'Micro' Managing

 I recently stumbled into a bit of controversy on LinkedIn. 

Honestly, I’m not even sure how this wound up in my “feed” — but there was a post from the Atlanta Journal-Constitution on the topic of “micro-retirements.”

Now, if you’re like me, you may be wondering — what the heck is a MICRO-retirement?  Turns out that, unlike actual retirement, it’s a series of multiple, intentional “mini-breaks” from work throughout life — rather than waiting until the traditional “big” retirement at the end of a career. 

Some of you are going to say — oh, we used to call that a sabbatical. Others might well see this as some kind of extended PTO or vacation break. But those, of course, are generally employer supported/sanctioned, whereas these micro-retirements presumably would not be. 

Oh, and none other than sidehustles.com[i] (who admittedly might be biased on the subject) claims that 1 in 10 Americans plan to take one this year.

That said, it’s actually not a new term, though I don’t remember hearing it previously. Said to be the latest Gen Z trend, the current label gained traction in the mid-2000s, especially after The 4-Hour Workweek by Tim Ferriss (2007), which popularized the idea of “mini-retirements” as deliberate breaks instead of a single retirement at the “end.”

This was positioned as folks working for an 8-10-year stretch — saving up enough money for — whatever — and then taking several months or a couple of years to do — whatever (travel to Asia, volunteer, write a book, etc.) funded by savings accumulated during the working stretch. And then you come back to the workforce — maybe a completely different field, maybe something related to the time you took off, or perhaps your “old” field, but rejuvenated, inspired, etc. 

The controversy, as you might expect, was between those who did a bit of eye-rolling at the notion of just walking away from work for random, extended periods of time and those who viewed those eye-rollers as some kind of 19^th century neanderthal throwbacks for their more “traditional” views about work. Oh, and interestingly enough, age didn’t really seem to be a factor in those responses (if only because LinkedIn seems to still be dominated by “older” voices — or maybe that’s just my feed).

People change jobs all the time — and employers often terminate employment of hundreds (and even thousands) of people with precious little opportunity to prepare. At some level then, people deciding to take an extended break from work shouldn’t be all that disruptive.  On the other hand, “covering” for folks who are on sabbatical, parental leave, or even vacation does put a strain[ii] on the rest of the team (though I know of instances where their extended departure was welcome!). In other words, managing micro-retirements would/is surely (be) … complicated.

We spend a lot of time and energy worrying about people not saving enough even after a 40-year career, and so the notion that you’d pull up, stop and spend (and spend money supporting) an extended period (months to a year) on life experiences[iii] — well, I can’t quite get my head around it. That said, the side-hustles survey says just over half (52%) of those who have taken one plan to return to their current employer. 

In fairness, I’ve never had a sabbatical — heck, I never even took time off between my job changes (I know, sick, right?) — and I am widely (though good-naturedly) razzed about my personal (and still “evolving”) version of “retirement.” 

So, I may not be the most open-minded on the subject. 

But what do YOU think?

• Nevin E. Adams, JD        

 

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[i] Who also claims that 1 in 8 Millennials (13%) and nearly 1 in 10 Gen Zers (9%) are planning a micro-retirement in 2025, and that 1 in 5 Americans (20%) have previously taken a micro-retirement, including 22% of Millennials and 17% of Gen Zers.

[ii] 38% of the respondents to the side-hustles survey admit it causes staff shortages and strain on companies, though 54% say it prevents burnout and improves well-being — ostensibly for the retirees, rather than those covering for their outage.

[iii] I was mostly working on my own “life experiences” like raising kids, paying a mortgage, going to law school (at night, while working) — and doing jobs that were VERY full-time on their own.

Are Millennials’ Retirements ‘Doomed?’

Millennials have had a rough week of it, at least in the financial press.

First there was a report that they had established asset allocations that mirrored that of their grandparents (the respondents apparently never heard of a target-date fund). Then a separate survey that indicated they (70% of them, anyway) were ashamed to ask their parents for financial advice (we’ll set aside for a minute whether that would have been a good source), and then the pièce de résistance was a report that painted a pretty bleak retirement picture for a generation that “entered the workforce around the Great Recession, which began in late 2007, and experienced a difficult economy early in their careers. Now, they are confronting pandemic-related setbacks while trying to manage work-life balance.” 

Indeed, the only bright note for this group—identified as those born between 1981 and 1996 - was a report that said the retirement savings gap between genders in that demographic was a mere 23% (which, at $29,218 versus $23,715, doesn’t mean it’s adequate, but then we’re only talking about averages). 

Now, as a mid-range Boomer—who happens to be the parent of three Millennials—I can attest to the complexities of this generation of individuals, now said to be the majority of today’s workforce (I can also attest to the reality that they all hate the label “Millennials”). 

Of course, they’re not the “kids” such labeling tends to call to mind—the eldest are in the 40’s, after all.  But that’s the age when life’s biggest financial struggles come home to roost; college debt, home ownership, marriage, kids (and the prospects of THEIR college expenses), and—increasingly—the burdens of caring for their Boomer parents. In that sense, their experiences are comparable to the challenges their parents faced, though perhaps a tad later in life.

