some people continue work in their retirement yea s because; they
simply like their job. "In a recent poll by the American Association of Retired Persons,
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35 percent of baby boomers who said they intended to work during heir 'retirement'
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years said they would do so for reasons of interest or enjoyment-and 23 percent cited
the need for additional income. "xiv This poll indicates approximately one-third of the
baby boomer generation that continues to work do so for the purpose of enjoyment.
People's love for their jobs can definitely impact retirement savings patterns of the baby
boomer generation.
The other statistic stated by the AARP is that 23 percent of the people who
continue to work do so for retirement purposes. It is this percentage that alanns many
financial professionals. It should be noted that many experts believe that the 23 percent
significantly understates the proportion of baby boomers that will be forced to continue to
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work after the age of retiremenC With regards to this issue, the survey in this paper is
designed to look at when people plan on retiring and how they view retirement.
THE ROLE OF SELF-LEADERSHIP IN SAVING HABITS
Self-leadership is an idea that, while on the outside sounds similar to leadership,
is dealing more with the internal struggles of individuals. Charles Manz and Christopher
Neck (1999) have written a book based on their many years of research on self-leadership
entitled Mastering Self-Leadership. Empowering Yourself for Personal Excellence.
Neck and Manz define self-leadership in an interesting way. " ... Self-leadership can be
stated as 'the process of influencing oneself ;;,xvi Their research explains how good selfleaders can live more effective lives than poor self-leaders. A key sentence that
summarizes the entire concept of self-leadership is, "Overall, this book will recognize the
importance of forces that we use to influence ourselves (often without being aware of
them) and the potential for altering our worlds so that they are more motivating to
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US."xvii.
Self-leadership is really about controlling oneself to benefit themselves. Therefore a
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connection can be drawn between people having a high degree of self-leadership and
maintaining control of their future.
Manz and Neck have derived the concept of self-leadership from two basic areas
of psychology. The first area is social cognitive theory. This area of psychology
recognizes that people are influenced by and influence everything around them. This is
the idea that just as a person influences the world, the world influences himlher back.
"The theory places importance on the capacity of a person to manage or control oneselfparticularly when faced with difficult yet important tasks." The other theory associated
with self-leadership is the intrinsic motivation theory. "This viewpoint emphasizes the
importance ofthe 'natural' rewards that we enjoy from doing activities or tasks that we
like. "xviii
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THE ROLE OF RISK PERCEPTION
The last section of my survey deals with a person's perception of risk. A survey
developed by Gene Calvert was adapted for this survey. Calvert states that, "This survey
is a general tool to stimulate reflection and thought about one's risk taking style and
beliefs."xix The Calvert survey will help in examining whether perceived risk takers are
people who adequately save for retirement.
The questions derived in the risk section of the survey cover a multitude of topics.
An example of one question is; I have confidence in my ability to recover from my
mistakes, no matter how big. These questions will give an estimation and understanding
of the amount of risk a person is willing to undertake. This section of the survey will be
integral in the findings to estimate how much risk plays into people's retirement
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decisions.
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THE STUDY
The survey in this study has five major areas: the Social Security program,
adverse behavior towards technology, retirement age, self-leadership skills, and
perceptions of risk. The purpose of the survey is to draw connections between these five
characteristics and the saving patterns of the baby boomer generation.
SOCIAL SECURITY
It is my hypothesis that Social Security will have a direct correlation with
retirement readiness. It is my belief that those individuals that are less likely to rely on
Social Security as a source of retirement income will have a financial advantage over
those individuals that are relying heavily on Social Security. I also believe the
generations other than the Baby Boomers, specifically the younger generations, will
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perceive Social Security as not lasting as long as the baby boomer generation believes.
The younger generations will also anticipate relying on Social Security less than the baby
boomers for retirement income. Since the Social Security crisis is starting with the baby
boomer generation, Social Security is addressed more and studied more with today's
younger generations than with the baby boomer generation. Current employees fund the
Social Security program for the current retirees. As a working class, the baby boomer
generation saw no problems funding the older generation through retirement with Social
Security. Now that the baby boomers are reaching retirement age, the younger
generations funding their retirement see the potential problems that could arise with
Social Security. It is for these reasons that I foresee a) the younger generations relying
less on the benefits that Social Security will provide, and b) the baby boomer generation
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relying heavier on Social Security for retirement income and expecting Social Security to
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last longer than other generations perceive.
