Capital Ideas^™ 
Investment insights from Capital Group

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.

Millennials are more likely than other age groups to be confident in reaching their goals

Source: Capital Group, Wisdom of Experience Investor Survey Series, January 2021.

Millennial confidence: Reality tells a different story

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.

Millennials are saving, but not enough

Source: Insured Retirement Institute, "Millennials and Retirement 2020," January 2020.

Competing priorities may be holding millennials back

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)

Source: Capital Group, Wisdom of Experience Investor Survey Series, January 2021.

Engaging millennials: Why it matters to your retirement plan

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.

How plan sponsors can help

• Promote the 401(k) plan to millennials: Advisors should remind plan sponsors that a 401(k) plan can not only be a powerful tool in addressing millennials’ financial pressures; it can also help attract and retain them by showing them that the employer cares. Employees who feel their employer values them are more likely to be engaged in their workplace and stay with the company longer, reducing the high cost of employee turnover.
• Focus on financial education: Discuss with the plan sponsor how tailoring retirement plan education and advice to millennial needs and interests could help. Our surveys showed that millennials are interested in simplified plan menus and better fund descriptions to help them make better investment decisions. And despite embracing the do-to-it-yourself (DIY) culture for solving many of life’s problems, Capital Group’s survey found that more than any other generation, millennials desire additional education and tools to navigate their retirement plans – particularly when it comes to personalized advice on how to invest (42%).
• Provide student loan assistance: Explore ways plan sponsors could help employees pay off student debt. Plan sponsors could do this by contributing a small amount monthly to eligible employees or experimenting with an employer match. There is currently a proposal under the SECURE Act 2.0 that would permit employers to pay down a student loan instead of contributing to a 401(k) plan and still receive an employer match in their retirement plan. Student repayment assistance can be costly for employers, so this conversation might not be appropriate for every plan sponsor. But for those who could make it work, this benefit could be a powerful recruitment and retention tool, as 41% of millennials rank student loan repayment assistance as one of the top employer benefits.³
• Tailor employee communications: When advisors or plan sponsors are discussing retirement plans and other benefits, try to orient the conversation to match the needs of different generations. Baby boomers and millennials are in very different financial situations. Aligning the message’s content and tone to the various age groups in the room could make educational or enrollment session more effective, while showing that the employer understands each generation’s concerns.

For more information, read our full report on the findings from our Wisdom of Experience Survey.