Millennials may not be the first age group that come to mind when considering the need for retirement planning. Millennials, also known as Generation Y, are those who were born after 1980 and the first generation to come of age in the new millennium. Typically, researchers use the early 1980’s as the years when the first millennials were born and the mid-1990’s to 2000 to mark the ending birth years.
In 2016, the Pew Research Center found that Millennials have surpassed Baby Boomers to become the largest living generation in the United States. This is important to note as we consider retirement planning for Millennials1.
Retirement planning is basically the same for all generations – it refers to the planning that one does to prepare for life after paid work ends, not just financially but in all aspects of life. The non-financial aspects include such lifestyle choices as how to spend your time in retirement, where to live, and when to stop working completely. The focus of retirement planning changes throughout different life stages. For Millennials, or those beginning their working life, retirement planning is about getting an early start on saving for retirement.
Unlike previous generations, Millennials will likely have several jobs over the course of their lifetime. They prefer urban living, or the flexibility to relocate in pursuit of their professional goals and choose to rent over home ownership. Millennials may also be burdened with a staggering amount of student debt and have difficulty finding a job, delaying any thoughts of saving. Many find the concept of retirement abstract and distant. They grew up with the financial crisis of 2008, the housing bust and subsequent recession which may explain why many of them are not as interested as prior generations in investing or home ownership. Statistics from a UBS Wealth Management survey report that more than 39% of the Millennials surveyed, a higher percentage than any other group, indicate that cash is their preferred way to invest money that they do not need for at least ten years. That is three times the number who chose to invest in the stock market, even though the S&P 500 has gained approximately 15% over the past year while most cash investment yields remain below 1%.
As the first generation of digital natives, growing up with computers, smartphones, tablets and access to the internet has shaped how they shop for products and services. They are accustomed to having instant access to price comparisons, product information and peer reviews from their mobile devices. Whereas older generations rely more on traditional media, Millennials turn to social media for an authentic look at what’s going on in the world2.
How does this information affect the way financial planners work with Millennials? Millennials don’t want to overly commit to one long term goal such as retirement at the expense of lifestyle goals such as purchasing cars, saving for and planning vacations and weddings. Traditional financial planners or advisers charge fees based upon assets under management and Millennials frequently do not have significant assets. Thus, they have become the digital do-it-yourself retirement planning generation.
An April 2017 article in Investment News found that 70% of Millennials believed they would get higher returns from a robo adviser than a live adviser and 84% expect to receive more objective advice from a digital advice platform. Typically, they don’t need access to information, they need access to knowledge and expertise. Financial planners therefore need to function more like a personal trainer or life coach helping them to stay focused on their goals, rather than a traditional financial planner focusing on investment management, retirement and estate planning3.
One of the biggest financial obstacles that this generation faces in achieving financial independence is debt; more than 60% of those surveyed recently by TD Bank said that becoming debt free would make them feel like they have “made it” financially4. Creating other income streams will be critical for Millennials to reduce the amount of debt they are carrying. A possible example of this are bloggers, a field that did not exist 20 years ago, which now provides the opportunity to create a steady stream of additional income that can help them reach their financial goals.
The bottom line is that Millennials face additional challenges including student loan debt, job insecurity, the need for mobility and flexibility, and juggling multiple goals competing for limited resources. MMBB can help you navigate these challenges and create a healthy financial future. Over the next decade, as the first Millennials begin to reach middle age, it is likely they will prioritize retirement as other generations have. The result will be that Millennials, like most Americans, will have fewer years to plan for and save for retirement. Excerpts from this article appeared in the July/August 2017 issue of Church Executive magazine.
1http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/ 2https://www.forbes.com/sites/danschawbel/2015/01/20/10-new-findings-about-the-millennial-consumer/#ca797786c8f4. 3http://www.investmentnews.com/article/2017041720170419/FREE/170419904/millennials-finaianncial-habits-and-priorities-differ-from-gen-x-boomers. 4https://www.inc.com/fiscal-times/debt-preventing-millennials-from-achieving-financial-goals.html