TECHNOLOGY
Technology is the next characteristic analyzed in the survey. The survey asks
questions regarding computer use, Internet use, and how comfortable an individual is in
using these items. Technology is something that has rapidly developed in the past twenty
years. Most households have only had a computer or Internet capacity for a few years. I
believe that a person's comfort level of technology will impact retirement savings trends.
Many investments can be conducted via the Internet and many people utilize this option.
People can buy items, pay bills, do banking, and invest in the stock market without ever
leaving their home office. Yet doing these tasks requires a certain comfort level and trust
in of the Internet. Generally people are risk averse. A person is not going to reveal
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hislher personal and financial information unless he/she is sure this mode of payment is
safe. Generation Y, people born between 1979 and 1994, has grown up in the technology
explosion. Generation X, people born between 1965 and 1978, was also greatly impacted
by this newfound technology. Although this generation did not grow up during the
technology explosion, they were still young enough to have a keen interest in technology.
At the start of the technology growth, Generation X was looking to start jobs and careers.
A person that knew how to operate a computer was at a great advantage over a person
without computer knowledge. This was a great incentive for Generation X to learn about
and become comfortable with computers. This is not true for the baby boomer
generation. Most people in the baby boomer generation had established careers and did
not feel a need for technology like younger people.
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It is for these reasons that I believe that the baby boomer generation will be
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less comfortable using the Internet for financial and investing needs. I also
hypothesize that a smaller amount of the baby boomers will own a personal
computer and access the Internet on a regular basis. This decrease in the number of
baby boomers using the Internet for financial and investing needs will be positively
correlated with retirement savings. With more investing available online, it is likely that
society will shift more investments toward Internet based brokerage websites and less
from face to face contact with a broker. This transition will decrease the amount of baby
boomers willing to invest in the stock market.
ANTICIPATED AGE OF RETIREMENT
The anticipated age of retirement is a crucial factor in a person's savings pattern.
In 200 I, the American Saving Education Council found that "The average American
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retiring at 65 can expect to spend 18 years in retirement."xx But what if those 18 years
decreased to only 13 years spent in retirement life? In 1998, Anna Bray Duff, stated that,
"Four out of five Americans now between the ages of 34 and 52-the baby boomerssay they want to keep on working at least part-time after the normal retirement age. "xxi If
90 percent of the baby boomers plan on continuing work after the retirement age, then
this dedication to work should affect the savings trend of baby boomers when compared
with other generations. Therefore, I hypothesize that the baby boomer generation
will have a higher age of anticipated retirement. I also believe that even ifmoney
were not an issue, the baby boomer generation would want to work longer than other
generations. The survey analyzes both of these topics to decipher if the attitudes the baby
boomers hold toward working are different than other generations.
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SELF-LEADERSHIP
As explained earlier, the concept of self-leadership is the process of influencing
oneself. Each person, no matter how high a degree, can still strive to reach a higher level
of self-leadership. In theory, the more self-leadership an individual has, the better that
individual is in most aspects of life. It is not too inconceivable to believe that a person
with a high degree of self-leadership could control their savings, specifically their savings
for retirement. Adapting the self-leadership definition, a self-leader would be able to
control oneself financially by saving for retirement.
It is under these assumptions of a self-leader's actions that I believe that the
individuals who are financially prepared for retirement will have a higher degree of selfleadership than those who are not financially prepared for retirement. Although self-
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leadership is a fairly new concept to be studied, I believe that aU generations are equally
influenced and affected by self-leadership. Therefore, I hypothesize that the younger
generations would not have an advantage over the baby boomer generation in
having a higher degree of self-leadership. This concept affected individuals, not
generations as a whole.
RISK
The last characteristic to be examined is a person's attitude toward risk. With
great risk come great rewards. Unfortunately so do great failures. In the financial world,
the riskier a person is, the more money that person can potentially make. For example,
suppose a person has $10,000 to somehow invest. Taking a safe route, the person could
put the $10,000 in government T-bills. This is a very safe investment, yet it does not pay
very high interest rates. On the other hand, the person could invest the money in one
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stock that has a low stock price. This riskier move could reap huge awards for the
investor, or it could lose the entire investment. The decision comes down to the amount
of risk the investor is willing to undertake.
