Millennials’ retirement savings confidence is based on assumptions that will put a financial strain on many of them, according to a survey by Capital Group. The Wisdom of Experience Investor Survey found that although 74% of the 20-somethings to almost-40-somethings in this demographic expect to achieve their retirement goals, they’re underestimating their needs by quite a bit. Almost half say they’ll only need $500,000 to retire comfortably, the survey found. Even with that low target, only 33% have saved more than $50,000.
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Capital Group surveyed over 1,200 adults in December 2020 for the report. Millennials, Gen X and Boomers were represented roughly equally.
Millennials reported higher levels of confidence than other generations surveyed. Just 20% of Millennials expressed doubt that they would have enough for a comfortable retirement by the time they stopped working, compared to 38% of Gen X and 28% of Boomers.
They’re under more financial strain than other generations, too, the report found. Healthcare, housing, child care and education are all more expensive than when their parents were at the same life stage, Sue Walton, Senior Retirement Strategist at Capital Group, noted in an article outlining the findings of the report. And while student debt is a notable financial obstacle that this age group faces, Millennial respondents paying their mortgage or rent was far and away their top financial priority. In fact, Millennials were twice as likely to prioritize rent or mortgage payments over retirement savings (44% compared to 22%). Just 6% of Millennials said student loan repayments were their top focus.
As millennials comprise a larger share of plan sponsors’ covered participants—75% by 2025, Capital Group estimates—sponsors need to evaluate how they’re engaging this demographic. They may only have a couple of years to do so before younger workers decamp for new opportunities.
“Millennials are more likely to change jobs due to mounting financial pressures or because they don’t feel engaged with their employers,” Walton wrote.
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Capital Group outlined ways that sponsors can help Millennials improve their retirement outcomes:
Promote the plan. Millennials are highly mobile workers, and will likely hold many jobs over their careers. Sponsors can help control turnover costs by offering—and promoting—plans that help Millennials manage their financial needs.
Create targeted financial education and communications. Education needs to address Millennials’ specific financial needs, according to Capital Group. The survey found that simplified plan menus and better fund descriptions are useful to help Millennials make more appropriate plan decisions.
Consider student debt options. For some of the 40% of Millennial households with student debt, savings decisions might be an either/or: retirement or debt payment. Sponsors should look for ways they can make the decision easier. For example, Capital Group noted the SECURE Act 2.0 proposal to give workers making student loan payments an employer match into a retirement plan.
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