Despite being a generation that seems to pride itself on individuality, many Millennials need help when it comes to planning for retirement and managing their finances. According to a recent report by J.P. Morgan Asset Management, most Millennials want their employer’s help in choosing the right investments, before handing off the management of those assets to professionals. More than half (69%) describe themselves as “do it for me” investors.
The same study also found they overwhelmingly are in favor of automatic features and target-date funds (TDFs), which are professionally managed and undergo asset allocation changes based on an investor’s age. Plan sponsors could drive engagement by adopting automatic features such as auto-enrollment and auto-escalation to help Millennial employees who aren’t saving for retirement, while also helping those that are in a relatively seamless way.
Helping this generation visualize how large of a factor time is can also drive engagement. Take the hypothetical example of 23-year-old “John.” If he makes $50,000 a year, defers 5% of his salary into his 401(k), and the market returns 7% annually, he would have $597,620 if he retires at 65. If he were to start at 27 with all other factors constant, he would have only $446,875.
Of course, the generation just entering the workforce can’t be expected to defer a large amount of their income toward retirement, especially when more immediate financial needs are present. Acceding to a study by Lincoln Financial, the biggest worry keeping Millennials up at night is debt—particularly student loan debt, which currently stands at historic highs. The same survey found 70% of those paying off student loans say they are not handling it well, highlighting the need for holistic financial wellness programs that address all aspects of money management including debt reduction.
To meet this goal, Lincoln Financial and other providers like OneAmerica are revamping their websites to offer resources like financial wellness articles and tools. Empower Retirement recently launched a social-media video campaign aimed at Millennials to debunk retirement-savings myths and encourage younger employees to save.
These moves present a major opportunity to interact with the generation that practically lives on the Internet. A study by Empower Retirement concluded that Millennials want retirement solutions tailored to their lifestyle. They also appreciate fast, convenient digital tools. The firm found that Millennial retirement savers are more than twice as likely than people age 45 and older to say that if they were able to access their retirement savings account on their mobile device, they would check it daily (15% vs. 6%, respectively).
Mobile banking has taken off, and mobile retirement-planning may be the industry’s next big trend—one that will undoubtedly be fueled by Millennials.
These tools and resources may also help reverse the trend that Millennials seem to be overly hopeful about retirement. According to research by Personal Capital Retirement, 40% of Millennials don’t have a single retirement account, and many of those who are saving seem overly optimistic about the future.
“Millennials are oblivious to the $14 trillion retirement crisis facing America,” says Personal Capital CEO Bill Harris. “They’re dangerously assuming that retirement planning can start tomorrow, instead of today. We’ve found that Millennials are banking on working just 15 years, and many plan to live on inheritances during retirement—it’s delusional … But there’s hope if we meet Millennials where they are now, whether that be battling student loan debt or searching for easier tech-driven solutions.”
The good news is that a large portion of Millennials are off to a good start for retirement saving. Research by Scarborough Capital Management found that even though most Millennials don’t defer the recommended 15% of income toward a retirement plan, 72.8% are investing anywhere from one to 10%. More than half (58.5%) are deferring five to 10%.
Still, reaching a comfortable retirement is part of a greater financial-planning mission that extends a person’s lifetime. And for Millennials, that can seem like a long, rough path. Plan sponsors and providers can benefit from reaching out to this cohort through the digital space they are used to and to navigate them through the retirement saving process.