A new generation is on the brink of retirement. The mood among those born between 1965 and 1980, known as Generation X, is gloomy. However, there is good news for financial advisors.
Next year, the first members of Generation X will turn 60. Yet, there is no talk of looking forward to retirement. According to a report by Natixis Investment Managers, almost half of them (48 percent) say it would take a miracle for them to retire securely. Fifty percent try not to think about retirement at all.
Due to uncertain developments, 60 percent of those born between 1965 and 1980 are willing to work longer. However, 47 percent fear that they may not be able to work long enough.
High Expectations
The findings of the Natixis Investment Managers report show that Generation X is, on average, optimistic about their investments and has long-term return expectations of 13 percent. These hopes may be compromised by misjudgments of risk, misconceptions about passive investments, and a critical knowledge gap regarding bonds.
Two critical issues seem to shape Generation X's retirement considerations: inflation and debt. Eighty-three percent of Generation X investors believe that the recent surge in inflation has shown how significant the risk of rising prices is for their retirement savings. Nearly seven out of ten respondents say that inflation has impaired their ability to save for retirement, and more than half (55 percent) say they are saving less due to higher everyday costs.
While inflation is a relatively short-term phenomenon, Generation X’s retirement prospects are also affected by a long-term core issue: national debt. More than three-quarters of Generation X (77 percent) fear that increasing national debt will lead to cuts in pension benefits.
More Information Wanted
In this new macroeconomic environment, higher interest rates come at a favorable time for individuals suddenly finding themselves in a life stage where bonds often play a more significant role in portfolio plans. However, Natixis Investment Managers' data show that Generation X relies too heavily on cash and has a poor understanding of how bonds work, given that the interest rate environment has been low for so long.
Accordingly, 39 percent state that they want more information on how different types of bonds work, and currently, six out of ten (61 percent) say it is more fun to invest in stocks than in bonds.
Digital Services Increasingly Popular
Given this context, 56 percent of Generation X state that they need professional advice on topics ranging from achieving general financial planning goals (48 percent) to more specific plans for retirement income (44 percent).
In addition to traditional financial advisors (36 percent), Generation X is increasingly using automated platforms: the number of those preferring digital advice over personal advice has risen from 35 percent to 49 percent in the past five years. This increase is particularly pronounced in Asia, while there has been a decline in North America.
High Trust in Advisors
Those who use online advice typically combine it with a relationship with a traditional advisor, whom they highly value. When asked whom they trust for financial decisions, Generation X responds just as frequently with «my advisor» (91 percent) as with "myself" (91 percent).
Timo H. Paul, Chairman and Co-Head of Switzerland at Natixis Investment Managers, explains: «The study clearly shows how daunting the present can be for Generation X. Therefore, it is crucial to continue supporting this generation, which remains very connected to their financial advisors.»