Data and Research October 29, 2015

Millennials Saving but Not Planning for Retirement

Retirement planning is harder than dieting; retirement may hinge on winning the lottery; or can Oprah be my adviser?
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There’s a difference between saving and planning for retirement, and Millennials don’t know it. Most Millennials are saving for retirement, but that doesn’t mean they’re on track to enjoy one that’s financially secure, according to a national study recently issued by the Insured Retirement Institute (IRI) and the Center for Generational Kinetics.

Millennials—Americans ages 20 to 37—are falling short when it comes to planning for retirement, and this could have big implications for their future financial security.

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While 68% of Millennials said they are saving for retirement, only 29% are actively planning for retirement, the report found. At the same time, many seem to be developing unrealistic expectations about life in retirement. Most Millennials seriously underestimate how much money they will need for their retirement years. Seven in 10 said they will spend less than $36,000 per year in retirement. That’s 30% less than the current national average of $46,757 for people ages 65 to 74.

“This study debunks the myth that Millennials are not thinking about retirement,” says Jason Dorsey, Millennial expert and chief strategy officer of Center for Generational Kinetics. Millennials are in fact aware of retirement, but their approach to planning varies wildly from that of previous generations—and, Dorsey says, “It’s not very realistic.”

More than one-quarter of Millennial respondents said they are counting on winning the lottery or receiving monetary gifts to fund their retirement years. More than half (56%) believe they will not be able to retire when they want to, and more than one-quarter (28%) think full retirement is impossible. The majority of Millennials said planning for retirement is more difficult than sticking to a diet.

NEXT: Would Millennials prefer Warren Buffett or Oprah Winfrey as an adviser?

When it comes to working with a financial professional, 62% of Millennials would like an adviser to walk them through every step of the retirement planning process, and 87% said it is important that an adviser be willing to meet them in person. Only 19% said they are likely to use a robo-adviser.

About half of Millennials (48%) would pick Warren Buffett to be their financial adviser, and 32% would choose Oprah Winfrey. Baby Boomers, on the other hand, are wildly enthusiastic about Buffett (77%) and less keen on Winfrey (15%).

“These sobering statistics seem to be indicative of a generation that is struggling to manage competing financial demands,” says Cathy Weatherford, president and chief executive of IRI. “Many Millennials are still juggling student loans and other debts, and so planning for retirement is not their top financial priority yet.” But as retirement requires decades of attention, Weatherford emphasizes that Millennials need special help getting started, with specific savings goals and financial plans.

IRI and CGK surveyed 1,110 Americans ages 18 to 65, with a 10% oversample of Millennials, ages 20 to 37 in August. The study can be downloaded from IRI’s website.

Products October 29, 2015

Investment Product Launches for the Week

CUNA Mutual Retirement Solutions adds to stable value offerings for 457 and 403(b) plans; Index Fund Advisors “Investing for Catholics” division launches faith-based target-date fund.
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CUNA Mutual Retirement Solutions Adds to Stable Value Account Capabilities

CUNA Mutual Retirement Solutions has added to its Guaranteed Account offerings by making rate classes available specifically for 457(b) and Employee Retirement Income Security Act (ERISA) 403(b) plans. Having served the 401(k) and defined benefit plan types for more than 30 years, this is the first time the company has offered the non-profit sector a stable value option, according to the firm.

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“We are pleased to bring a stable value solution to plan types that haven’t had many choices,” says Paul Chong, senior vice president of CUNA Mutual Retirement Solutions. “The Guaranteed Account is a stand-alone, investment-only offering and is an exciting step in the evolution of our company beyond the 401(k) and defined benefit space.”

Unlike many types of stable value accounts, CUNA says this fund is “fully guaranteed and not subject to any type of price fluctuation.” The fund is underwritten by CMFG Life Insurance Company, part of CUNA Mutual Group, and features competitive interest rates ranging from 1.5% to 2%, depending on adviser compensation.

Other highlights of the Guaranteed Account for 457(b) and 403(b) plans include complete guarantees of principal and interest (not found in all stable value accounts); rates declared in advance semiannually with a 1% minimum rate guarantee; full liquidity (participants can transfer into and out of this account without restrictions or penalties); and an option to convert to guaranteed lifetime income at retirement.

“We believe it will be a good fit for retirement plans that have an underperforming money market or other form of stable value account in their plan,” Chong says. “Additionally, it’s a great way to add an element of guaranteed income to plans that do not have such features.”

Those interested in offering this account as an adviser, broker/dealer or plan sponsor should email RPSProductSupport@cunamutual.com or visit www.theguaranteedaccount.com for more information.

NEXT: Catholic values TDF

Catholic values TDFs and Risk-Based Funds from IFA

Index Fund Advisors (IFA) has launched a series of target-date funds (TDFs) and risk-based funds aimed at meeting the needs of Catholic investors who want to maintain investment portfolios in line with their religious values.

The funds will be available for purchase on January 1, 2016, and are being launched within IFA’s Investing for Catholics (IFC) division. According to the firm, the risk-based funds are designed “to both complement the TDF lineup, as well as to provide a suitable investment alternative for Catholic defined benefit plans.”

IFA says it unveiled the funds to a strong response at the recent annual Catholic Diocesan Fiscal Managers Conference (DFMC) held on September 27 in Atlanta, “fresh on the heels of Pope Francis’ historic visit to the United States.”

The firm explains the funds this way: “The IFC target-date funds are thoughtfully designed to invoke the simplicity of low-cost, easy-to-use managed solutions, with one major differentiator—the stock funds used in the IFC funds closely match the guidelines for socially responsible investing as laid out by the United States Conference of Catholic Bishops (USCCB). This distinction makes the funds an excellent default investment for plans, and marks a significant advancement for Catholic retirement.”

Funds are available for investment by eligible qualified retirement plan trusts only. The firm expects to target mainly 403(b) church plans, but a recent nod of approval by the Department of Labor for greater use of environmental and social factors in qualified retirement plan investment decisionmaking could change that moving forward.

The firm says it developed the daily valued funds in collaboration with Hand Benefits & Trust, a BPAS Company, and based them on IFC’s prudent and socially responsible investment strategies. The new funds will be accessible to employees of Catholic organizations through their retirement platforms. Reporting for quarterly holdings and monthly performance returns will be available through Morningstar.

More information is at http://www.ifa.com.

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