I hypothesize that perception of risk will impact how a person saves for
retirement. I'm not certain how or if this perception of risk will affect the baby boomer
generation as compared with other generations. Risk is measure in my survey by a 14
questions dealing with a variety of instances. The survey was originally developed by
Gene Calvert and adapted to fit the format with the rest of my survey. I foresee the risk
tabulations to be higher among those who are financially prepared for retirement, than
those who are not prepared.
RESULTS
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This study surveyed one hundred individuals over the age of twenty-one. These
individuals were picked at random and all answers were confidential. Ofthe one hundred
individuals surveyed, sixty people were born between 1946-1964, which is termed the
baby boomer generation. It is these sixty people that most of the research is geared
towards. Comparisons can be made between the baby boomer generation and the other
generations collectively. For the majority ofthe time, the other generations, both young
and old will not be separated. The reason for this is because academic research and
studies, Devine (2001) have proven that both the younger and older generations, with the
exception of the baby boomer generation, are saving adequately for retirement.
Therefore, any connections made with comparing different generations will be solely the
baby boomer generation against other generations. The other generations consist of
people born from 1927-1945 and 1965-1983. The older generation, 1927-1945, had the
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smallest number of participants with only eight. There were 32 surveys of people born
between 1965-1983.
RETIREMENT READINESS FINDINGS
In the survey conducted, it was found that 15 percent of baby boomers feel that
they are very prepared for retirement, while 51 percent feel they are moderately prepared.
Collectively 34 percent of the baby boomer generation surveyed believes they are
uncertain to very unprepared for retirement. Figure 1 visually explains how baby
boomers feel about their retirement savings. As seen by the chart below, moderately
prepared is the most frequently answered question with 51 percent. Although these
Are Baby Boomers prepared for retirement?
Figure 1
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13%
3%
15%
II Vel} Prepared
• Moderately prepared
I
10 I Jncertain
i
18%
51%
!0 Moderately
:
unprepared
!. Very unprepared
i'
I
L________ ..______~_j
percentages seem to differ with other research conducted about retirement savings, it
should be noted that the question asked is "How financially prepared do you feel you are
for retirement?" This question implies that the surveyor assess hislher own financial
readiness, which is purely an opinion based question.
Two services that are integral to saving for retirement are Individual Retirement
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Accounts (IRA's) and company issued 401K or 403B accounts. These two accounts
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generally make up a large share of a person's retirement savings. In most cases, it is not
enough to have just a 40lK or IRA account. These services should be used in
conjunction with each other. The reasoning behind this is because using both services in
conjunction will provide a more rounded retirement portfolio than just using one service.
The survey conducted found that 45 percent of baby boomers actively invest in both a
401Kl403B and an IRA. This percentage is comparable with the other generations whom
42.5 percent invest in both a 40lKl403B and an IRA.
A statistic that is very interesting is that 10 percent of the baby boomer generation
is not actively investing in either a 40lKl403B or an IRA account. It is these 10 percent
that will find themselves in a great deal of trouble when those people want to retire.
Without some type of retirement account, these people are solely relying on Social
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Security or personal savings of some type. For the majority of working class people, this
type of saving will not be enough. The American Savings Education Council published
an article entitled "Top 10 Ways to Beat the Clock and Prepare for Retirement.'; The top
way is to know your retirement needs. ASEC states, "Experts estimate that you'll need
about 70% of your pre-retirement income - lower earners, 90% or more - to maintain
you standard of living when you stop working. "xxii Most workers do not have 70 to 90
percent of their pre-retirement income all in savings, and it is certain that Social Security
will not provide that entire percentage to retirees. In fact, ASEC quotes that "Social
Security pays the average retiree about 40% of pre-retirement earnings. "xxiii Although
this statistic may be overly optimistic given the retirement crisis that will inflict this
country when the baby boomers retire.
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SOCIAL SECURITY FINDINGS
Social Security is a topic that based on survey results, is not a real knowledgeable
area. When the question "How long will the Social Security program last", the responses
were very fairly even spread. 30 percent of the entire survey population believes that
Social Security will last less than twenty years. 22 percent of the survey population
believes the Social Security program will last forever. The responses between these two
extremes were clumped at twenty to thirty years with 11 percent.
