Millennials are no longer fresh-faced folks just out of college. Some of them are 40 years old, many with kids and a mortgage – and running out of time to get a healthy start on saving for retirement. In that regard, many of them need plan sponsors’ help. This generation seems overconfident about their retirement readiness, faces serious financial challenges and could use some financial guidance.
Capital Group’s latest Wisdom of Experience survey of 1,200 retail investors found some interesting trends across generations. The survey reveals that millennials are far more confident than the previous generation: 74% of millennials expect to reach their retirement goals, while their Generation X predecessors are the least confident, with 37% indicating they are not confident they will reach their retirement goals.
While millennials report feeling confident about retirement, a closer look at the survey results shows that this confidence might be misplaced. According to our survey, 41% of millennials report needing $500,000 or less to retire comfortably, which is far below what experts generally regard as necessary for retirement.
And while the good news is that 8 in 10 millennials say they have money saved for retirement, the majority (67%) have saved less than $50,000.1 Even among higher income earners ($150,000+ annually), 25% have less than $50,000 in retirement savings.
Despite high levels of confidence, the truth is that millennials are under financial stress, which may prevent them from saving as much as they want. Millennials started their careers during the Great Recession, a period marked by high unemployment and sluggish wage growth.
From housing to childcare to education, millennials are paying more for just about everything relative to their parents’ and grandparents’ generations and this is having an impact on their retirement readiness. About 40% of millennial households are saddled with student debt, with outstanding loan balances on those amounts accounting for more than 40% of income.2 And they face higher housing costs. Data show that millennials dedicate more of their annual spending to housing than any other generation and they rate housings cost as their greatest financial responsibility.
Ranking of financial responsibilities (% of millennials selecting each as #1)
As more and more baby boomers retire daily, millennials are expected to account for 75% of the workforce by 2025. More than previous generations, millennials highly value job satisfaction and want to feel that their employer cares about them. Millennials are more likely to change jobs due to mounting financial pressures or because they don’t feel engaged with their employers. Yet many plan sponsors may be unaware of these facts, which gives an advisor a great opportunity to explain why plan sponsors need to pay attention to these issues and use their retirement plan and other benefits to help reduce attrition, maintain employee satisfaction and improve hiring.
For more information, read our full report on the findings from our Wisdom of Experience Survey.
1 Insured Retirement Institute. (January 2020.) "Millennials & Retirement 2020. Understanding, Saving, and Planning."
2 Chen, A., Munnell, A.H. (February 2021.) "Millennials' Readiness for Retirement - A 2019 Update." Center for Retirement Research at Boston College, 21(3), 7.
3 AICPA. (May 2019). "Health Insurance, Paid Time Off and Student Loan Forgiveness Top List of Millennials' Desired Workplace Benefits: AICPA Survey.”
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