There are, of course, the economic and technological realities of their generation. At similar ages, odds are their parents were barely aware of the Internet, and “innovations” like smartphones, email and social media were not even glimmers of possibility beyond science fiction. Those influences are both empowering and debilitating, inflating expectations and fueling a certain peer pressure on a scale their parents couldn’t appreciate. 

That said, and despite the recent spate of negative press (giving Boomers a break[i]), I’m pretty sure that:

Millennials are saving for retirement—likely earlier, and at higher rates than you did when you were their age.

Sure, some of that is plan design—automatic enrollment was a rarity when their parents were coming into the workplace, and employers are increasingly coupling that design with contribution acceleration.  Moreover, immediate eligibility is increasingly popular (Vanguard’s 2023 How America Saves says 80% of plans now offer that, while the Plan Sponsor Council of America’s 65^th Annual Survey of 401(k) and Profit-Sharing Plans puts it at just over half). And yes, that can matter a lot if job turnover is high—but it’s an urban myth[ii] that Millennials turnover more often than Boomers did at their age.

IF they have access to a plan at work, anyway.

Millennials are likely better invested for their retirement than you are—“then” and now.

Okay, as with saving for retirement, surely some of this is plan design—notably the default investment in target-date funds (TDFs) or some other qualified default investment alternative (QDIA)—and their more recent hire date. While data shows that TDF use varies with participant age and tenure, reports pretty consistently indicate that younger participants are more likely to hold TDFs than older participants (not so much due to their age, but due to their greater likelihood of being a new participant defaulted into the TDF. That doesn’t mean they are more involved/engaged/astute about those investments—but they’re likely more diversified, with portfolios regularly rebalanced (despite the conclusions of that survey above). 

BTW, that’s something that plan fiduciaries might want to keep in mind the next time the concept of reenrollment comes up.

Millennials are thinking about retirement. Probably more than you were at their age.

Millennials have never known a time without a 401(k), nor have they lived during a period when a personal responsibility for saving hasn’t been part and parcel of the education around their benefits package. They’ve been worried about Social Security’s sustainability from the time of their first paycheck (what they probably don’t appreciate is that their parents also worried, and arguably—in the early 1980s—with better reason).

While they certainly have options their parents didn’t, they also have their own set of challenges—some unique, but many unique only in that they are young(er). They have tools and innovative plan design, apps and the aptitude to use them, and in many cases access to professional guidance.

They may not know how much they need to save for retirement (nor do their parents, apparently), they may not yet feel that they can afford to save for retirement, they may not even know how to save for retirement—but you can bet they know they need to.

And, in more cases than one might expect from recent reports, with access to workplace retirement plans, the help of good plan design, and professional retirement planning advice, likely already doing so.         

- Nevin E. Adams, JD 

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[i] And, once again, nobody seems to care about Gen X… who also hates that label!

[ii] The data show that median job tenure in the private sector in the United States has hovered around five years for the past several decades, according to the nonpartisan Employee Benefit Research Institute (EBRI). 

 

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‘The 37-Year-Olds Are Afraid of the 23-Year-Olds Who Work for Them’

I recently stumbled across a provocative article in the New York Times with that intriguing headline.

Honestly, I laughed out loud (drawing my wife’s quizzical attention on an otherwise quiet Saturday morning) when I read it. I’m a (proud) Boomer, of course, and while Gen X basically slipped quietly into the workplace (much to their frustration), Millennials (to my experience) landed with a bang, upending traditional norms of business and meeting etiquette, demanding a voice that seemed well beyond their experience (and, yes, sometimes knowledge)—and, frustratingly (certainly for those of us who played by a different set of rules at their age), getting it. 

So the notion that they were now feeling the same kind of pressures from the next generation of workers (a.k.a. Gen Z) was somewhat humorous to me in a “so, how do you like it?” kind of way.  

Yes, having lived through the not-so-subtle eye-rolling of younger co-workers (and the more recent dismissive “OK, Boomer” commentary), I couldn’t help but find some small modicum of comfort in the notion that that generation was, essentially, being hoisted on its own generational “petard.” 

The problem—particularly for those of us who still want to be seen as “cool”[i]—is that those boundaries are fluid and moving. It’s hard to keep up when you’re not naturally immersed in the culture of the day—it takes effort and persistence, particularly in an era where you lack the opportunity of that interaction in a physical workplace. And, honestly, one’s own experience (and sometimes what we’d label “common sense”) sometimes dictates that those new “norms” are likely only a passing fad (and one that you’d look foolish embracing, regardless).

‘Kids These Days’

Comfortingly enough, the article goes on tell us that researchers call this the “kids these days” effect—and note it has been happening for millennia. Moreover, the author notes that this phenomenon means that “each new generation, christened by marketers and codified by workplace consultants selling tips on how to manage the mysterious youth, can strike the people who came just before them as uniquely self-focused.”[ii]

When I was new to this business, I would joke that nobody comes out of college with plans about retirement, much less thinking about working with retirement plans. And yet, if you’re reading this, odds are you find yourself in at least the latter category. 

