The Myth of the Millennial: Retirement Planning for a New Generation By George Castineiras, senior vice president, Total Retirement Solutions, Prudential Retirement (Published in Broker World, April 2013 issue)
Millennials are generally characterized as spending frivolously, living for the moment, and not thinking about their financial future—but when it comes to saving for retirement, they that couldn’t be farther from the truth. A new study shows that Millennials do care about saving for retirement; it’s just that they often feel intimidated by their employer-sponsored retirement plans. For plan sponsors, plan administrators and brokers, this presents an opportunity to inspire Millennials to save with a more engaging approach.
Retirement may be far off in the distance for millennial workers, but that doesn’t mean they don’t think it’s important to start planning and saving now, according to Prudential Financial’s 2012 survey entitled “Younger Workers and Retirement.” The survey of 800 people ages 21-29 that were eligible for an employer-sponsored retirement plan indicates that nearly two in three Millennial participate in their employer-sponsored plan. More than eight in ten young workers say that “contributing to one’s retirement is a must, even in economic recessions” and nearly three in four say they feel “highly motivated” to save for retirement now. Furthermore, this group ranks saving for retirement as the second most important financial priority in their lives, second only to paying down debt like student loans, and ranking higher than saving for a home, contributing to an emergency fund or paying for further education.
Despite their willingness to save for retirement, Millennials simply aren’t saving enough. Young workers who are eligible for an employer retirement plan save a median of just 7% of their annual salary in the plan, for a median total of $1,750 per person for the entirety of 2012, the study shows. Though this number isn’t insignificant, most advisors recommend that people save at least 10% of their annual salary for retirement. Plus, more than one in three Millennials who are eligible for an employer plan still aren’t utilizing the plan.
So what’s behind the disconnect between Millennials’ clear intention to save for retirement and the lower-than-hoped-for retirement savings rates and participation levels? Obviously, some of this has to do with Millennials and the circumstances they face—many of whom are stretched thin by student loan debt and lower-paying jobs—feeling like they cannot afford to save much for retirement. But the Prudential Financial study shows a more nuanced picture of this disconnect. More than six in ten Millennials find their retirement plan complicated, more than half feel intimidated or uncertain by it, and 45% believe their plan is “very risky.” Furthermore, many people in this age group don’t have a lot of financial know-how: Four in 10 Millennials don’t know the maximum they can save for retirement, and 15% don’t know how much their employer matches. And nearly 20% of those who are eligible for, but don’t participate in, a retirement plan say that the main reason they didn’t use the plan was that they didn’t know enough about it.
For plan sponsors, administrators and brokers, this disconnect raises the question: What would inspire more Millennials to participate in their employer-sponsored retirement plan and to save more? The number one answer: goal-oriented incentives, the study revealed. Nearly three in four Millennials say that if their employer offered a quarterly or annual system that meaningfully rewards them with, for example, a higher match rate, if they met certain retirement savings goals, they’d be more likely to either participate in the plan or increase their contribution amount. Coaching and guidance and an online retirement guide come in a close second with 66% and 62% of Millennials, respectively, saying these things would make them participate and save more. Other factors that more than half of Millennials voted for: Group meetings and presentations, mobile apps that offer financial educational tools and resources, interactive games where you can see how your monthly income changes in retirement, and live interactive webcasts.
Bottom line: Millennials do care about saving for retirement, but they often feel confused and intimidated by their retirement plan choices. But plan sponsors, administrators and/or brokers can likely boost both participation and savings rates among this age group with a mix of rewarding experiences and more interactive types of educational tools.
Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company, Hartford, CT, or its affiliates.