Study: Millennials concerned about retirement, face different challenges

by The City Wire staff ([email protected]) 328 views 

Millennials are often characterized as the generation who live in the moment. But a new report from the Nationwide Retirement Institute disputes the image, finding that 64% of millennial investors (aged 18 to 35) report they have a financial plan. 

The survey also discovered that 68% of the younger investors believe they’re only saving half of what is necessary.

Mike Spangler, president of Nationwide’s mutual funds group, also believes this demographic is likely to come up short in retirement. He said more than one-third of this educated generation with access to a plethora of information is merely guessing at how much they will need to fund their retirement. That is on top of the 25% who aren’t sure if they have a 401(k) plan. 

“While 58% of Millennials conduct their own financial research and make their own investment decisions, only half are confident they know how much to save for retirement. For those Millennials without a financial plan, 28% feel that creating a financial plan is overwhelming and 40% said that they haven’t gotten around to it yet,” Spangler noted.

Half of the respondents admit they would be more financially successful if they sought out professional advice, but only 39% of them actually do it.

Unlike their Baby Boomer parents who had a relatively easy route to retirement — work for the same company for 30 years and retire with a pension — the Millennials will change jobs more often, which can reduce their retirement funds.

According to the most recent statistics from the Department of Labor, the median job tenure for 55 to 64 year olds was 10.4 years. Among 25 to 34 year olds, it was just three years. Someone retiring today may have worked a maximum of three jobs in their adult life. By the time a Millennial turns 70, they will have worked 10 to 14 jobs on average based on that DOL statistic.

A 2014 report from the Transamerica Center for Retirement Studies found that 81% of Millennials don’t expect Social Security to be a viable source of income when they retire. The report urges Millennials to begin saving for retirement as early as possible — age 22 upon college completion as opposed to age 35 for Baby Boomers.

One of the reasons Millennials need more time for savings is that they are likely to leave money on the table each time they change jobs because of vesting schedules that require an average seven years of tenure to get a 100% company match, according to the report.

Someone who changes jobs four times between the ages of 22 and 34 would feel the loss to the tune of $6,800. That may not seem like much but over the course of a 30- to 40-year career, it could add up to roughly $40,000 to $50,000 in unrealized returns, the study claims.

Millennials are also the most educated generation accumulating an average student loan debt of just under $30,000. This debt load fresh out of college is also a hinderance to their funding 401(k) contributions which means they are missing out on free money.

Jacob Gold, a securities broker for Voya Financial, said deciding how much to contribute to a 401(k), if at all, can be difficult, especially for Millennials who are carrying more debt than their parents and grandparents at their age. 

A rule Gold recommends is “pay yourself first.” He said a rule of thumb is to start by contributing what every percent the company plans to match. Otherwise, money is left on the table.

“There are very few times in a person’s life when they are ever handed free money. An employer match is free money. Don’t leave any of it behind,” Gold said. “Remember the employee contribution is pretax which can also provide some tax savings.”

He said Millennials can miss out on the miracle of compound interest if they wait too long to start saving. It’s better to start saving even $25 per month at age 25 than to wait until 35 year and save $50 per month. Factoring in an 8% annual return, there is a $12,500 cost to waiting the 10 years.

NerdWallet estimates that recent college graduates won’t have enough assets to retire until age 73, which is 12 years later than the current early retirement age of 61. With a life expectancy of 83 years, Millennials’ could also see shorter retirement periods.