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 

---

[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). 

 

• 
  

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?

"Things" Remembered

It is something of a tradition this time of year to look back, to reminisce about past events and lessons learned, and sometimes to look ahead. Here are some insights – nearly 80 – from columns past that should help lay the groundwork for a productive and prosperous 2017.

3 Things Retirement Savers Can Learn from Pokémon Go

Here are some things that will help you in Pokémon Go and saving for retirement.

4 Things You Should Know About Social Media

Whether you are fully engaged in social media, just thinking about how to get started, or somewhere in between, here are four things to keep in mind.

4 ‘Sure’ Things About Saving for Retirement That Aren’t

Sometimes life takes unexpected turns, upending even the most “certain” outcomes. These so-called “sure” things sometimes turn out to be anything but that – and those that have relied on those assumptions, these “conventional wisdoms” as “givens” can wind up being disappointed – and ill-prepared for financing retirement.

4 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?

4 Things That Make Me Go ‘Huh?’

Ours is a business where surveys and trends often shape not only perceptions, but policy – though sometimes the conclusions drawn, and even the premise itself – make me go “huh?”

4 Things Plan Sponsors Are Scared of – and 3 More They Should Be

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. But what are the things plan sponsors are scared about?

4 Things Plan Fiduciaries Have in Common With the Second Continental Congress

There are things that today’s investment/plan committee share with, and can learn from, the experience of those forefathers who crafted and signed the document declaring our nation’s independence.

Oliver’s ‘Twist’: 5 Takeaways

I’ve long enjoyed John Oliver’s take on the world. He has a gift for bringing humor to subjects that aren’t generally seen as funny, and in the process not only helps make complex topics more approachable, he gives voice to the frustration that millions surely feel at the world around us. That said, when he decides to weigh in with his style of biting commentary on your profession – well, let’s just say that you’re likely to be in for a bumpy ride.

5 Things the DOL Wants You to Know About TDFs – That You May Have Overlooked

Target-date funds continue to expand in usage and popularity – but there are some things the Labor Department wants you to know about TDFs that you may have overlooked.

5 Things That Retirement Calculator Won’t Tell You

Have you seen that commercial about the couple who will do just about anything to avoid doing a retirement needs calculation? Well, here are five things that individuals should know about sitting down and doing that retirement plan – that might overcome those fears.

6 Things People Who Need to Save for Retirement Need to Know About Saving for Retirement

When it comes to retirement, Americans seem to be a pretty insecure bunch. But then maybe it’s because they don’t know all the things they need to know.

6 Things You Should Know About Those Millennial Participants

During my recent vacation, I had the chance to check in with some “real” people about their retirement accounts.

6 Stocking Stuffers for Retirement Participants

In the spirit of the holiday season, here are some “presents” that I hope participants find in their retirement plan “stockings” during the coming year.

The 7 Highly Effective Habits of Highly Effective 401(k) Plans

Every so often someone puts out a list of what are said to be the “best” 401(k) plans, based on varied benefits and plan design structure criteria. But for my money, here’s what the best plans do.

10 Ways 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?

- Nevin E. Adams, JD

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