Gen X workers love to hassle their millennial counterparts, but the two generations aren’t all that far apart in their thinking—at least when it comes to saving in their 401(k)s.
“Many long held beliefs about how Millennials and Gen Xers want to engage with their DC plan are off base and call for some myth-busting,” says Fredrik Axsater, senior managing director and head of Global Defined Contribution at SSGA, referencing the popular, recently cancelled cable show. “When employers combine a deeper understanding of employees’ views about retirement and focus their engagement efforts around important life stages, like starting a career or starting a family, savings programs can be far more successful.”
SSGS surveyed plan employees aged 22 through 50, a group SSGA has named “Generation DC.” This group is the first cohort to rely predominantly on a defined contribution plan as their primary source of retirement funding. SSGA believes that by studying Generation DC, employers can better understand how to improve the experience and structure of DC plans.
According to the research, there are five myths to debunk as a result of their research.
- Myth 1: Millennials would rather interact with apps than humans
- Reality: Although Millennials are most likely to say they want apps to help them prepare for retirement, they also want an annual human interaction – even more than older employees do. 59% of those aged 22-25 say they “want an in-person meeting once a year and technology isn’t really going to help,” compared to 38% for Gen Xers aged 45-50.
- Action: Employers should recognize that younger employees may need more guidance than can be solved by an app.
- Myth 2: Millennials don’t care about planning for retirement—it’s too far away
- Reality: 88% of Millennials agree it’s important to start saving for retirement early similar to the 86% for their more experienced Gen X counterparts. Additionally both Millennials and Gen Xers agree that saving for retirement is a priority (83%).
- Action: Harness younger employees’ awareness of the importance of retirement preparation and connect that to a specific action such as enrollment or saving a little more.
- Myth 3: Most people are “over” the financial crisis
- Reality: Risk averse beliefs are still rampant today. Over half of millennials (54%) admitted that their parents’ experience with the financial crisis that began in 2008 has impacted their confidence as investors. That increases to 60% for those who are 33-39 years old.
- Action: If market volatility rears its ugly head, don’t avoid it. Speak to employees rationally about volatility and the reality of long-term investing and importance of “staying the course”.
- Myth 4: Employers hold the reins when it comes to informing and influencing employees
- Reality: Friends and family come first when it comes to influence. 68% of Generation DC said that friends and family are the ones who told them to start saving. Additionally, over 90% indicated that their spouse/partner’s annual salary played an important role in their financial wellbeing.
- Action: Employers can find ways to engage both employees and their family members with simple, jargon-free messages about retirement planning that stimulate healthy conversations.
- Myth 5: We need to educate people more about retirement and investing
- Reality: Experience is a significant contributor to literacy. SSGA used a standard battery of questions to test literacy and the results indicate that as people hit their 40’s their literacy about basic financial and investing improves. For example, when asked if buying a single company stock provided a safer return than a stock mutual fund, only 46% of millennials correctly answered that the stock was more risky. However, 57% of Gen Xers answered correctly and that increased to 77% for the 45+ group.
- Action: Be consistent with core “rules of thumb” messaging about retirement preparedness and recognize that the 40 and over population is more prepared to talk comprehensively about retirement planning. Employers should engage them more fully on their life journey while they can still make a difference, instead of waiting until they are 50.
“Employers can reach employees well ahead of retirement by targeting the 40 plus age group with clear, actionable steps for a better retirement including communications on how to save more, diversify investments and spend down savings in retirement,” continued Axsater. “For younger employees, an over-emphasis on auto-enrollment may be causing employers to miss an opportunity to discuss savings goals and strategies. We recommend rethinking those assumptions.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
