Yesterday we learned that many young adults want to start improving their overall level of retirement preparedness in 2018. That is encouraging since this cohort of the population will likely have to fund a much longer retirement than earlier generations. In fact, a recent study by Transamerica suggests that most Millennials already recognize this financial burden, as 83 percent of surveyed Gen-Y workers said that “Compared to my parents’ generation, people in my generation will have a much harder time in achieving financial security.” More than two-thirds (68 percent) of Millennials also agreed with the statement “I could work until age 65 and still not have enough money saved to meet my retirement needs,” and not even a quarter (24 percent) were able to say that they are very confident they are currently building a large enough nest egg.
One reason for that pessimistic outlook is skepticism about the long-term availability of Social Security. Specifically, eight in ten surveyed Millennials said that they are concerned Social Security will not be there for them when they are ready to retire. Nearly one in five Gen-Y respondents also anticipate living to age 100 or older, and a majority (59 percent) plan to retire at age 65 or sooner. In median terms, surveyed Millennials plan to spend around 25 years in retirement, longer than Generation-X (23 years) and Baby Boomer (20 years) respondents. All of this increases the importance of retirement self-funding. Fortunately, many surveyed Millennials said that they are already setting money aside for retirement, something which the median respondent began doing at age 24, much younger compared to Generation-X (30) and Baby Boomers (35).
More than half (56 percent) of surveyed Gen-Y workers also acknowledged that their primary source of retirement income will probably be derived from 401(k)s, IRAs, and similar accounts, and 71 percent said that they are already taking advantage of employer-sponsored savings plans, with a median annual contribution rate of 10 percent of their salary. However, there is still a lot of room left for improvement because 44 percent of surveyed Millennials said that they have less than $5,000 set aside for retirement, and more than a quarter (27 percent) have saved less than $1,000. The median Gen-Y respondent also expects that they will need just $400,000 in total retirement savings, likely a drastic underestimate but not too surprising since nearly half (47 percent) admitted that they simply guessed what their retirement needs will be.
On the bright side, 78 percent of surveyed Millennials participating in a 401(k) said that they would be open to using an automatic feature that increases their retirement plan contributions by 1 percentage point each year. That suggests auto-escalation is a feature worthy of consideration by employers that have yet to incorporate it into their plan design. Another thing for businesses to take note of is that 76 percent of surveyed Millennials said that they would like more education and advice from their employers on how to reach retirement goals. Gen-Y workers also appear to value technology more than older generations. For example, 81 percent of Millennials said that they find mobile apps for managing their retirement accounts helpful, compared to just 53 percent of Baby Boomers, and 67 percent of Gen-Y workers stated that social media is a useful information medium, versus only 29 percent of Baby Boomers.
Sources: Transamerica Center for Retirement StudiesPost author: Charles Couch