Retirement Planning Sections

Millennials Are Committed to Building Retirement Savings

Taking a Long View

Siobhan Matty

Siobhan Matty says Millennials understand their financial challenges, from a shaky job market to high college debt to uncertainty about Social Security, and are planning for the future accordingly.

Older generations hold quite a few negative stereotypes about the youngest cohort in the workforce. If surveys and statistics are to be believed, however, Millennials may be doing better than their predecessors at getting an early start on retirement savings. Much of this is simply a response to a barrage of anxieties thrown their way, from skyrocketing college debt and a sluggish job market to the disappearance of pensions and uncertainty about Social Security. Increasingly, young professionals understand that building a secure retirement is their responsibility — and the sooner they start, the better.

“They’re quite aware of what they’re going through.”

David Bowie’s famous observation about young people from “Changes,” illuminating the generation gap he observed, is still applicable 45 years after the song was written.

Take, for example, the issue of saving for retirement. If the older generations have an image of Millennials — the generation now between ages 16 and 36, and numbering more than 75 million — as flighty and irresponsible with their financial strategy, the raw numbers tell a different story.

According to the Transamerica Center for Retirement Studies, in its 2016 survey titled “Perspectives on Retirement: Baby Boomers, Generation X, and Millennials,” today’s Millennials started saving for retirement at a median age of 22, and 72% are currently saving through a company-sponsored 401(k) or similar plan, or a plan outside the workplace.

Perhaps more strikingly, 40% of Millennials actually increased their contribution to a 401(k) or similar plan in the prior 12 months, compared to 30% of Gen-Xers.

The numbers don’t surprise Siobhan Matty, a Millennial herself who works with numerous clients in her peer group as a relationship manager at St. Germain Investments in Springfield. She says young professionals are anxious about the solvency of Social Security — according to the Transamerica Center survey, 81% of Millennials believe the entitlement will not be there where they retire — as well as a difficult job market, the near-disappearance of company pensions, and what happened to their parents’ savings in the financial crash of 2008.

Quite aware, indeed.

A keen interest in retirement savings, Matty said, “goes hand in hand with the anxiety about not having a pension or the Social Security income their parents or grandparents may have gotten. They understand they can’t necessarily rely on the government to secure that kind of funding in retirement.”

Jean Deliso, principal at Deliso Financial and Insurance Services in Agawam, said it helps to understand the unique burdens Millennials are strapped with.

“The job market is terrible,” she said. “They’ve got crazy educational costs; they’re coming out of college with more debt than ever. It’s like a mortgage. And that puts more pressure on them to wait on housing. I feel bad for them.”

Deliso also noted the issue of Social Security, and the prospect of it not being available to today’s young workers when they retire decades from now. But there’s a silver lining to this cynicism because it forces Millennials to think more deeply about what they need to do to secure their own future.

Millennials get a bad reputation for being slackers, for not particularly having a good work ethic. But they came out of college into a weak job market, and they understand the importance of establishing savings, or at least working toward that goal.”

“They say, ‘I need to think more about myself because Social Security is not going to be stable,’” she explained. “Plus, the companies their grandparents worked for, and maybe their parents, had pensions; they worked for 35 years, then got a pension, plus Social Security, and they were safe. But a pension is hard to come by anymore. Millennials have some real challenges. So, what should they do about it?”

To help answer that question, several investment experts spoke with BusinessWest about what a 20- and 30-somethings should be considering as they ponder a retirement that isn’t as far away as it may seem.

Savings First

Matty’s simplest advice is to save as much as possible. But that takes discipline, and is easier said than done.

The stock market may be prone to short-term volatility, she said, but young people can feel confident of the longer-term view when considering whether to invest.

“The other thing would just be contributing to whatever plan you have at work,” she said. “We don’t usually have pension plans available to us, so if you can do anything in your workplace to contribute to a plan, that’s important to establishing that savings habit. If you have a habit in place, it’s a lot easier to continue doing it.”

One benefit of automatic deductions is psychological, she noted. “If you don’t see it, you can’t touch it. Then, you can look at what you need to pay your debts. After that, work on what else you can safely put away, and make a budget for what you can spend. Luxuries are great, but that’s what they are, luxuries; they’re not necessities.”

Jean Deliso

Jean Deliso says a key savings strategy — not just for Millennials, but for everyone — is to “pay yourself first.”

Deliso said any financial plan for young people — or anyone, really — begins with one basic step: “pay yourself first.” In other words, savings should be the first expense to come out of one’s earnings.