The only distinct difference between the baby boomer generation and other
generations was the percentage of people that believe that the Social Security program
will last forever. 26.67 percent ofthe baby boomers believe the Social Security program
will last forever, while only 15 percent of other generations believe that the Social
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Security program will last forever. This difference could be attributed to the new views
of the Social Security program. People of younger generations are being taught that the
Social Security program will not last forever and not to rely so heavily on the
governmental program. The irony is that there was no Social Security crisis before the
baby boomer generation. Older generations did not have to worry about too many
retirees; they had the baby boomer generation to support them. Now that the baby
boomer generation is becoming the age of retirement, younger generations realize that a
crisis is bound to happen.
Another question to support the theory of the younger generations being taught
more about Social Security is "How dependent is your retirement on Social Security?"
60 percent of the other generations believe that less than 10 percent of the retirement
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income will come from Social Security. Only 25 percent of the baby boomers believe
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that less than 10 percent of retirement income will come from Social Security.
For the baby boomers, the majority of the responses pool around 10-50 percent.
However, both the baby boomer generation and other generations share the same belief
that only a small percentage believes that more than SO percent of retirement income will
come in the form of Social Security. The question of how much a person depends on
Social Security only reaffirms the notion that younger generations are not trusting and
dependent on Social Security like the baby boomer generation.
lNfVRMATION TECHNOLOGY rINDlNGS
One question that could lend some insight into the retirement savings dilemma is
"how comfortable are you in using the Internet for your financial and investing needs?"
Figure 2 shows the differences between the attitudes of the baby boomer generation and
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the other generations toward using the Internet for investing and financial needs.
Figure 2
Comfort level of using Internet for investing and
financial needs
50.00%
40.00%
30.00%
20.00%
10.00%
0,00%
very
comfortable
Uncertain
Very
uncom fortable
Among the baby boomer generation, 71.67 percent of the people surveyed were found to
be uncertain to very uncomfortable about using the Internet for financial and investing
needs. Of that 71,67 percent, 31.67 percent feel very uncomfortable using the Internet for
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these needs. This means that nearly one-third of baby boomers are very uncomfortable
using the Internet for investing and financial needs. These figures give good insight into
the baby boomer generation. Of the other generations, specifically the younger
generations, only 40 percent of those surveyed feel uncertain to very uncomfortable using
the Internet for investing and financial needs. Ofthis 40 percent, only 20 percent feel
very uncomfortable using the Internet to help control finances. However, exactly half of
the other generations surveyed felt very comfortable using the Internet for investing and
financing needs. This number is huge compared to the baby boomers 11.67 percent that
feel comfortable.
This discrepancy in generation differences could be a major factor in baby
boomers apathy toward retirement savings. Today much investing is done through the
Internet. It is only reasonable that as the Internet develops and grows, more investing
will be done over the Internet. Already today a person has the opportunity to pay bills,
buy or sell stocks, and do all their banking online and in the privacy oftheir own home.
Yet the Internet is a fairly new innovation. The baby boomer generation lived many
years of their lives without the convenience of the Internet; many perhaps lived without a
computer as well.
However, the survey conducted does show that the baby boomer generation does
have computers or have used the Internet at least once. 91.67 percent of the baby boomer
generation has used the Internet at least once in their lifetime and 88.33 percent of baby
boomers own a personal computer. These statistics show a stark difference from how
comfortable people are using the Internet. Although when asked how frequently people
use the Internet, only just over one-half use the Internet on a daily basis, where as 80
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percent of the other generations access the Internet daily.
Another question that delves into the technology discrepancy between different
generations is whether a person has ever invested in the stock market via the Internet.
Like the other technology questions, this question indicates how comfortable and
accustomed a person is in using the Internet for financial uses. The majority of baby
boomers, 76.67 percent, have never invested in the stock market via the Internet. This
number supports the idea that the baby boomer generation is not comfortable using the
computer and Internet for money and financial issues. However, 45 percent of people
surveyed have invested online. This is far more than the 23 percent of the baby boomer
generation that has invested via the Internet.
These technology questions help to shed light on the aversion that baby boomers
--
have towards technology_ Technology is something that many people cannot live
without, but just as many are afraid of these advances. Perhaps teaching about
technology and its benefits will make the baby boomers feel more comfortable.