That said—and while much is made of the need to communicate “differently” about retirement with younger workers (see “Is It Time to Retire Retirement?”)—it’s never been easy to garner the attention of the not-nearly-ready-for-retirement generation(s) to focus on the financial necessities of that day in the (distant?) future when they’ll need to live on… something. 

‘Different’ Perspectives

There’s little doubt that “retirement” will be different for the next generation—and that the preparations our industry has long espoused could stand some updating. After all, there’ll be no golden watch, almost certainly no pension (if they’ve toiled in the private sector), and as for Social Security? Well, who knows? On the other hand, odds are their labors won’t be stymied by physical limitations, limited by locale—or perhaps even a commute longer than the path from their bed to their couch. Indeed, their work may be such that it never has to—or perhaps gets to—end. And—not insignificantly—they’ll also likely have a longer lifespan over which to consider those alternatives.[iii]

Let’s face it: New generations have long been disruptive to the “status quo,” to the “normal” state of affairs, to the protocols to which we’ve all become accustomed and/or established. Inevitably, when it’s our turn in that cycle, the pace of change is annoyingly slow, the receptivity to new ideas mind-numbingly obtuse—and when our perspective is the status quo… well, we see things differently.   

And all that likely means that if there’s anything to “fear” about those newer to the workforce, it’s that they might make the same mistakes we did.

- Nevin E. Adams, JD

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[i] I’m sure that wanting to be seen as “cool” is probably no longer… 

[ii] And indeed, if there was ever a generation that was (once upon a time) dismissed by its elders as “uniquely self-focused,” it was mine.

[iii] They’ll also have some new tools to help—things like automatic enrollment, automatic escalation, target-date funds and managed accounts. 

Attention Getters

I was recently taken to task for last week’s column about retirement savings regrets.

More precisely, my column about the regrets expressed in a recent American Century survey drew the attention of Faith Teope in a LinkedIn post titled, “Dear Finance Experts: We Would Listen, But We Don't Care.” In fairness, it wasn’t so much my column (“boring but true”), or even the American Century survey’s findings that came in for criticism, but more the head-scratching that the survey set off among financial professionals (including, I suppose this one) as to why people aren’t paying more attention to things like… saving for retirement. Her premise—that we’re using language that doesn’t resonate with those we hope to motivate—is, frankly, unassailable. 

In fact, it’s a topic I broached (at least at a high level) earlier this year in a post titled, “Is it Time to Retire Retirement?” As I noted then, for all but the most financially astute, trading off a here-and-now need (or want) for some obscure future notion like “retirement” is a hard sell. And, let’s face it, the further you are from that future event, the harder it is to “sell.” 

But arguably the problem runs deeper than the label(s) we affix to the concept of the ultimate goal. Let’s face it, financial freedom is a laudable, evergreen objective—but for most of us it’s not a short-term goal—and without a “how” to go with the “what,” it might not matter. 

In her post, Faith states that our current messaging is “…not working because that’s not how humans are wired. We are wired to survive and that drives the urges for happiness, the desire to live, to buy, to bucket-list, to binge-watch, to prime-delivery. We are not wired to plan for an unknown future with an unknown time frame and no magic 8-ball to what will even happen tomorrow much less 25+ years from now.”

To her credit, she put forth some suggestions, conversation starters of a sort—something that ostensibly might motivate people to “care”—things like:

• The Life You Want—Top 5 questions to help you take control of your life
• 3 Ways to Legally Pay Less in Taxes
• The One Debt That Pays YOU interest—401k loans and a few perfect reasons to tap into them

Now, as someone who spends a good part of his day crafting (what he thinks are) compelling headlines and (obsessively) tracking clicks, that approach has some allure. (I mean, who wouldn’t want to know how to legally pay less in taxes?) That said, it’s not clear to me how much of this kind of thing is already out there, though I imagine in a world increasingly reliant on TikTok, Instagram, Twitter and YouTube to communicate complex (and sometimes farcical) messages, it’s a burgeoning field—or should be. 

Indeed, the more I considered the subject, the more it occurred to me that the essence of some pretty compelling messages are already imbedded (obscured?) in most of today’s benefit communications. Wouldn’t you be intrigued by the following topics?

• How to get the free money you’re missing out on
• Turn $5 a month into $50,000
• You can get a pay increase without asking for it

There are some potential shortfalls, of course—there’s often a fine line between making complex things simpler and making them overly simplistic. But when all is said and done, to me, it’s not so much about simplifying our messages (though there’s that), but about getting people’s attention. But as I look at the bullets above, they strike me as short, near-term in focus, snappy, and ultimately action-oriented. Clickbait? Sure—but if you can get people’s attention, even for a minute, that’s an opportunity, a door-opener… a start… 

Of course, “starts” notwithstanding,[i] what matters isn’t just getting people’s attention, but motivating action—anything from a quick readiness assessment to taking steps to automatically increase their rate of contribution, or to make sure they are contributing at a rate sufficient to receive the full company match.

