What to Know as Millennials Approach Middle Age(!)

The largest generation in America is approaching middle age.

It may be difficult to imagine, but leading-edge Millennials will celebrate their 40^th birthdays next year.

Much has been made of the differences between Millennials and previous generations. They are generally thought to be more ethnically and racially diverse and better educated than previous generations.

They also tend to reach key financial markers—buying homes, getting married and having children—at a more advanced age than Baby Boomers and Gen Xers.

Millennials’ financial decisions have stirred up speculation about their values. Some have suggested Millennials don’t share the values of previous generations, while others say those decisions are the result of their financial condition.

“ …There’s a good reason why millennials are reaching these milestones later in life: they are significantly financially worse off than previous similar-aged [generations],” Deloitte Insights reported. “Since 1996, the net worth of consumers under the age of 35 has fallen by 34 percent.”

Many Millennials are simply not doing as well financially as previous generations.

Millennials are more like previous generations than many believe

However, the reality is that Millennials are a lot like previous generations in a variety of ways. In Uncertain Futures: 7 Myths about Millennials and Investing, FINRA Foundation, CFA Institute reported Millennials’ financial priorities are quite similar to those of older generations at similar ages. While the priority of financial goals (at age 27) has varied from generation to generation, all Americans have shared similar objectives:

• Accumulate funds for emergencies,
• Save for travel,
• Retire when they want to retire,
• Live comfortably in retirement,
• Buy homes, and
• Pay off student debt.

Millennials, who came of age during the Great Recession, have financial constraints that may be most familiar to members of the Silent Generation who came of age during the Great Depression.

Difficult experiences can have positive impacts, however.

For example, Millennials generally have a sense of urgency about saving that prior generations did not have. They started saving for retirement at age 24, while Gen Xers, on average, didn’t start until age 30, and Baby Boomers, age 35.

Changing circumstances also may have played a role in their savings choices. Congress created 401(k) plans in 1978 as a way for Americans to save supplemental retirement income. It wasn’t until 1983 that 401(k) plans caught on. The oldest Baby Boomers were 37, the oldest Gen Xers were 18, and the oldest Millennials were toddlers. So, Millennials have grown up with an idea that was new to previous generations.

Not all Millennials are the same

When you look beyond the averages, economic gaps are apparent among this generation. When it comes to retirement, their readiness, or lack of readiness, may be correlated to employment status, income, higher education and access to workplace retirement plans.

The FINRA/CFA report identified three groups of Millennials. Those who:

Do not invest. Millennials who don’t invest and don’t have investment accounts tend to have modest financial goals that include not living paycheck-to-paycheck. Many don’t plan to retire because they don’t think they’ll be able to afford it. Other key traits include:

• Some higher education: 53%
• Median Income: $35,000
• Full-time employment: 44%
• Access to a workplace retirement plan: 52%

Invest in retirement accounts. The top financial goals for Millennials who have retirement savings accounts are: 1) saving enough to retire when desired and live comfortably, and 2) having savings to cover unexpected expenses. Other key traits include:

• Some higher education: 85%
• Median Income: $54,000
• Full-time employment: 87%
• Access to a workplace retirement plan: 89%

Invest in taxable investment accounts. Two-thirds of Millennials who have taxable investment accounts also have savings in workplace retirement accounts and IRAs. This group’s top financial goals include: 1) saving enough to retire when desired and live comfortably, and 2) saving enough money to travel. Other key traits include:

• Some higher education: 89%
• Median Income: $73,000
• Full-time employment: 79%
• Access to a workplace retirement plan: 78%

It’s notable that the top financial goal for Millennials with high levels of student debt is paying off that debt.

Employers are helping Millennials improve financial security

There is another way in which Millennials differ from previous generations: access to employer benefits. Studies suggest this group is willing to accept lower pay in return for benefits they value.

These may include health insurance (for themselves and their pets), paid time off, student loan assistance and retirement plans.

Since this generation comprises more than one-third of the American workforce, it makes sense for smaller employers who want to attract and retain talent to evaluate their benefit programs.

Plan advisors would be wise to make certain small business owners, in particular, understand the retirement plan options available in the market.

Unlike 401k plans, Simplified Employee Pension (SEP) IRAs, Savings Incentive Match Plans for Employees (SIMPLE) IRAs, payroll deducted IRAs and other types of plans have been designed specifically for those businesses. As a result, they tend to have much lower costs and are easier to administer.

Introducing a streamlined workplace retirement plan can help an employer meet critical business goals, such as attracting and retaining talent, maintaining payroll costs and receiving tax benefits. It can also help improve more Americans’ retirement security.

If you’re looking for a way to better meet the needs of existing Millennial employees or attract new ones, as well as the generation quickly following suit (Gen Z), consider refining your benefits package.

Terry Dunne is senior vice president and managing director of Retirement Services at Millennium Trust Company, LLC. Dunne has over 40 years of extensive consulting experience in the financial services industry. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.