Gen Y Concerned About Retirement Savings Safety

Thirty-four percent of Generation Y (ages 18 to 34) Americans say if they could choose one primary goal for their retirement plan, it would be to ensure that their savings are safe, no matter what happens in the market, according to a TIAA-CREF survey.

Only 16% of Americans ages 35 to 44 and 22% of Americans ages 45 to 54 say the same. Ed Moslander, senior managing director and head of institutional client services at TIAA-CREF in New York, tells PLANSPONSOR that the savings conservativism of Gen Y is surprising. “I get that they watched their parents or relatives suffer through the recession, but safety beating out growth as the biggest concern for investing was surprising.”

In addition, 42% of Gen Y say the primary goal would be to provide a guaranteed monthly income in retirement that would cover living expenses, as do more than half of older generations.

Sixty-one percent of Gen Y respondents say they would be willing to devote a portion of their retirement savings to an investment that will provide a monthly payment for the duration of their retirement—the highest percentage of any age group surveyed. However, 72% of those in Gen Y are unfamiliar with annuities, and 62% say they don’t know if their retirement plan even offers an option for a monthly payment in retirement.

One thing plan sponsors and advisers should take from survey, according to Moslander, is that the point of a retirement plan is to provide retirement income, and Gen Y may be more open to that message due to their insecurity and concern about the future. “The message to leave assets in the plan and think of it as savings to provide retirement income from the day they enroll until the day they retire may resonate more with Gen Y than their elders.”

One-third (34%) of Gen Y respondents say they plan to accrue retirement savings to allow them to live comfortably for more than 25 years in retirement, compared to only 26% of respondents overall. However, 31% are not currently saving any money for retirement, due in part to financial challenges like student loans or jobs that do not offer retirement plans.

Only 56% of Gen Y report they are counting on Social Security to provide income in their retirement, compared to 76% of 35- to 44-year-olds and 73% of 45- to 54-year-olds. Moslander says Gen Y’s lack of confidence that Social Security would provide income in retirement was another surprise. “The program’s been around for 80 years. The idea that it will not be around at all rather than just provide a lower benefit for them is startling," he says.

Moslander says a couple of things plan sponsors can do to help Gen Y save adequately for retirement is to automatically enroll them in their retirement plans and automatically escalate deferral amounts. “This is key to help them get off on the right foot,” he says.

But he also thinks the industry might want to consider that the vast majority of Gen Y will default enroll and will end up in a qualified default investment alternative (QDIA), most of which are target-date funds (TDFs). “At their age, they will be invested 80% or 90% in equities, which may or may not be appropriate, but plan sponsors should look at the risk in TDFs at later ages.”

Moslander adds that it is important for plan sponsors and advisers to not only emphasize to Gen Y saving for the long-term, but also that asset allocation matters and should change at different stages in their lives.

The survey was conducted by KRC Research by phone among a national random sample of 1,000 adults, age 18 years and older, from January 7 to 13, 2015, using a combination of landline and cell phone interviews.