In sum, it’s one thing to get people’s attention—but then we have to keep it. 

- Nevin E. Adams, JD

[i] And thanks to automatic enrollment and qualified default investment alternatives (like target-date funds), millions of American workers have gotten a good start at saving and investing for retirement even if they don’t always appreciate it.

How Gen Z's Retirement Will Be Different

Those “kids” who were just dropped off at college for the first time? By their sophomore year, their generation will constitute one-quarter of the U.S. population. How will their retirement be different?

That’s according to the authors of the so-called Mindset List – now housed at Marist College, having relocated from Beloitt College – has been published each August since 1998. Originally created as a reminder to faculty to be aware of dated references, the list provides a “look at the cultural touchstones that shape the lives of students entering college.” Not to mention those who will go on to be workers and – eventually – retirees.

This fall’s college class of 2023 is the first class born in the 21st Century (2001) – and thus lack a personal memory of the September 11 attacks. According to the authors of the Mindset List:

• This group has never used a floppy disk (heck, they’ve probably never even seen one, except at that “save” icon).
• Their phone has always been able to take pictures.
• They’ve always had Wikipedia as a resource.
• Oklahoma City has always had a national memorial at its center.
• As air travelers they’ve have always had to take off their shoes to get through security (well, unless they have TSA pre-check).
• PayPal has always been an online option for purchasers.
• There’s always been a headlines scrawl on TV.
• They have always been able to fly Jet Blue.
• Troy Aikman’s play calling has always been limited to the press booth.
• They’ve never been able to watch Pittsburgh’s Steelers or Pirates play at Three Rivers Stadium.
• Monica and Chandler from “Friends” have always been married (May 17, 2001).

Despite those differences, the class of 2023 will one day soon be faced with the same challenges of preparing for retirement as the rest of us. They’ll have to work through how much to save, how to invest those savings, what role Social Security will play, and – eventually – how and how fast to draw down those savings.

And yet, when it comes to retirement, the Class of 2023 also stands to have a different perspective. For them:

• There have always been 401(k)s.
• There has always been a Roth option available to them (401(k), 403(b) or IRA).
• They’ve never had to sign up for their 401(k) plan (since, particularly among larger employers, their 401(k) automatically enrolls new hires).
• They may never have to make an investment choice in their 401(k) plan. (Their 401(k) has long had a QDIA default option to go with that auto-enroll feature.)
• They’ve always had access to target-date funds, managed accounts, or similar vehicle that automatically allocates (and, more significantly, re-allocates) their retirement investments.
• They’ve always had fee information available to them about their 401(k). (It remains to be seen if they’ll understand it any better than their parents.)
• There have always been plenty of free online calculators that allow them to figure out how much they need to save for a financially secure retirement (though they may not be any more inclined to do so than their parents).
• They’ve always been able to view and transfer their balances online and on a daily basis (and so, of course, they mostly won’t).
• They’ve always worried that Social Security wouldn’t be available to pay benefits. (In that, they’re much like their parents at their age.)
• Many have never had to wait to be eligible to start saving in their 401(k). (Their parents typically had to wait a full year.)

But perhaps most importantly, they’ll have the advantage of time, a full career to save and build, to save at higher rates, and to invest more efficiently and effectively.

And, with luck, access to a trusted advisor to answer their questions along the way...

- Nevin E. Adams, JD

What’s (Really) Hindering Millennials’ Retirement Savings?

I’ve learned two things about Millennials over the years: first, that there are few things they find more bothersome than having Boomers tell them what they should be doing – and if there is anything more bothersome than the first, it’s being called “Millennials.”

Setting that aside, I was recently asked to participate in a forum focused on the challenges to retirement savings faced by Millennials. That event, “The Millennial Perspective: An Intergenerational Discussion on Retirement Savings,” was sponsored by Women for a Secure Retirement (WISER), centered on the organization’s iOme Challenge to develop a comprehensive proposal to address the challenges Millennials face in saving for retirement.

Of course, the definition of a Millennial has proven to be surprisingly elusive over time. But those in the forum were willing to accept the definition recently put forth by the Pew Research Center, that it would apply to those born between 1981 and 1996 – which, of course, means that the oldest in that demographic are hardly “kids” (aged 37 in 2018).

Retirement Roadblocks

My panel was tasked with discussing issues regarding financial education, savings and “retirement roadblocks” for this group. And indeed, there are a number of obstacles to savings generally, and retirement saving specifically, for this demographic. Specifically cited were:

Lack of “traditional” employment. This has manifested itself both in higher unemployment rates, and more in so-called 1099 employment in the “gig” economy. This can, of course, create an issue both in the income from which to save, and a…

Lack of access to retirement plan at work. This, of course is a significant hindrance. After all, we know that workers are significantly more likely to save if they have the opportunity to do so via a workplace retirement plan like a 401(k) – 12 times more likely, in fact. But even when they have access to a plan at work, they can still be hindered by a…

