Hope for Millennials’ Retirement?

Though the Retirement Confidence Survey, conducted annually by Greenwald & Associates and EBRI for the past 28 years, generally reveals how dire Americans’ retirement preparations really are (and in many ways, they are), this year’s RCS findings give me some hope that Millennials (or Gen Y) are perhaps learning from the missteps of prior generations.

Half of Millennials report that they have already started saving for retirement. Millennial savers are starting younger than their Boomer predecessors.

Millennial savers started at median age of 24, compared to a median age of 30 among Boomers. Boomers, on the other hand, say if they got a “do over,” they would have started saving for retirement at age 22, and Millennials suggest they really should have started saving as young as age 18. Many Millennials, though still not enough, listened when we said “start young.”

While Boomers struggle to find fixed investments with a good rate of return, according to the survey, Millennials are no doubt struggling to accumulate. Only 1 in 10 Millennials feel very financially secure, compared to 2 in 10 Boomers, and as we’ve all read before, Millennials are much more likely have debt problems. Two-thirds of Millennials describe debt as a problem, compared to about 4 in 10 Boomers. The expected result is very low savings. Two out of every five Millennial workers have less than $10,000 saved, including a quarter with less than $1,000.

Millennials know it isn’t enough. Nearly half suggest they aren’t doing a good job preparing for retirement, though their overall confidence in their ability to have a secure retirement is about the same as everyone else: a paltry 18% of all workers in the 2017 Retirement Confidence Survey are very confident in their ability to live comfortably throughout retirement. And it’s important to note that Millennial workers stress about retirement preparations the same as everyone else, even though retirement is a median 33 years away for them.

But as I said, I see reasons to be hopeful. Millennials have access to DC plans and they participate. Just shy of three in four Millennial workers say their employer offers a DC plan and fully 80% of those workers are currently contributing. That is statistically comparable to the 85% of Boomers who are currently contributing. In addition, a third of Millennials report IRA savings (again, the same as Boomers).

Millennials are, not surprisingly, less likely than Boomers to have taken concrete retirement planning steps, but these numbers are better than I would have expected given the competing financial priorities Millennials face and the buzz about them being overly focused on the present. Importantly, Millennials have thought about retirement and how they will occupy their time; a third have done this, compared to slightly more than half of Boomers.

Almost one in four have pondered moving or downsizing in retirement. In fact, I recently heard a group of Millennials discuss the places they could move to in retirement with a lower cost of living, in addition to warmer climates and houses on the beach. (We can thank all those retirement commercials for that unattainable-for-most vision of retirement.) However, the amount of thought they’d given to their retirement lifestyles and financial needs was impressive. If I could pass one critical thing along to my clients and others, it’s that Millennials are thinking about retirement; we need to bust the myth that it’s just so far off that they aren’t thinking about it.

As for more tangible steps taken, one in three Millennials have tried to calculate how much they will need to save for retirement. A quarter have estimated their monthly income needs in retirement, and nearly as many have estimated their expenses in retirement. Compare that to 45% of Boomers who have done a retirement savings needs calculation, and about half who have estimated income and expenses for retirement. By comparison, Millennials don’t seem so far behind, especially given their much longer time horizon.

But, Millennials still need help… a lot of help. They do not feel confident in their ability to make key savings and investment decisions. Just 13% feel very confident in their ability to determine how much to save and how to choose investment funds. They will seek help, and they are more interested in help provided through their employer. Millennials are more likely than Boomers to say they would seek advice on their retirement savings plan from a company retained by their employer to provide advice (64% vs. 49%) or from their employer directly (46% vs. 28%). Like Boomers, however, two-thirds would seek advice from an independent financial services company or adviser.

Few have spoken to a financial adviser already about retirement planning, however; 15% of Millennials have done this compared to a third of Boomers. While consumers remain largely unaware of the DOL fiduciary rule and potential changes, Millennials (and others) tend to believe that professional financial advisers are working in their best interest. In fact, 73% of Millennials believe the advice they receive from professional advisers is in their best interest.

Survey research continuously shows a lack of concern about conflict of interest, but focus group research I’ve conducted with younger workers suggests that Millennials have some serious trust issues when it comes to financial advisers. Many will only trust an adviser who comes from a personal referral — parents or that one friend who seems to have her act together — though it seems to me that the employer could also be the trusted referral. I believe these sought-after characteristics make plan advisors, both independent and available through the employer, a potentially ideal resource for Millennials.

It’s like picking the lesser of two evils: Which generation faces worse retirement prospects? Compared to the Boomers, some of these data points make me think Millennials aren’t doing so bad. They are starting to save younger and are thinking about the realities of retirement, even though it’s more than 30 years away. And while I see glimmers of hope for Millennials’ retirement, the flip side of these findings paints a bleak picture for Boomers. As an industry, the focus seems to have shifted away from Boomers to these young, hip, non-traditional Millennials, but we should perhaps still be asking ourselves how to help the Boomers. Millennials face lower incomes and higher debts, and the result is lower account balances. Yet, many already know what has to be done as the money becomes available. Time should take care of some of that for them, but the Boomers are running out of time.

Lisa Greenwald is a VP at Greenwald & Associates, an independent research firm specializing in research for the retirement and financial services industries. This column originally appeared in the Summer issue of NAPA Net the MagazineFor more commentary by Lisa, click here

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