The “economic sway” of Millennials – now the largest segment of the workforce – creates an opportunity for plan sponsors and advisors to influence their saving success, according to a recent post by Putnam Investments.
In “Millennial Money Drives 401(k) Plan Evolution,” Mike Dullaghan, DCIO Investment Specialist with Putnam, notes that Millennials are saving earlier and at a higher rate than previous generations, but suggests that “it’s not yet time to signal the all clear for twenty- and thirty-somethings when it comes to retirement saving success.”
Dullaghan explains that current obstacles such as college debt, investment choices and lack of access to workplace savings plans may cause them to lag in meeting their retirement savings goals. At the same time, he notes that their average account balances are not soaring.
Dullaghan suggests that plan design is a “good place to start.” He explains that as Millennials have grown in number, their needs have begun to shape plan design, much like Boomers did in decades past. He suggests that plan sponsors and advisors should consider reviewing plans for automatic features. Auto-enrollment, auto-QDIA and auto-escalation can be popular among participants who like to take advantage of opportunities to automate tasks, he explains. What’s more, he notes that modeling the impact of these changes on the plan’s overall success score can add credibility to the design choices.
Other recommendations include seeking solutions with enhanced technology.“Millennials have grown up with devices. Optimizing workplace plan interactions for devices will have a positive response and one that may benefit all generations,” he writes, further noting that the use of mobile devices and adoption of online banking services has grown significantly.
Workplace financial wellness programs may also help. Dullaghan emphasizes that Millennials face different challenges than other generations, such as a greater college debt burden, lower career earnings due to delayed career starts, as well as rent and health care cost inflation, making it difficult to save. As such, more employers are paying attention to the causes of employee stress and are offering financial wellness initiatives, he explains. Investor education can play a key role. “Illustrating the power of saving for the long-term can be a powerful message for young savers,” Dullaghan says.
At the same time, however, studies show that Millennials tend to avoid investing in stocks due to perceived risk. To improve investment choices, Dullaghan recommends evaluating plan offerings and consider target-date funds. Sustainable investing also appeals to Millennials, he observes, citing a recent Morgan Stanley study that found that 95% of Millennials are interested in ESG and impact investing.