Lack of eligibility for a retirement plan at work. While a growing number of plans allow immediate eligibility for employee contributions (58.5%, according to the Plan Sponsor Council of America’s 60th Annual DC Survey), others don’t – and some plans still maintain a year’s wait. And that can be a problem when it comes to…

Job turnover. Millennials are widely regarded as job hoppers, and relative to their elders they may be – not so when their elders were younger. Going back to the end of the second World War, job tenure has been remarkably consistent – so yes, Millennials do change jobs, and while that doesn’t make them unusual, it can make it harder for them to save, particularly when there are…

Other priorities. Let’s face it, we talk about retirement saving as having an “accumulation” phase, but the early stages of most working careers is focused on a broader accumulation strategy – household goods, a car, a house, furniture, etc. And, for many those priorities also include paying down the debt that helped pave the way. Those obligations have, along with shorter job tenures, long been part of the earlier stages of our careers – and still are…certainly when it comes to thinking about…

Retirement. That’s right – retirement. Or more precisely the word itself, which conjures up images of a distant time and an “elder” you that – nifty little aging apps notwithstanding – isn’t something that most Millennials (or, arguably Boomers) have top of mind. In fact, our industry has long bemoaned the complexity of retirement as a savings goal – not only because it’s likely to be as variable as the individuals considering it, but also because it is so hard for an individual to picture, to imagine as a tangible goal. So, yes – we can, with a little effort – put a dollar figure on “retirement” – but juxtaposed next to that much-needed vehicle to get to work, that home with which to house a growing family, that college debt repayment… well, “retirement” is likely to be viewed more as abstract concept than tangible goal.

Perhaps a better way to think of this particular savings goal is to see it as the point at which you have financial resources sufficient to provide the freedom to pursue the avocation of your dreams, to work the hours you want (or don’t), from the location(s) you desire – or even the freedom to quit “working” altogether.

Janis Joplin once told their Boomer parents that “freedom is just another word for nothing left to lose.” But it seems to me that for Millennials, and perhaps for all of us, freedom – financial freedom – is “just” another word for everything to gain.

- Nevin E. Adams, JD
 
See also:

• Things That the ‘Common Wisdom’ About Millennials Gets Wrong
• 6 Things You Should Know About Those Millennial Participants
• So, How Much Should a 35-Year-Old Have Saved?

So, How Much Should a 35-Year-Old Have Saved?

You may have missed it, but there was a bit of a “twitter storm” regarding retirement last week.

More specifically, a relatively innocuous post about how much a 30-year-old should have saved toward retirement got a lot of 35-year-olds stirred up. The CBSMarketwatch article quoted Fidelity as saying that you should have a year’s worth of salary saved by the time you’re 30 – but the real point of controversy appears to have been driven by the premise that by the time you’re 35, you were supposed to have twice your salary saved.¹

The point, of course, is that it’s easier if you start early. But honestly, devoting 15% of your pay to retirement savings at any age is a daunting prospect, much less at a point when college debt and the prospects of a mortgage, kids and setting aside money for the kids’ college savings loom large. If this is “easy,” imagine what hard looks like!

I’ve been a consistent saver over my working career – never missed an opportunity to save in a workplace retirement plan, never worked for an employer that didn’t offer one, and always contributed at least enough to warrant the full employer match. And yet, I went a long time in my working career before I was able – having, among other expenses, law school debt, a mortgage, and three kids to help get through college – to set aside 15% for retirement (sadly, by the time I could afford to save at that level in my 401(k), the IRS “intervened”).

I don’t know how my 35-year-old self would have reacted to the article, or the twitter post, though I suspect I, like many of those who responded to the “tweet,” would have been a tad incredulous.

Ultimately, of course, the answer to how much you “should” set aside for retirement – regardless of your age – is largely dependent on what kind of retirement you plan to have, and when you plan to start having it. And, regardless of age, taking the time to do even a rough estimate on what you might need to quit working (or start retiring) is going to be time well spent.

Because while it’s possible to “catch up” later – it can be hazardous to count on it.

- Nevin E. Adams, JD

Footnote

Controversial as this premise clearly was to those in the targeted demographic, it’s really just math. To get there, Fidelity assumed that a individual starts saving a total of 15% of income every year starting at age 25, invests more than 50% of it in stocks on average over his or her lifetime, and retires at age 67, with an eye toward maintaining their preretirement lifestyle – but you might be surprised at what even these arguably aggressive goals produced in terms of a replacement ratio at age 67. ↩

Things That the ‘Common Wisdom’ About Millennials Gets Wrong

To judge by the headlines, if there’s anybody in more trouble when it comes to retirement planning than Boomers, it’s Millennials. But are they really?

Consider this:

Millennials are saving for retirement – likely earlier, and at higher rates than you did when you were their age.

I’ve seen a number of surveys that suggest that Millennials are, in fact, saving earlier – and saving at higher rates than their Boomer parents. A recent Natixis survey says that on average, Millennials first enrolled in a retirement savings plan at age 23, while Boomers didn’t until 31.