“Get into an employer-sponsored plan as soon as possible,” she said, “and if there’s a match, get that match, so you’re not losing free money.” Another option would be to open an IRA, preferably with a Roth component ensuring that withdrawals later in life aren’t taxed.

Millennials understand the importance of these vehicles; according to the Transamerica Center survey, 55% of them expect such self-funded accounts to be their primary source of retirement income, and 75% would like more information from their employers on how to achieve their retirement goals.

Deliso noted that people don’t keep one job anymore, but may hold seven, 10, or even more over a lifetime, and it’s important to keep rolling employer-sponsored plans into new plans as they change jobs.

The next step, after contributing to retirement savings, is to determine what bills must be paid each month and what expenses can be trimmed, and that takes budgeting and self-control, she went on. “The bottom line, and the most important thing for Milliennials or anyone else, is to live within your means. Don’t take an apartment that takes 75% of your income. You want to have positive cash flow, because that allows you to have savings, and that brings financial success.”

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Positive cash flow can begin with the simplest of steps, Deliso added, such as not spending $4 on coffee four times a week. “Put that $15 in your 401(k) plan. Put it in right from your paycheck, and you’ll never miss it. Say, ‘I’m going to pay for my future first.’ Many people’s greatest fear is that they’ll run out of money. You don’t know how long you’re going to live. But you can push that fear away if you plan accordingly.”

It shouldn’t be a hard sell, said Kate Kane, managing director and wealth management advisor with Northwestern Mutual, who cited research showing that 25- to 34-year-olds are cautious, yet confident, and, more importantly, future-focused and resourceful. So while investment professionals need to take into account their short-term goals and the challenges of their current financial situation — which often include significant college debt — they also need to demonstrate how solid planning can positively impact their life both now and years in the future.

A starting point, she noted, addresses how saving and planning begins with a budget and eliminating debt. Then, moving forward, they can address mid- and long-term goals.

“Since most Millennials came of age or began their careers at the time of the Great Recession,” Kane added, “they tend to be more financially risk-averse than previous generations and are very connected to the idea of planning as a means to manage risk.”

The debt issue is a key one, she added. According to Bankrate, just 40% of Americans age 18-29 pay off their entire credit-card bill each month, compared with 53% of those 30 and up. Some of that may be chalked up to experience: a survey by the Financial Industry Regulatory Authority reveals that only 30% of older Millennials (ages 27 to 34) and just 18% of younger ones (ages 18 to 26) have an understanding of basic financial concepts, including how to manage their saving and spending.

Running Out of Time

To be sure, retirement savings are not a Millennial issue; they’re a problem for everyone. And ‘problem’ is the right word. According to a recent Economic Policy Institute survey, the median total retirement savings among the 56-61 age group is just $17,000. For the 50-55 group, it’s less than half that, $8,000. Americans simply aren’t saving enough — not even close. Millennials have a chance to start earlier and do a better job.

“Moreso than prior generations, Millennials experience more pressure to save,” Matty said. “Obviously, corporate pension plans don’t exist anymore, and there are questions as to whether Social Security will exist, or at what ages they’ll be able to take from it or how long they’ll need to work for it.”

But Millennials were also jolted by the crash of 2008, which occurred, for many of them, during their teen years. It was sobering for them, even though they weren’t yet in the work world, and established a foundation of mistrust in the entire economic system.

As a result, she said, Millennials are more likely than past generations to continue living at home into their mid- to late 20s — not because they’re lazy, but because they want to build a base of savings instead of piling more debt on top of their exorbitant college loans.

“It’s an interesting change,” Matty said. “Millennials get a bad reputation for being slackers, for not particularly having a good work ethic. But they came out of college into a weak job market, and they understand the importance of establishing savings, or at least working toward that goal.”

According to the Transamerica Center report, 22% of Millennials say they “frequently” discuss saving and planning for retirement with family and friends, compared with just 10% of Generation X and Baby Boomers — a counterintuitive statistic, to be sure. Indeed, starting the conversation too late has put many a 40-something worker — by now dealing with mortgages and college expenses for their own children — well behind the savings they need to achieve.

In this new world, Matty said, there’s no replacement for making — and sticking to — a plan.

“People don’t necessarily have the same career for 40 years anymore, and they don’t have the same pension they once had,” she reiterated. “In your mid-20s, you have 40 to 50 years to retirement. Start planning while time is on your side.”

Joseph Bednar can be reached at [email protected]