Millennials aren’t listening to advice about retirement
Millennials are fearless when it comes to making snap decisions about their investments — most notably their retirement savings — but a lack of advice from advisers could end up hurting them, according to new research from MassMutual.
In its new survey, MassMutual found a significant advice gap between their generation and older generations. Millennials are more likely to make risky investment decisions and react to short-term market volatility than their older counterparts. Younger employees also are less likely to take advantage of a financial adviser, the study found.
“We discovered that those who rely the least on professional financial advice are most likely to react to shorter-term market trends by making potentially harmful decisions to reallocate their retirement savings investments,” says Tom Foster, national spokesperson for MassMutual Workplace Solutions.
Research by Morningstar has shown that bad decisions by investors trying to time the equity markets reduce returns by an average of 2.5% per year. The longer an investor stays in the market the better their chances of making money, according to data from Standard & Poor’s.
Thirty-two percent of Americans polled say they rely on a financial adviser to guide them in making investment decisions, according to MassMutual, but older respondents were much more likely to use an adviser. Only 8% of millennials say they rely on professional financial advice, compared to 62% of those 65 and older. Women are also more likely to rely on an adviser than men.
“Getting professional advice helps reduce uncertainty about money matters, especially in volatile markets,” Foster says. “Our study showed an inverse relationship between reliance on professional money management and uncertainty about investing.”
And while one in 10 Americans admitted they don’t know how to invest their retirement savings, millennials were twice as likely to say they were uncertain. They were also almost twice as likely to rely on employer educational programs and resources to guide them when investing and allocating their retirement savings, according to MassMutual. They also are more likely to take advantage of managed accounts or target-date funds that automatically allocate investments based on the investor’s age, risk tolerance and other factors.
Baby boomers were the ones most likely to stay the course in times of market volatility.
Foster says that employers can address the advice gap between generations by assessing the state of their employee groups. Different genders and generations prefer different means of interaction when it comes to their financial decisions.
Employers need to do research on their different demographic groups to determine their preferences for information and tools. Then they should gear their communications to those specific employee groups, Foster says.
The next step is to make sure they have the necessary investment suite of products to meet the needs of their different employee groups. For instance, baby boomers are more likely to want to take a conservative approach, while millennials are more inclined to take a managed account approach. That means the investment lineup in a workplace plan should “reflect the various makeups of groups,” Foster says. “This is extremely important.”
The third point plan sponsors should pay attention to is the economic benefit of knowing their employees and marketing specifically to those groups of people.
If employers want their employees to be able to retire on their terms at age 65, “that’s going to have an economic benefit to the employer,” he says. If employees aren’t in the right investment mix for them, and they end up jumping around a lot, that will lose them money in the long run. If an employee loses a lot of money, he may not be able to retire on time, which costs employers money in terms of healthcare payments, worker’s compensation and disability payments.”
“Time in the market is better than timing the market,” Foster says. “That’s the main thing employers should do. They should make sure employees have every possible avenue for success.”
If employers notice that their employees are woefully unprepared for retirement, they can re-enroll them into managed accounts to help them smooth out those bumps, he says.