Another – this one by Ramsey Solutions – finds 58% of Millennials are actively saving for retirement, and they began saving at an average age of 23. Consider also that, of the Millennials who are actively saving, 39% set aside up to 9% of their income for retirement — $5,000 of the average annual Millennial household income of $55,200.
This higher and earlier rate of saving exists despite high levels of college debt – which, at least one study claims isn’t having a large impact on their decision to save (though it certainly does affect their spending).

Sure, some of that is plan design – automatic enrollment was a relative rarity when their parents were coming into the workplace. And some of it is that – at least supposedly – their parents didn’t need to save because they had defined benefit pension plans to secure their retirement. But, even for those who were covered by those plans (and many weren’t) – the DB promise was of little value at a time when 10-year cliff vesting and 8-year workplace tenures were the order of the day.

But the reality is that younger workers have long had other, shorter-term financial needs to address. The Boomers certainly did. And despite the challenges of the 2008 financial crisis, a sluggish economic recovery, and the overhang of college debt, Millennials seem to have their head in the right place.

Millennials are likely better invested for their retirement than you are – “then” and now.

Okay, as with saving for retirement, surely some of this is plan design – notably the default investment in target-date funds (TDFs) or some other qualified default investment alternative (QDIA) – and their more recent hire date. While data shows that TDF use varies with participant age and tenure, a recent report by the nonpartisan Employee Benefit Research Institute (EBRI) and the Investment Company Institute, younger participants were more likely to hold TDFs than older participants.

In fact, at year-end 2014, 60% of participants in their 20s held TDFs, compared with 41% of participants in their 60s. Of course, recently hired participants were more likely to hold TDFs than those with more years on the job: At year-end 2014, 59% of participants with two or fewer years of tenure held TDFs, compared with about half of participants with more than 5 to 10 years of tenure, and fewer than 30% of participants with more than 30 years of tenure.

One more positive trend: less investment in company stock. The EBRI/ICI data found that at year-end 2014, only about a quarter (26.9%) of recently hired participants in their 20s who were offered company stock invested in that option. In 1998, more than 6 out of 10 in that age bracket had done so.
They might just be the beneficiaries of good plan design. But that is something that plan fiduciaries might want to keep in mind the next time the concept of reenrollment comes up.

Millennials probably aren’t changing jobs any more often than you did.

Do Millennials change jobs more frequently than their elders? Sure. But they didn’t invent the phenomenon; for a variety of reasons, younger workers have long been more inclined (or able) to pull up stakes and seek new opportunities.

Still, there is a pervasive sense that Millennials are more inclined to change jobs than those in previous generations (setting aside for a moment the reality that as newer hires those decisions might not have been completely within their control). In fact, while it didn’t single out Millennials specifically, a recent report by the Government Accountability Office (GAO) published a paper innocuously titled “Effects of Eligibility and Vesting Policies on Workers’ Retirement Savings.” The report took issue with current workforce dynamics, and challenged the applicability of current vesting and eligibility standards under ERISA as being ill-suited to the current day when the “median length of stay with a private sector employer is currently about four years,” going on to state that ERISA’s rule permitting things like a 6-year vesting policy “may be outdated” (the headlines covering this particular report were much more “strident,” as you might expect).

Really? The data show that median job tenure in the private sector in the United States has hovered around 5 years for the past three decades. Indeed, according to the nonpartisan Employee Benefit Research Institute (EBRI), in recent years it has ticked up, to about 5.5 years (though that’s attributed to women are staying in their jobs longer; job tenure for men has actually been dropping).

So, if those vesting and eligibility standards were outdated for today’s workforce, then they have been so for – well, as long as ERISA has been in place.

Millennials are thinking about retirement. Probably more than you were at their age.

Millennials have never known a time without a 401(k), nor have they lived during a period when a personal responsibility for saving hasn’t been part and parcel of the education around their benefits package. They’ve been worried about Social Security’s sustainability from the time of their first paycheck (what they probably don’t appreciate is that their parents also worried, and arguably – in the early 1980s – with better reason).

While they certainly have options their parents didn’t, they also have their own set of challenges – some unique, but many unique only in that they are young(er). They have tools and innovative plan design, apps and the aptitude to use them, and in many cases access to professional guidance.

They may not know how much they need to save for retirement, they may not yet feel that they can afford to save for retirement, they may not even know how to save for retirement – but you can bet they know they need to.

And, in more cases than they are genuinely credited, with access to workplace retirement plans, the help of good plan design, and professional retirement planning advice, likely already doing so.

- Nevin E. Adams, JD

See also:

• 6 Things You Should Know About Those Millennial Participants
• How the Class of 2020’s Retirement Plans Will Be Different
• 5 Retirement Myths About Millennials

How the Class of 2020’s Retirement Plans Will Be Different

Each year the good folks at Beloit College produce a “Mindset List” providing a look at the cultural touchstones that shape the lives of students about to enter college. So, in what ways will their retirement plans differ from those of their parents?