ANl1CIPATE-lJ RETlREAlENT AGE ~FINDINGS
The retirement age of different generations was also worthy of studying. If the average
retirement age of baby boomers is statistically higher than those of other generations,
then it could be acceptable to acknowledge that the saving rate of baby boomers will be
Figure 3
Anticipated retirement age
35.00%
30.00% : F - - - - - 25.00% :
2000%; .-'--.'--'"
15.00%
-
!.
10.00% •
5.00% .
0.00%
50-53 54-57 58-81 62-65 66-69 70-73
fii-S;by B~~~;~----i
l- O~~~~!r!lt~':'!~
23
-
boomers will be lower than other generations. Two questions were asked about
retirement age. The first question is "At what age do you anticipate retiring." Figure 3
illustrates the anticipated retirement ages of the participating survey volunteers. As you
can see from the chart, the baby boomer generation has centered their survey answers
around 58 to 65 with each of the two categories having about 30 percent of the baby
boomer population. The other generations, on the other hand, are more equally spread
out over the entire age range. The highest category for the other generations occurs from
years 54 to 57 with 25 percent
The only connection to be made with the anticipated retirement age of baby
boomers is that a higher percentage of baby boomers look to retire between the ages of 58
to 65. This differs from the other generations, which has the highest percentage of
-
anticipated retirees at ages 54 to 57. Yet these statistics do not provide conclusive
evidence that the anticipated age of retirement directly affects retirement savings.
Although one could infer that the age of retirement would somehow indirectly affect how
a person saves for retirement, it is not proven with concrete evidence in this study.
Another question asked about age is "If money weren't an issue, when would you retire?"
This question too, did not provide conclusive evidence to support or negate whether age
contributes to retirement savings. 30 percent of baby boomers said they would retire
Figure 4
If money wasn't an issue, when would
you retire?
liiibY-aoo;;;;;-l~9!~e!_Ge~~~()Fl!_
5.00%
0.00%
40-45 46-50 51-55 56-60 61-65 66-70
24
would retire between the ages of 40-45 and 22.5 percent ofthe other generations agreed
that ages 40-45 would be their retirement age. Figure 4 shows a graphic representation of
the answers given by both the baby boomer generation and other generations. The
percentages on the other years are similar between the baby boomer generation and other
generations, with both control groups agreeing that the ages of 66-70 are the least likely
to be the retirement ages.
The final question asked about retirement age is "Do you envision retirement as a
sign of becoming elderly or as a positive opportunity?" Amazingly both the baby
boomers and the other generations had exactly the same results. 20 percent of the
population believes retirement is a sign of becoming elderly, while the majority, 80
percent, thinks of retirement as a positive opportunity. This question proves that, young
.-
or old, most people anticipate retirement. The three questions asked about retirement age
all have the same results. The age of retirement or how a person views retirement is not a
major factor in how a person, whether in the baby boomer generation or otherwise, saves
for retirement.
SELF-LEADERSHIP FINDINGS
The self-leadership section of the survey consisted of thirty-five questions dealing
with issues concerning self-leadership. These questions ranged from seeking out
activities that you enjoy to using written notes to remind yourself of tasks that need to be
accomplished. The possible scores of this section range from 35 to 175. Of those
surveyed, the scores ranged from a 60 on the low end to a 163 as the highest. To evaluate
these scores, the entire survey population was first divided into two groups: those who
-
believe they are very or moderately prepared for retirement and those who are very or
2S
--
moderately unprepared for retirement. The group who believes they are prepared for
retirement scored an average of 125.35 on the self-leadership portion ofthe survey. On
the other hand, those who are not prepared for retirement only scored an average of
121.45. This means, on average, a person who is not financially prepared for retirement
has a lower level of self-leadership than a person who is financially prepared for
retirement. These numbers support the hypothesis set forth earlier. People who can
effectively self-manage oneself can control their finances, specifically saving for
retirement. It is true that there is not a great difference between the two averages, but it is
certain that among the one hundred individuals surveyed, that there was almost a fourpoint difference between those ready for retirement and those not ready.
Breaking down the statistics even further, I separated the baby boomer generation
-
from the other generations. The baby boomers that answered that they are prepared for
retirement scored an average of 120.23 on the self-leadership portion. This can be
compared with the baby boomers that do not feel prepared for retirement. These
individuals scored an average of 111.71. Even when broke down into a specific
generation, the idea of self-leadership contributing to retirement savings holds true.
