Retirement planning for millennials


By Colin Nass, CFP®, AEP®, RICP®

When discussing the need for retirement planning, millennials might not be the first age group that comes to mind.

Millennials — also known as Generation Y — were born after 1980, and they’re the first generation to come of age in the new millennium. Typically, researchers use the early 1980s as the years when the first millennials were born and the mid-1990s to 2000 to mark their 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 discuss retirement planning for millennials.

Retirement planning is basically the same for all generations; it refers to the planning one does to prepare for life after paid work ends — not just financially, but generally. The non-financial aspects include lifestyle choices, such as how to spend your time in retirement, where to live, and when to stop working completely.

The emphasis on retirement planning changes throughout different life stages. For millennials, or those beginning their working lives, retirement planning is about getting an early start on saving for retirement. Even though research has shown that millennials are joining the workforce during a tough economic time, they’ve remained optimistic. A recent survey by the Pew Research Center shows roughly nine in 10 millennials believe they have enough money, or that they will eventually reach their long-term financial goals.

A few key characteristics

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 versus own a home.

Millennials might 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

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of retirement abstract and distant. They grew up with the financial crisis of 2008, the housing bust and subsequent recession, which might explain why many of them are not as interested as prior generations in investing or in home ownership. Statistics from a UBS Wealth Management survey show that for more than 39% of millennials — a higher percentage than any other group — cash is the preferred way to invest money they won’t need for at least 10 years. That’s 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%! 

Millennials also differ from previous generations when it comes to researching financial products and services. They turn to their online networks when making purchasing decisions. 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. 

A recent article in Forbes Magazine,10 New Findings About the Millennial Consumer,” reports that 33% of millennials rely mostly on blogs before they make a purchase, compared to fewer than 3% for TV news, magazines and books. The article also points out that millennials turn to social media for an authentic look at what’s going on in the world, whereas older generations rely more on traditional media.

How does this information affect the way financial planners work with Millennials?

Traditionally, financial firms have emphasized the management of assets, estate planning and minimizing taxes. 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 and saving for and planning vacations and weddings. Traditional financial planners or advisers charge fees based upon assets under management, and millennials frequently don’t have significant assets. Thus, they’ve become the digital do-it-yourself retirement generation. 

A recent Investment News article found that 70% of millennials believe 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 planning.

One of the biggest financial obstacles this generation faces in achieving financial independence is debt. More than 60% of those surveyed recently by TD Bank say that becoming debt-free would make them feel like they’ve “made it,” financially.

Creating other income streams will be critical for millennials to reduce the amount of debt they’re carrying. A side job that earns $500 a month today could build to provide $1,000 a month in a few years and $2,000 a month in five or 10 years. A good example of this are bloggers, a field that didn’t exist 20 years ago, which now provides the opportunity to create a steady stream of additional income that can help millennials 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 that compete for limited resources. Over the next decade, as the first millennials begin to reach middle age, it’s likely they’ll prioritize retirement as other generations have. The result will be that millennials will have fewer years to plan for and save for retirement.

Colin Nass, CFP®, AEP®, RICP® is the Senior Wealth Manager in the Financial Planning Division at MMBB Financial Services. He uses his 20+ years of financial planning and investment experience to assist members in achieving financial goals. Footnotes were omitted.


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