In the most recent list (they’ve been doing it since 1998), the Beloit Mindset List notes that for the class of 2020 (among other things):

• There has always been a digital swap meet called eBay.
• They never heard Harry Caray try to sing during the seventh inning at Wrigley Field.
• Vladimir Putin has always been calling the shots at the Kremlin.
• Elian Gonzalez, who would like to visit the U.S. again someday, has always been back in Cuba.
• The Ali/Frazier boxing match for their generation was between the daughters of Muhammad and Joe.
• NFL coaches have always had the opportunity to throw a red flag and question the ref.
• Snowboarding has always been an Olympic sport.
• John Elway and Wayne Gretzky have always been retired.

So, what about their retirement plans? Well, for the Class of 2020:

• There have always been 401(k)s.
• They’ve always had a Roth option available to them (401(k) or IRA).
• They’ve always worried that Social Security wouldn’t be available to pay benefits (in that, they’re much like their parents at their age).
• They’ve always had a call center to reach out to with questions about their retirement plan.
• They’ve never had to wait to be eligible to start saving in their 401(k) (their parents generally had to wait a year).
• They’ve never had to sign up for their 401(k) plan (their 401(k) automatically enrolls new hires).
• They’ve never had to make an investment choice in their 401(k) plan (their 401(k) has long had a QDIA default option).
• They’ve always had fee information available to them on their 401(k) statement (it remains to be seen if they’ll understand it any better than their parents).
• They’ve always known what their 401(k) balance would equal in monthly installment payments.
• They’ve always had an advisor available to answer their questions.

Most importantly, they’ll have the advantage of time, a full career to save and build, to save at higher rates, and to invest more efficiently and effectively.

- Nevin E. Adams, JD

3 Things Retirement Savers Can Learn from Pokémon Go

If you’re a Millennial (or know one), you’ve surely heard about (or seen in action) the recent outbreak of Pokémon Go.

It’s not even a week old, but it’s quickly dominating social media. If you’ve managed to avoid the media barrage, it’s a new (free) interactive online game that builds on the basics of the Pokémon card and video games past – catching Pokémon, battling at Gyms, using items, evolving your creatures. These creatures (151 unique ones at present) have even been spotted hanging out with a certain renowned ERISA attorney (see below)!

The object of the game is to find these Pokémon (they’re fictional animals – the name is said to be from a contracted Romanization of the Japanese Poketto Monsuta, a.k.a. “pocket monsters”), and then catch them, by throwing a sphere called a Pokéball in their general direction, after which they can grow via battles with other Pokémon in Gyms, and then do battles with still yet more Pokémon in Gyms, etc. All of which is to the benefit of their trainer – you. With Pokémon Go, players can download the free app, then head outdoors using a GPS map in search of Pokémon, using their camera to view creatures “in the wild” and capture them.

Now that we’ve gotten you up to speed on the basics, here are some things that will help you in Pokémon Go and saving for retirement.

Your odds improve if you take action.

Though video games have long been criticized for keeping young players indoors, Pokémon Go draws players out into the real world. You can find “wild” Pokémon by physically walking around your area, and looking near what are called “PokéStops,” which tend to be tourist spots, malls or even churches. If you’re looking to hatch some Pokémon eggs, you have to walk to do that as well! You can play it without going outside, but you won’t do nearly as well.

Pokémon character (left) and human ERISA attorney (right)

Lots of workplace retirement plans still rely on voluntary enrollment, which is to say you have to fill out a form to join the plan. Unfortunately, in those plans, if you don’t sign up, you don’t participate.

A growing number of plans do provide for automatic enrollment, which means that you get signed up for the plan unless you fill out a form to opt out. That’s a good thing for folks who are busy, lazy, or are simply befuddled by the choices that you have to make with a voluntary plan (how much to save, how to invest it, who you’d like your beneficiary to be). However, there is a catch: Most of the automatic enrollment plans assume that a 3% contribution from your pay. And, regardless of your pay level or age, that’s almost certainly not going to be “enough” to provide a financially secure retirement.

Said another way, it’s not very “evolved” thinking…

Contributing more can get you to the finish line faster.

Pokémon Go is free – and you don’t need to spend a cent to pick up Pokémon, battle them, accumulate points, and even hatch the new ones. That said, we lead busy lives (yes, even those who find time to play Pokémon Go), and for those who want to get “there” faster, there are ways to do so by spending a little money.

There is, as you might expect, a shop where you can purchase all manner of coin bundles for real-world cash, which can then be traded for Pokémon-luring Incense, more Pokéballs and a few other things. If you’re in a hurry to “catch ‘em all!” And would rather spend money than time.

Saving for retirement doesn’t have to be a big financial commitment (depending on how much you need, and how long you have to save), though it can be if you put it off, or don’t establish a goal that suitable for the amount you need and the time you have to set it aside. Those who would like to get to that point sooner can, of course, “spend” more on retirement by setting aside larger contributions, sooner.

Every so often you need to look where you’re going.

Apparently one of the dangers of the new Pokémon Go is that game players have been spotted looking at nothing but their smartphone screens while they walk around looking for new Pokémons. This even when they are crossing highways, walking over bridges, travelling near bodies of water or – in at least one case – frequently empty parking lots where individuals looking to separate them from their money have been lurking. The bottom line – players are advised to be aware of their surroundings as they search for Pokémon.

