The Effect of Market Volatility on Millennials’ Retirement Savings

Millennials need to understand their longer investing time horizon allows them to handle more market risk and even provides certain opportunities for saving for retirement.

The market volatility throughout 2018 was one of the first streams of economic chaos to hit some of the workforce’s youngest age group: Millennials.


Typically touted as the most confident generation in technology, awareness and knowledge, Millennials can find this same confidence concerning the latest market instability. Aside from reports of skepticism in investment vehicles, from stocks to private equity, this class of workers experience the benefits of volatility as they can assume greater risk, given the large gap between now and retirement.


“For Millennials, it’s all about their risk capacity since they have so much time,” says Katherine Roy, chief retirement strategist at J.P. Morgan in New York City. “The volatility they’re experiencing is quite small relative to the value that their contributions are making, so they can take on sufficient risk and benefit from their 30-to-40-year horizon.”


Roy urges the generation to emphasize retirement savings. She points out that while Millennials are often defaulted into a defined contribution (DC) plan when beginning employment, few ever take the initiative to increase contributions during their later years. Instead of contributing the suggested 10% to 15% of pay throughout their career, some settle on the initial 3% to 6%, failing to self-grow the rate, she says. Securing a high savings mentality, Roy adds, is how Millennials can thrive in periods of market uncertainty.  


“When the markets became volatile, if you’re a Millennial, your best point is to be saving enough, because that’s going to be the key to your success, specifically early in your career,” she says. “That is going to have a much more meaningful effect on wealth accumulation for retirement than your return.”


Market volatility can represent buying opportunities for Millennials, as stock prices are lower; however, uninformed employees may feel insecure, usually younger Millennials just beginning their careers, says Tina Wilson, head of investment solutions at MassMutual in Enfield, Connecticut. Even older, more career-experienced Millennials—typically those in their early-to-mid-30s—can experience bouts of financial insecurity during market volatility, she says. Wilson suggests plan sponsors and advisers offer scores of financial health or retirement readiness to DC plan participants. Throughout periods of market swings and downturns, a score represents support for unsure Millennial workers looking to stay on track with their savings. 


“We all in this industry have to recognize that investments are not always a logical component of someone’s thought process, meaning emotions are involved when people invest,” Wilson says. “Having that score is a pretty immediate reinforcement that they’re on track, that they need to stay on track and that having that emotional reaction to investments is not the best strategy for them.”


And, diving deeper into the distinction between younger and older Millennials, Wilson says plan sponsors and advisers should understand the significant financial needs and experiences between both groups. For example, younger Millennials, regarded as those in their mid-to-late 20s, will less likely remember the Great Recession of 2008. Yet, Millennial workers in their 30s will, as most had just entered the workforce 10 years ago, during the market downfall.


“We speak of Millennials as if they are one cohort, and while we label them as one cohort, there is a significant difference between the older Millennials and the younger,” Wilson says. “The younger Millennials know nothing about 2008 and forward. And so for them, it’s been a pretty strong market in their working career. Older Millennials obviously were impacted by 2008, as the rest of us, but they’ve seen a pretty strong recovery.” Plan sponsors and advisers need to look at the different financial needs and experiences to craft education and savings prompts that fit.


Wilson adds, “It comes down to making sure you’re deploying strategies in keeping their future outcome front of mind.”