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Learning retirement lessons from millennials

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It is often said that you can’t teach an old dog new tricks, but when it comes to retirement planning, baby boomer workers should definitely take a cue from their millennial colleagues.

That’s right; today’s youngest workers are very serious about retirement savings and personal investments. They are doing a lot of things right, and they have a lot to teach their elders about steps one can take to help secure a sound financial future.

That might initially seem strange, considering that millennials entered the workforce during the Great Recession, many arrived deep in college loan debt, and most struggled to find their first real employment. At the same time, many of those same millennials watched as parents lost decades worth of retirement earnings during the financial crisis.

But it is precisely because of these facts that mllennials appreciate the importance of financial planning, several experts say. Most millennials don’t expect to receive Social Security, and they know that when it comes to saving for retirement, the buck stops with them.

Millennials are engaged, confident and optimistic

For proof, consider the findings of two separate retirement studies, both of which looked at how the baby boomer, Gen X, and millennial generations are dealing with a variety of retirement planning issues. While some other recent studies have offered decidedly bad news about retirement preparedness, there is a lot to like in these studies.

First up is the BlackRock 2014 Global Investor Pulse Survey, which finds that millennials seem to be more engaged, confident and optimistic about their financial situation and future prospects than Gen Xers or baby boomers.

For example, the BlackRock study finds that 56 percent of millennials regularly monitor their investments, and they spend nearly seven hours each month reviewing their accounts. Contrast that with 46 percent of baby boomers, who on average spend only two hours at the same activity.

Those numbers may also impact the retirement confidence levels of millennials versus baby boomers. Fifty-seven percent of millennials say they feel “in control” of their financial future, compared to 41 percent of baby boomers.

To be fair, there may be two significant factors influencing the above: Since millennials aren’t counting on handouts at the end of the workforce journey, they obviously do feel like the captains of their own destiny. Second, they haven’t lived the longer lives — full of ups, downs and turnarounds — of their elders.

In any event, some of the key findings of the study show that millennials have a lot to teach when it comes to retirement planning:

• More than two-thirds of millennials surveyed (69 percent) believe that a 401(k) plan is a good way to save for retirement.

• Millennials surveyed devote an average of 22 percent of their take-home earnings to saving and another 18 percent to investing. That compares to 12 percent and 11 percent respectively for baby boomers. (Again, to be fair, boomers may be likely to have more financial obligations).

• Millennials are more interested in investing in the stock market than five years ago (cited by 45 percent), compared to 16 percent of baby boomers (Once again, baby boomers have seen more volativity and lost more in the market).

Desperate times lead to deliberate measures

Very much in step with the findings of the BlackRock study was the recent 15th Annual Transamerica Retirement Study, published by the nonprofit Transamerica Center for Retirement Studies.

“Millennials are surprisingly engaged on the topic of saving and planning for retirement,” Catherine Collinson, president of Transamerica, told Retirement Wire. “One of the most telling findings in our survey — which blew me away — is that 18 percent of millennials say they frequently discuss saving and planning for retirement with family and close friends. Baby boomers came in at only 9 percent.”

Collinson concurs that the difficult times of the Great Recession are the primary reason why millennials are so focused on financial planning and retirement saving today.

“With millennials, they are truly a do-it-yourself retirement generation. They are far less likely to have access to traditional pension benefits. They’re a very mobile workforce. Questions about the long-term funding of Social Security loom overhead. Of course we all believe that Social Security will be there, however the Social Security Administration’s most recent trust fund report shows that the trust fund will be depleted by the year 2033. Millennials don’t start turning 67 until the year 2046.”

Looking at the numbers, the Transamerica retirement study has a very similar tale to tell of millennials and the lessons they can offer:

• 81 percent of millennials believe that Social Security will not be there for them when they retire

• 76 percent of millennials say that retirement benefits offered by a prospective employer will be a major factor in their decision on whether to accept a future job offer

• 70 percent of millennials are already saving for retirement, and started saving at the unprecedented median age of 22

• Two-thirds of millennials expect their primary source of income in retirement to be self-funded through retirement accounts (cited by 48 percent) or other savings investments (cited by 18 percent)

• 60 percent of millennials plan to retire at age 65 or sooner, including 26 percent who plan to retire at age 65 and 34 percent who expect to do so earlier

• 41 percent of millennials expect that they will need to help financially support aging parents or other family members when they retire; another 23 percent aren’t sure

But despite all the positive numbers, millennials still very much need the help of financial advisors, Collinson says. Like the art of war, success requires mastering both strategy and tactics. Millennials are good tacticians. They are not as great as strategists.

“Our research has found that millennials with jobs are showing a really strong start in building savings habits,” Collinson said. “However, they’re still week on planning. They need to focus and even get some help in terms of long-range goal setting, and long-range financial planning. For someone who is 25 today, a lot is going to happen over the next five decades. They’re going to need a good road map, and they’re going to need to make adjustments along the way.”

“It’s a great opportunity for the financial advisor because if they can help out the individual very early on in their career, and get a head start saving for their retirement, than that advisor can conceivably create a customer for life,” Collinson said.


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