Americans of all ages are uncertain about whether Social Security benefits will always be available but Millennials are the population cohort with the most doubts about the long-term sustainability of this government program. Such pessimism is not too surprising since Social Security’s solvency problems, if left unresolved, will likely reach extremes before Gen Y adults even near the age of retirement. With the future of Social Security in question and the continued decline in the use of defined benefit plans, financial security in old age will depend a lot more on self-funding for young Americans than it has for older generations.
Fortunately, Millennials appear to be aware of such troubling trends and many have responded by adjusting their retirement plans appropriately. For example, a report from the Transamerica Center for Retirement Studies showed that surveyed Millennials started saving for retirement at a median age of 22, much earlier than both Gen-X (27) and Baby Boomer (35) respondents. Similarly, a new study by Allianz found that the median Gen-X adult has set aside only $35,000, matching the same amount of total savings as Millennials despite Gen-Xers being much closer to retirement. Another encouraging sign is that young adults are not just setting aside money but also growing those savings through participation in the stock market.
Indeed, the Investment Company Institute (ICI) found that the median age at which surveyed Millennials first bought shares of a mutual fund was 23, three years earlier than Gen-X adults and well-before Baby Boomers who typically waited until their 30s. Such statistics are great because the sooner one can begin participating in the market the better since an early start can help smooth out the various bumps that an investor may experience, e.g. large stock market drawdowns, by providing more time for positions to recover from such setbacks. However, there is still room left for improvement because the share of Millennial households that have ownership in at least one mutual fund (32 percent) is very small relative to Gen X (50 percent) and Baby Boomers (49 percent).
Sources: Gallup, TCRS, Allianz Life, Investment Company Institute
Post author: Charles Couch