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Optimistic About Their Financial Futures, Gen Y Saving Earlier and Planning Now for Retirement

Implementing Lessons Learned During the Recession, Mass Affluent Saving for Retirement and Paying Down Debt Before Other Expenses

Monday, May 13, 2013 9:00 am EDT

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NEW YORK

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"As markets continue to improve and the mass affluent invest optimistically for the future, they will seek tools and guidance that help them best pursue their long-term retirement goals."

As Americans continue to regain confidence following the economic downturn, Bank of America’s latest Merrill Edge Report is showing that mass affluent investors are buckling down, making retirement a greater priority and cutting debt in favor of long-term investments.

The Spring 2013 Merrill Edge Report, a semi-annual study of the financial concerns and priorities of the mass affluent (consumers with $50,000-$250,000 in investable assets) released today by Bank of America shows the mass affluent, despite the recession, are making saving for retirement a top financial priority. From cutting back on luxuries to funding less of their children’s education, mass affluent are making significant trade-offs for a more secure financial future.

“Many mass affluent, particularly young investors, are focusing on their retirement goals by saving earlier and planning now for the lifestyle they want to live during their retirement years,” says Alok Prasad, head of Merrill Edge. “As markets continue to improve and the mass affluent invest optimistically for the future, they will seek tools and guidance that help them best pursue their long-term retirement goals.”

Since 2009, mass affluent Americans have weathered the financial crisis and its impact on retirement savings. The mass affluent, specifically young investors are taking the lessons they learned during the downturn and applying them to their current financial situations. Gen Y (ages 18-34) has been saving aggressively, averaging $55,000 already saved for retirement. Young investors are also starting to save much earlier, with an average starting age of 22, while baby boomers started saving on average 13 years later at the age of 35.

Gen Y starting to plan for retirement earlier
In addition to saving more aggressively and earlier, Gen Y is also optimistic about their retirement savings potential. Today, Gen Y mass affluent believe they will save on average nearly $2.5 million for their retirement, compared to those working mass affluent ages 51-64 who anticipate saving just $260,000.

With the most years to go before entering retirement, it’s surprising that 77 percent of Gen Y respondents are planning to grow their retirement “nest egg” over the next 12 months. Additionally, 57 percent of young respondents are investing more in the stock market this year, significantly higher than those ages 51-64, 25 percent of whom will invest.

Gen Y respondents are also least likely to rely on government programs to fund their retirement. About half (49 percent) expect to rely on the public sector to partially fund their retirement, compared to those much closer to retirement (ages 51-64) who are relying much more heavily on public sector programs at 68 percent.

Gen Y prefers to utilize technology to manage their finances. Today, about half (54 percent) of Gen Y mass affluent value online tools, like budget calculators, to help them stay on track, compared to just 28 percent of mass affluent ages 51-64. Additionally, 55 percent of Gen Y values the ability to manage their banking and investing accounts in one place.

“Young investors have grown to depend on technology as a way to communicate, entertain and now manage their financial lives,” says Prasad. “Through the availability of online tools and the ability to view and access their banking and investing accounts in one place online, Merrill Edge is addressing the needs of the next generation of investors through its convenient, easy-to-use platform while providing consumers access to capabilities from Bank of America and Merrill Lynch.”

The mass affluent are making trade-offs to live the life they desire in retirement
Saving for retirement continues to be a top priority for the mass affluent. While they anticipate saving about $860,000 on average for retirement, more than half of respondents (54 percent) have less than $150,000 currently saved. Consequentially, more than half (55 percent) of those not yet retired expect to retire later, which remains consistent with 2012 findings.

As a result of the housing market crash, the mass affluent are aware of the consequences of an uncertain housing market. Today, only 28 percent are relying on any of the equity in their home to help fund their retirement. Despite the continuing debate on Capitol Hill, nearly seven in 10 respondents (68 percent) are continuing to at least partially rely on public sector programs like Social Security and Medicare to fund their retirement (up from 60 percent in October 2012).

While utilizing the lessons they’ve learned over the last five years, the mass affluent are currently focused on the future. When asked what they would do with an additional $1,000 per month, half (50 percent) of respondents said they would put it toward their retirement savings or paying down debt, such as a mortgage or credit card (47 percent).

While many mass affluent consider college to be worth the return on investment, parents are not compromising their retirement savings to pay for their child’s college education
As college tuition costs continue to climb to record levels, one-third (35 percent) of mass affluent are concerned with the rising cost of college education in America. According to the College Board, in-state public college tuition for the 2012 academic year averaged $22,261, while private college averaged $43,2891. Even with record high tuition rates, half (51 percent) of mass affluent parents will or have saved just $20,000 or less for their child’s entire college education, while nearly one in five (17 percent) mass affluent parents did not or will not save for their child’s college education at all.

The mass affluent are continuing to struggle with balancing the cost of their children’s college while saving for retirement. While cutting back and making trade-offs is essential, just 22 percent of mass affluent parents who saved or are saving for college said they would cut back significantly on their retirement savings to pay for their child to go to college.

Of those married mass affluent with young children who are saving for college, more are willing to cut back significantly on family vacations (47 percent) or a new car (45 percent) to fund their children’s education, with just 31 percent saying they would cut back significantly on their retirement savings.

Alternatively, married mass affluent with young children are saving earlier with just 5 percent not having a college savings plan for their children, compared to nearly one in five (19 percent) mass affluent overall.

Mass affluent Americans are making lifestyle changes to pay down debt
Today, the mass affluent are optimistic about their financial futures. More than half (55 percent) of respondents believe they will have less debt over the next 10 years, while 33 percent believe they will have the same amount. About seven in 10 (67 percent) of those who believe they will have less debt 10 years from now plan to accomplish this by living a more frugal lifestyle.

Surprisingly, nearly half (46 percent) of retirees and pre-retirees retiring within five years have credit card debt. When asked how they would most likely spend an additional $1,000 per month, 45 percent of retirees responded paying down debt such as mortgage or a credit card.

For more complete, in-depth information about the mass affluent and how this segment is prioritizing and saving for retirement, read the entire Merrill Edge Report here.

1College Board (2012). Trends in College Pricing.

Merrill Edge Report Methodology
Ketchum Global Research & Analytics and Braun Research conducted the Merrill Edge Report survey by phone between March 1, 2013 and March 18, 2013 on behalf of Merrill Edge. Braun contacted a nationally representative sample of 1,013 Americans in the United States with investable assets between $50,000 and $249,999, and oversampled 300 mass affluent in Dallas, Los Angeles, Orange County, Calif., San Francisco, Northern New Jersey and South Florida. The margin of error is +/- 3.1 percent for the national sample and +/- 5.7 percent for the oversample markets, with both reported at a 95 percent confidence level.

Bank of America
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