Contrary to popular belief, the largest generation outside of the baby boomers is thinking about retirement, but most millennials aren’t actively planning for it.
Millennials, those ages 20 to 37, number nearly 80 million in the United States. A report by the Insured Retirement Institute and The Center for Generational Kinetics, “Will Millennials Ever Be Able to Retire?” found that 68% of millennials are saving for retirement, about 48% of them in a workplace-sponsored 401(k) plan.
That number is probably as high as it is because of the proliferation of 401(k) plans that use automatic features such as automatic enrollment and auto escalation, says Jason Dorsey, chief strategy officer and lead millennials researcher at the Center for Generational Kinetics.
The report found that while millennials may be thinking about retirement they are not actively preparing or planning for it. Only 29% of respondents were actively preparing for retirement, while 11% expect to receive a gift from family so they can one day retire.
Disturbingly, 15% of respondents said they plan to win the lottery to help them retire, Dorsey says. Sixty percent of those surveyed said it is harder to plan for retirement than to stick with a diet and exercise plan.
“Young people aren’t thinking about retirement as part of their future,” says IRI CEO Cathy Weatherford. Maybe that is because they are “disheartened because of debt and student loans and trying to get their careers on track,” she says.
Seventy-seven percent of millennials who were surveyed for the report listed debt reduction as their No. 1 retirement strategy.
“They have more debt at this age due to the cost of college and university. The knee-jerk reaction is to pay off that debt,” says Dorsey. What is challenging is that repaying debt isn’t the only factor this generation needs to consider. “A lot more education needs to happen there,” he adds.
Whenever you compare generations, it is important to look at where they live and their life stage.
“People confuse generations with life stage. They think all millennials are 25. We are 37, 38 on the other end. We’re also hitting all key life moments later, things like marriage and kids, when the financial planning aspects become more real,” Dorsey says. “We also see that many millennials are acutely aware that their parents are struggling to retire.”
He adds that, “retirement is a lot harder than it seems, maybe impossible, and whether winning the lottery is a real plan or not, for millennials, retirement is very difficult to get their heads around. Until they do, it will be hard for them to take concrete action. If they don’t take action on education, there could be a crisis brewing – a generation unprepared for and unable to retire, which we want to avoid.”
Weatherford believes that financial education needs to start before people get out of high school so that they can understand both sides of a balance sheet and can focus on the importance of saving, whether it is for medical expenses, school or retirement.
Most millennials don’t have a strong grasp of financial literacy, Dorsey says. “There’s certainly a huge gap in what they need to know and what they know.”
One of the biggest problems is that millennials are into instant gratification. Many of them focus on paying off debt because they already have it, he says. “You can see progress on it. Putting money aside until they turn 65 isn’t even on their radar.”
Many millennials were just starting their careers when the Great Recession hit, and the country’s economic recovery has been very uneven, he says. The one thing that is clear is that millennials need financial education and to do a better job of planning for their futures because 80 million unprepared people will affect the entire country.
The study also found that 28% of Millennials believe they won’t be able to retire at the age they want and 28% don’t believe they will ever be able to retire.
“That’s a huge number going to work every day knowing you can’t retire. That affects every financial decision you make knowing you’ll be working until the end of that,” he says.
Seventy percent of millennials believe they need $36,000 a year in retirement but current retirees are spending 30% more than that, Dorsey says. The current average is $46,757 annually, according to the Bureau of Labor Statistics.
Forty-one percent of millennials say they get their financial advice from their parents but 62% said they are likely to seek out the help of a financial adviser when they are at or near retirement; 73% said they would speak to someone when they receive their inheritance and 61% said they would wait until they had their debt under control.
Millennials also aren’t very interested in robo advisers. Eighty-seven percent of respondents said they want to meet with their financial adviser in person and 62% said they would like their financial adviser to walk them through the process step-by-step.
The survey was administered in August 2015 to 1,110 U.S. adults, ages 18 to 65, with a 10% oversample of millennials, ages 20 to 37.
Paula Aven Gladych is a freelance writer based in Denver.
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