However, an interesting find was discovered when comparing the self-leadership
scores of the other generations. Those individuals of the other generations who believe
they are prepared for retirement averaged a score of 134.86. Those who are not prepared
for retirement that fall into the other generations category scored a 125.16. These
numbers are interesting because both the high and low averages of the other generations
are higher than either baby boomer generation score. Self-leadership is a factor that is
-
controlled individually, rather than having external influences. A person has a high
26
-
degree of self-leadership because he/she has superior control over himself Yet these
averages show a generational difference between baby boomers and other generations.
Perhaps self-leadership is taught more today and emphasized more today, which would
give the younger generations an advantage over the baby boomer generation. More
research could be conducted studying this issue specifically emphasizing generational
differences and its effects on self-leadership.
RISK ATTIDUTES FINDINGS
A person's preconceived notion of risk could be a factor as to how a person saves
for retirement. Included in the survey conducted was a section that evaluated the amount
of risk that a person is willing to take on. The questions asked are specifically used to
find a person's risk attitude. Gene Calvert, who gives a detailed explanation of all
-
questions asked, developed the survey used. The questions are answered on a scale of 1
to 5, one being not at all accurate and five being completely accurate. The average score
for the risk attitudes survey is a 42 with the highest score at 70. The mean score of the
baby boomer generation was a score of37.2.
Taking it one step further, those baby boomers that said were very prepared or
moderately prepared for retirement scored a 37.82 on the risk inventory scale. The baby
boomers that answered moderately or very unprepared for retirement scored a 35.2 on the
risk inventory scale. On the whole these numbers seem to show no difference between
those ready for retirement and those who are not. The difference between the prepared
and unprepared upcoming retirees is 2.62 points. It is uncertain exactly how much can be
directly correlated from this small difference in risk attitudes. What can be said is that on
-
the whole, the baby boomer generation is risk averse. Even the other generations are
27
-
somewhat risk averse with a mean score of39.85. A key assumption used in finance is
that generally people tend to be risk averse. xxiv This assumption holds true with those
people surveyed using Gene Calvert's risk attitudes inventory.
CONCL USIONS
The baby boomer generation is undoubtedly on the losing end in the retirement
savings war. What researchers have failed to find out is the reasoning behind this lack of
savings. This research conducted has made some valid arguments as to the reasoning
behind the baby boomer apathy. Each of the five research topics provided insightful and
promising leads to finding the solution to the retirement crisis of the baby boomer
generation. It is just a race of time now before it is too late to help this generation. It is
only five years before the start of retirement for the baby boomers. Perhaps by the time
we figure out the reasoning behind the baby boomer generation, there will be pitfalls in
Generation X that must be solved.
Of the five issues researched, an aversion to technology has risen as the greatest
drawback of the baby boomer retirement savings. Compelling evidence has found that
the baby boomer generation is generally uncomfortable using the Internet and technology
for financial and investing needs. Conducting comfort levels of the Internet could
provide further insight into this lack of technology trust.
At the end of this research we have established five characteristics that will be
beneficial to the saving habits of the baby boomer generation. A successful saver will
understand the retirement crisis with the Social Security program. The more knowledge
about the Social Security program combined with a low level of reliance of this
-
government program will lead to more successful savers. Technology also can benefit
28
-
the investing and savings patterns of baby boomers. In general, the more comfortable a
person is with technology and the Internet, the better saver they are. This is not to say
that if you can surf the Internet you can save, but this study showed that a person who is
comfortable investing online would be more apt to use those services, thus earning more
money for retirement. In fact, it is possible that the time spent actively investigating
savings options online makes the person more proactive in their retirement planning.
Retirement age was the one variable that did not draw a strong conclusion to help
solve the savings paradox. Although statistics show that the baby boomer generation is
looking to work longer than the usual retirement age, this does not help or negate any
differences in savings patterns over other generations.
The fourth issue studied was the degree of self-leadership that an individual
-
possessed. From the study, it was found that those individuals that are financially
prepared for retirement show a higher average self-leadership score than those not
prepared for retirement. It was also found that the baby boomer generation, on average,
had a lower score than other generations. Further research could be conducted to find a
stronger correlation between different generations and their average degree of selfleadership. This finding suggests that people can become more prepared for retirement if
they have strong self-leadership skills. Fortunately, as Manz and Neck (1999) point out,
these are skills that can be learned. Therefore, it might be a good idea to train people on
self-leadership along with investing education, in order to make them better retirementplanners.
