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Young Adults React to Parents’ Saving Struggles

Children learn from their parents’ mistakes when it comes to planning for the future

For 35 years, Lee punched the proverbial clock at a utility company in northeastern Ohio, where he worked in sales and customer management. But in 2002, at age 55, he was offered a buyout package. After evaluating his options and discussing the package—which included severance pay plus retiree health coverage for him and his wife—with a financial planner, he decided to accept.

“I probably would have worked a little while longer, but I was offered a great package,” says Lee, who asked that his last name not be used to protect his identity. “We thought this might be the last time I get this opportunity. So it made sense at the time.”

With the help of a local financial planner, Lee reinvested his money into the stock market. When the stock market took a turn for the worse last summer, however, Lee, now 62, found himself re-evaluating his retirement plans.

“Now I’m out looking for a full-time job,” says Lee, who estimates he may have to work full time for another five to 10 years before he is able to retire comfortably. “It’s hard at my age. I think [finding a job] is easier for someone who’s a bit younger.”

Lee is experiencing a situation that has become all too familiar to retirees across the country, as last year’s stock market crash has wreaked havoc on their retirement savings. After thinking he was done with work for good, Lee must now find full-time work to supplement what is left of his retirement funds.

Lee’s son Ryan, a 33-year old manufacturing engineer who lives in Oakland, Calif., says he realizes how much of a toll the struggling economy has taken on his dad’s retirement savings. “But I know [my parents] still enjoy a reasonably comfortable way of life,” Ryan says. “I haven’t seen it impact his lifestyle yet.”

Although he doesn’t feel pressured to help support his parents financially at this point, Ryan says he does worry how things like unexpected medical bills or family illnesses could impact his mom and dad’s stability. He also accepts the idea that he may eventually have to move back to Ohio and help support his family.

Like Ryan, many in their 20s and 30s are beginning to see their parents struggle with money, debt and retirement savings—and it’s influencing the way they view investing and saving.

Mel, a 27-year-old from Cleveland who also asked that her last name not be revealed, is using her parents’ experience as a cautionary tale. Growing up, Mel watched as her parents relied on credit cards to pay for family dinners and nights out, while spending little energy saving for their future.

“I couldn’t tell you how many credit cards they had,” she says. “My mom would never think twice about opening an account.”

When Mel’s father lost his job a few years ago, the family had virtually no savings, and was eventually forced to file for bankruptcy. Her father, now in his mid-50s, currently works full time and picks up odd jobs wherever he can, working long hours and weekends just to get by.

“They’ll never be able to retire,” says Mel. Although she and her 26-year-old husband have many years in the workforce ahead of them, her parents’ example has made them focus on their own financial future. When planning their wedding, the couple made sure they had enough money on hand to pay all of their expenses upfront to avoid getting into debt. They avoid making large purchases unless absolutely necessary and avidly invest in their employer-sponsored 401(k) plans.

“I’m just much more conscientious about saving than my parents were,” Mel says.

She’s not alone. In “Preparing for Their Future: A Look at the Financial State of Gen X and Gen Y,” a study jointly sponsored by AARP and the American Savings Education Council, nine out of 10 respondents at least somewhat agreed they had financial goals for themselves, with 75 percent listing putting away money for retirement as a goal.

While Mel’s parents may not have always made the best spending decisions, part of the problem might lie in the way boomers like them were taught to think about retirement. The cohort now reaching retirement age began working at a time when company pensions were common, and retirement planning often meant remaining loyal to one company in the hopes that it would take care of them in old age.

As businesses started moving away from guaranteed pensions to defined contribution plans like 401(k)s, the way people are expected to save for retirement has changed, says David Shepard, an investment adviser with Callahan Capital Management in Steamboat Springs, Colo. Unfortunately, many boomers realized this too late.

Lee thought he had figured out the new formulation—he had been regularly contributing to his 401(k). Now he’s unsure what to do with his money, he says. He doesn’t think investing the same way in the future would be wise. And he hopes Ryan and his other three adult children will learn from his experience. Yet he admits he hasn’t had many discussions with them about financial matters.

So what advice would he give? “Just get a decent job at a decent company and put your money away,” Lee says. “I still think that that’s what you need to be doing.”

Is that still enough?

For Gen-Xers and the next generation of young adults, the biggest lesson to take away from is a simple reminder that huge economic downturns can happen, says Jeremy Vohwinkle, who runs Generation X Finance, an online financial planning resource geared toward young adults.

Losses this great have been more “out of sight, out of mind” since the Great Depression, so it caught many investors—young and old—off-guard. But if they “understand what can happen, I think [they] will be better off,” he says.

Although Ryan has never been much more than a moderate investor, seeing how the stock market crash has affected his dad’s retirement plans has forced him to rethink how he manages his own 401(k) and IRA.

“It certainly rattled my foundations,” Ryan says. “I now strive to be more educated on [financial] things.” He dedicates a lot more time to studying potential investments, avoids riskier investments and cuts back on living expenses. “I’m trying to find more secure ways to invest my money for the future.”

Brian Christopher is a freelance writer based in Lansing, Mich.

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