This isn’t your parents’ retirement dream.
Millennials—the often-maligned demographic cohort encompassing 18 to 35-year-olds—don’t all share the retirement aspirations of their elders. Leaving work behind forever isn’t the Millennials’ primary savings goal, according to the Spring 2017 Merrill Edge Report.
The youngest generation of working Americans is far more interested in achieving financial independence at a relatively young age so they can pursue whatever lifestyle they prefer in the future.
Many don’t intend to stop working. Instead, they want to work on their own terms. It’s an approach that makes a lot of sense when you consider this age group is living longer than any age group before them.
Achieving financial freedom requires saving, and that’s just what millennials are doing. In fact, they’re saving more at younger ages than previous generations did. Seventy-two percent are saving, and they started at the median age of 22, according to a 2016 Transamerica Center for Retirement Studies survey.
So, where are millennials saving?
A February 2017 Pew Research brief indicates that millennials are less likely to participate in workplace retirement plans than previous generations. In part, this is because a significant proportion of millennials (41 percent of those who are at least 22) don’t have access to a defined benefit or defined contribution (DC) plan, and those who had access to a DC plan are not eligible to participate (51 percent).
Millennials who have access to a workplace plan usually want to learn more about investing, and they’re open to information and advice offered through their plans, according to Transamerica. That means plan sponsors and advisors may have an opportunity to noticeably help millennials.
By modifying plan design and education programs, they can help increase millennial participation and contribution rates.
When it comes to plan design, plan sponsors may want to consider:
Making millennials save: T. Rowe Price reports that millennials appreciate automatic services. A survey found that 79 percent of millennial plan participants had no objection to being automatically enrolled in their employers’ plans. In fact, 47 percent wished they’d been enrolled at a higher contribution rate; one that took “full advantage of company matching contributions.”
Motivating with a match: As we all know, employer contributions are a powerful motivator. Pew Research found that millennial participation rates increased from 56 percent to 72 percent when an employer matching contribution was available. Stretching your plan can help maximize contribution rates.
Offering appealing investments: Not just any investment will do when it comes to millennials. A recent Natixis blog post underlined that fact, “…84 percent of millennial plan participants say they would like their investments to reflect their personal values. Seven in ten…say they would be more likely to increase contributions to their retirement plan if they knew their investments were doing good.”
Plan sponsors and advisors can encourage improved participation through education, too. In fact, helping Millennials learn can bring benefits that have nothing to do with retirement. A recent article in Chief Learning Officer (CLO) reported:
“Millennials often value learning more than any other benefit…Access to learning opportunities that go beyond an employee’s productive skills is an opportunity to show that the company cares about the employee’s whole self. That translates into employee satisfaction, commitment and job retention.”
So how do plan sponsors or advisors capture the attention of a generation that switches between media platforms 27 times an hour, on average? Experts in the field recommend:
- Offering bite-sized education. CLO recommends delivering nuggets of personalized information, preferably in a digital format, rather than delivering static paper-based training.
- Making it interactive. People remember more when they use the information you deliver. Plus, it’s a whole lot more engaging to participate in role-playing, watch a video, play a game, or learn via virtual reality.
- Keeping it social. Harness the power of social media to your plan or advice, says T. Rowe Price. Deliver consistent retirement education messages across diverse channels like Facebook, YouTube, Instagram, and Twitter.
- Framing the message for millennials. Remember, millennials ‘retirement dream’ is quite different from that of previous generations. They want to achieve financial independence and have the freedom to live life on their own terms.
Every millennial retirement education program also should include information about distributions and rollovers. LinkedIn reports that millennials typically change jobs two to three times during the five years following college graduation. If your workplace has significant turnover, you may want to consider adding an automatic rollover solution to your retirement plan. Automatic rollovers can help simplify plan management, improve data quality, lower plan costs, and limit fiduciary liabilities.
Let’s face it. Millennials got off to a bumpy start when it comes to money and investing. Negative experiences and risk aversion could hurt millennials ability to achieve and sustain financial independence. Plan sponsors and advisors have a unique opportunity to help millennials learn about planning and investing. If they’re successful, they have the potential to build loyalty and good will among members of a generation that currently comprises the majority of the American workforce and soon will account for two-thirds of the global workforce.
Before retirement, Terry Dunne was the senior vice president and managing director of Retirement Services at Millennium Trust Company, LLC. Mr. Dunne has over 40 years of consulting experience in the financial services industry. He has written extensively on retirement planning, industry trends, technology, and legislation. Millennium Trust performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.