The final factor researched was the amount of risk an individual is willing to take
on. Bernstein (1996) gives an accurate depiction of different people dealing with
29
-
financial risk. "Risk was in the gut, not in the numbers. For the aggressive investor, the
goal was simply to maximize return; the faint-hearted were content with savings accounts
and high-grade long-term bonds. "xxv This study found that some risk is necessary to save
for retirement. In fact, those prepared for retirement take on more risk than those not
prepared for retirement. Yet, if too much risk is undertaken, it will become a hindrance
rather than a benefit.
All these factors influence baby boomers retirement savings patterns, with some
showing stronger correlations than others. Research can be continued on this subject, but
really a person's retirement savings can be compressed into one major factor. Retirement
savings is an individual task. Only you and your family can control this to help it
develop into a suitable nest egg for retirement. An individual will save for retirement
-.
because retirement only happens when you can afford it. It is not something that will be
awarded when a person reaches a certain age. Retirement is a privilege; that many baby
boomers will hopefully soon bestow upon themselves.
30
REFERENCE PAGE
Devine, Danny. "Fewer American Workers Are Saving for Retirement." 2001
Retirement Confidence Survey. 10 May 2001. <http://www.asec.org> (12 Dec.
2001)
U Frank, Ellen. "The Myth of the Social Security Trust Fund." Dollars and Sense
...
Magazine Mar. 1999.
III Devine, opcit.
iv Devine, opcit.
v Devine, opcit.
vi "The Changing Nature of Retirement." The 1999 Retirement Confidence Survey (ReS)
Summary of Findings. 1999. <http://www.asec.org/rcshm.htm> (4 Oct. 2001).
vii Frank, opcit.
viii Cook, Fay Lomax and Lawrence R. Jacobs. "Americans' Attitudes Toward Social
.
Security: Popular Claims Meet Hard Data." Social Security Brief 10 (2001).
1X Jacobs, Lawrence. "The Truth About Social Security." National Academy of Social
Insurance. No. 10 March 2001.
x Venkatesh, Viswanath. "Determinants of Perceived Ease of Use: Integrating Control,
Intrinsic Motivation and Emotion Into the Technology Acceptance Model." 2000.
<http://isr.commerce.ubs.ca/Abstractslll-4-Venkatesh.html> (21 March 2002).
xi Wexler, Joanie. "Why Computer Users Accept New Systems" MIT-SloanManagement-Review 42 (2001): 17-21.
xii Ibid. p. 18.
xiii Duff, Anna Bray, Boomers Redefine 'Retirement,'" Investor's Business Daily. June
22, 1998. p. 27-32.
xiv Ibid. P 28
xv Ibid. p 28
xvi Manz, Charles, and Christopher Neck. Mastering Self-Leadership. Empowering
Yourself for Personal Excellence. New Jersey: Prentice Hall, 1999.
xvii Ibid. p 7
.
xviii Ibid. P 5
xix Calvert, Gene. Highwire Management. Jossey-Bass, 1993. Pp.41-46.
xx "Top 10 Ways to Beat the Clock and Prepare for Retirement."
<http://www.asec.org/topten.htm> (4 October 2001).
xxi Duff, opcit. p. 28
xxii Top 10 Ways, opcit.
xxiii Top 10 Ways, opcit
xxiv Brighman, Eugene, Louis Gapenski, and Phillip Daves. Intermediate Financial
Management. 6th ed. Texas: The Dryden Press, 1999.
xxv Berstein, Peter L. Against the Gods The Remarkable Story of Risk. New York: John
Wiley & Sons, Inc, 1996.
I
_
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, very comfo.rtable+.1 Moderat~comforta~
Mo..!1=_t once a month I _- ~ _
I
~II'~D~~-4 week w~ once every 2 wee+ks
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Use
Internet for Investl!1!iand financial needs
UncertainlModeratelYuncomfortable I Very uncomfortabl"
I
Age
Ret$'ri
50-53 1 54-57 [ 58~ 62-65.
66-69 ~'r-70-73
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t- _ _ _ _ L~L_~~~~l1unity
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.---------
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3t1.26
)
BALLPARK
E$TIMATE®
-
a
.
;
.,.;.._.'
PIoming for retirement is not a one-size-fits-all exercise. The purpose of Ballpark
is simply to give you a basic idea of the sQV~ you'll need when you retire .