When it comes to saving for retirement, whether you’re in an automatic enrollment plan (where the initial investment decision is likely made for you, and directed to a target-date fund), or a voluntary enrollment plan (where you may have made the initial decision, perhaps with some help, but probably haven’t looked at it in a while), those initial investment decisions – however ably made – should be revisited from time to time, at least once a year. The markets are always moving, after all – and that perfect choice of investments has likely shifted over time.

More importantly, you need to keep an eye on how your total savings is adding up to your retirement savings goals, and perhaps make adjustments to the amount you are saving.

After all, even if you get off to a good start, if you don’t look where you’re going, it’s easy to wander off the path and find yourself in trouble.

- Nevin E. Adams, JD

5 Things Millennials Need to Know About Saving for Retirement

Retirement seems a long time off — particularly when you’re young.

However, Millennials — generally defined as those born between 1978 and 2004 — are living longer, and many will have to finance retirements that are actually longer than their working careers.

So, while it can hardly be expected to be top-of-mind for most of this group, here are five things worth knowing about saving for retirement — now.

1. Social Security won’t be as much as you think it will be.

Okay, some of you don’t think it will be anything at all, certainly not by the time that you are old enough to collect. But set aside for a moment the questions you may have as to whether or not Social Security is financially viable without reform, or if you should even count on it at all. Your parents — who are either now, or soon hope to be, collecting Social Security — had the same concerns, after all.

However, even if you assume that the program remains largely unchanged from what it pays today, if you retire at full retirement age in 2015, your maximum benefit would be $2,663 a month, according to the Social Security Administration. However, if you retire at age 62 in 2015, your maximum benefit would be $2,025; and if you retire at age 70 in 2015, your maximum benefit would be $3,501.
Now those amounts are based on earnings at the maximum taxable amount for every year after age 21. In other words, that’s probably more than most of us would get. In fact, the average monthly Social Security retirement benefit for January 2015 was $1,328. Note that the maximum benefit depends on the age a worker chooses to retire, among other things — and that assumes that the current questions regarding Social Security’s longer-term financial viability are addressed, and/or that current benefit levels aren’t reduced.

In sum, the odds that you’ll get that current maximum aren’t large — and the odds that current benefits will be reduced still seem pretty good.

2. Not everyone has a pension, and you probably don’t.

Now, by “pension” I mean the traditional defined benefit (DB) pension plan; one that, in the private sector anyway, was largely employer funded. According to the nonpartisan Employee Benefit Research Institute (EBRI), in 2011, just 3% of all private-sector workers participated only in a DB plan, and 11% had both a defined contribution (DC) and a DB plan. So, only something like 14% of workers in the private sector still have a traditional pension plan (even then, it doesn’t mean there’s no reason for concern; see “3 Pervasive Retirement Industry Myths“.)

Despite this, studies pop up every so often that indicate that a remarkably large number of workers think they do have a pension. Do you? Better double check.

3. You won’t be able to work as long as you think.

You hear people talk about 65 as the “normal” retirement age, even though it’s no longer that, even for Social Security benefits. Oddly, considering all the talk you hear about people retiring later, the average age at which U.S. retirees report retiring is 62 — an age that has increased in recent years — while the average age at which non-retired Americans expect to retire, 66, has largely stayed the same.

Meanwhile, EBRI’s Retirement Confidence Survey (RCS) has consistently found that a large percentage of retirees leave the workforce earlier than planned — 49% of them in 2014, for example. Many who retire earlier than they had planned often do so for negative reasons, such as a health problem or disability (61%), though some state that they retired early because they could afford to do so (26%).

So, if you’re thinking you don’t need to save for retirement now because you can you just keep working… well, you might need a “Plan B.”

4. You could be missing out on ‘free’ money.

Okay, you may not be saving at all (your parents got off to a slow start as well). You won’t be the first group of young workers to have college debt, or just have a lot of things you’d rather spend your money on in the here-and-now. Or both. It can be hard, particularly when you’re getting established, to prioritize all the demands on your paycheck.

But if you do have a 401(k) or other retirement savings plan at work, you may also have something called an employer match (see “6 Things 401(k) Participants Need to Know“). That’s where your employer will put into your account a certain amount, perhaps 50 cents for every dollar you save. For you, that’s “free money,” but you’ll only get that if you actually take advantage of your retirement savings plan at work.

p.s.: if have been automatically enrolled in your employer’s 401(k), you may want to check out the savings rate. These typically start contributions from your paycheck at a much lower rate (a 3% default savings rate is common) than those who have taken the time to fill out an enrollment form (who tend to go with the savings rate matched by their employer.

5. The sooner you start, the easier it will be.

The Labor Department says that for every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.

I know it sounds simplistic. But trust me, you’ll be amazed at how quickly your retirement savings grow. See, the money you save earns interest. Then you earn interest on the money you originally save, plus on the interest you’ve accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money. This is something financial pros call the “magic of compounding.” But it’s no trick.

- Nevin E. Adams, JD