So let's play ball!
If you are married, you and your spouse should each fill out your own Ballpark Estimate worksheet
taking your marital status into account when entering your Social Security benefit in number 2 below.
1. How much annual income will you want in retirement? (Figure at least 70"0 of your current annual gross income just to
maintain your current standard of living. Really.)
2. Subtract the income you expect to receive annually from:
• Social Security-If you make under $25,000, enter $8,000; between $25,000 - $40,000, enter $12,000; over
$40,000, enter $14,500 (For married couples - the lower earning spouse should enter either their own benefit based
on their income or 50,},. of the higher earning spouse's benefit, whichever is higher)
For a more personalized estimate, enter the appropriate benefit figure from your Social Security statement from the
Social Security Administration (1-800-772-1213, www.ssa.gov). Ballpark assumes you will begin receiving Social
Security Benefits at age 65, however the age forfull benefits is rising to 67. Your Social Security statement will
provide a personalized benefit estimate based on your actual earning history.
• Traditional Employer Pension - a plan that pays a set dollar amount for life, where the dollar amount depends on salary
and years of service (in today's dollars)
· Part-time income
• Other
This is how much you need to make up for each retirement year:
;,;.$_ _ _ _ _ _ __
-..:.$_ _ _ _ _ _ __
_$
-'-_ _ _ _ _ __
-..:.$_ _ _ _ _ _ __
-..:.$_ _ _ _ _ __
=...;.$_ _ _ _ _ _ __
Now you want a ballpark estimate of how much money you'll need in the bank the day you retire. So the
accountants went to work and devised this simple formula. For the record, they figure you'll realize a
constant real rate of return of 3"10 after inflation, you'll live to age 87, and you'll begin to receive income
from Social Security at age 65. If you anticipate living longer than age 87 or earning less than a 3"10 real
rate of return on your savings, you'll want to consider using a higher percentage of your current aMuol
gross income as a goal on line 1.
--
3. To determine the amount you'll need to save, multiply the amount you need to make up by the factor below.
Age you expect to retire:
55
Your factor is:
21.0
W
1&9
65
16.4
70
13.6
4. If you expect to retire before age 65, multiply your Social Security benefit from line 2 by the factor below.
Age you expect to retire:
55
Your factor is:
8.8
W
4J
5. Multiply your savings to date by the factor below (include money accumulated in (I 401(k), IRA, or similar retirement plan).
If you want to retire in:
10 years
Your factor is:
1.3
15 years
1.6
Wyears
~
25 years
2.1
30 years
2.4
35 years
2.8
40 years
3.3
Total additional savings needed at retirement:
a
$
+$
-$
=$
Oon't panic. Those same accountants devised another formula to show you how much to save each year in
order to reach your goal amount. They factor in compounding. That's where your money not only makes
interest, your interest starts making interest as well, creating a snowball effect.
6. To determine the ANNUAL amount you'll need to save, multiply the TOTAL amount by the factor below.
=$
If you want to retire in:
10 years
Your factor is:
.085
15 years
.052
20 years
.036
25 years
.027
.020
30 years
35 years
.016
ASEC/ESRI-ERF
Suite 600
40 years
.013
2121 KStreet NW
Washington, DC
20037-1896
See? It's not impossible or even particularly painful. It just takes planning. And the sooner you start, the better
off you'll be.
20Z-IT5-9130 or
202-659-0670
The BoIJpark Estimate is designedto providea ral!:Jh estimate <rf whatyru will need to Stm IlI1n!Jally to fund a comfortable retirement. It provides anapproximationof projected Social
Fax 202-IT5-6360 Sectrity benefits and utilizes onlyoneof many possible rates <rf retum 011 your savi"95. Ballparkrefluts todoy'sdolkrs and does net account for inflation; therefore. yO\Jshould
www.asec.org
reca/cukrte yrur savangs needs OIl a regular basIS II'Idosyour soioIy and circumstances ctmge. You IIOln 't ""ntto stop with the Ballpark Estimate; it is only a first step in the retirement
IIIWw.ebri.org
planning process. You will need to do further analysis. either yourself using a more detailed worksheet or computer softwore, or with the assistance of a financial professional.
t<Copyright,
ASECJEBRI EdJcationll'ld Rese<I'Ch Md. All rights reserved.
10/01
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