Data and Research August 3, 2016

Most Millennials View Retirement Savings Goal as Impossible

Of this group, only 50% has started saving for retirement.
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The majority of working Millennials, 64%, do not think it will be possible for them to save $1 million—frequently cited as a savings target—over the course of their lifetime, according to the Wells Fargo Millennial Study.

Fifty-nine percent have started saving, but 41% have not, with 64% of this group saying the reason is simply because they don’t make enough.

“Saving $1 million is often noted as a nest-egg target to help fund a multi-decade retirement, so we wanted to find out if today’s Millennials think they can get there,” says Joe Ready, director of institutional retirement and trust at Wells Fargo. “A majority don’t think so. Millennials may not realize that if they start saving consistently by their mid-twenties—and stay invested for the duration of their working years—they will likely accumulate $1 million by the time they retire.”

Wells Fargo projects that if a Millennial age 25 earning $32,000 starts saving 5% and increases their savings rate by 2% a year up to a 13% threshold, they could have $1 million by the time they are 65. This assumes that they get a 2% raise every year and earn a 7% return.

Of the 64% who view a $1 million nest egg as an impossibility, their median income is $27,900. Fifty percent of this group has started saving for retirement, 37% are putting away more than 5% of their income and 7% are saving more than 10%.

Of the 32% who do expect to achieve a $1 million retirement nest egg, their median income is $53,000. Seventy-seven percent have started saving for retirement, with 66% of them putting away more than 5% of their income and 28% more than 10%.

The study also found that 34% of Millennials have student loan debt, which averages $19,978. Seventy-five percent of those who have student loan debt say it is “unmanageable.” Nonetheless, 70% of them are saving for retirement at an average savings rate of 5.5%.

NEXT: Challenges for Millennial womenAs with other generations, Millennial women face more financial challenges than their male counterparts. Their average income is $28,800, compared to $39,100 for men. Fifty-four percent of Millennial women say they live paycheck to paycheck, compared to 43% of Millennial men, and 61% of Millennial women say their finances are stretched too thin to save for retirement, compared to 50% of men. Perhaps more tellingly, 73% of women in this demographic group do not believe a $1 million nest egg is attainable, compared to 56% of men, and only 56% of women have started saving for retirement, compared to 61% of men.


“The wage gap between male and female Millennials clearly exists, and it’s a real issue,” Ready says. “It’s important that younger women focus on saving and investing now, as this strategy will help put them in good standing for their retirement years.”

Eighty-five percent of Millennials view saving for retirement as an important step towards becoming a financial adult, and 82% say that witnessing people who are comfortably retired makes them want to save more for their own retirement. However, less than half, 45%, regularly review their finances, and only 54% have a budget.

Millennials are also equity-shy. Fifty-nine percent say the current economic climate makes them uncomfortable about investing, and 52% worry about the volatility in the stock market depleting their savings. Seventy-four percent do not believe Social Security will exist by the time they retire.

GfK conducted the survey for Wells Fargo among 1,005 Millennials in April.
Benefits August 3, 2016

Employers Use Captive Insurance Arrangements to Improve Claim Data

“Many companies now recognize captives’ importance as a tool in benefit cost management, by identifying and addressing the key cost drivers,” says Mark Cook, director at Willis Towers Watson.
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The use of captive insurance companies for financing employee benefits continues to evolve as companies increasingly go beyond using their captive vehicles purely to save money on their annual employee benefit bill, Willis Towers Watson finds.

Research from Towers Watson last year showed that originally captive arrangements—in which a firm establishes its own insurance program—were used just for property/casualty insurance, but in the last 15 years, firms have been more aggressively looking at captives for health benefits and other employee offerings.

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This year’s study shows the primary driver for nearly half (44%) of companies with employee benefits in their captive is to control and improve their claim data to help with ongoing cost management. This is up from one-quarter (24%) in last year’s study. Conversely, the study finds the percentage of companies that cited cost savings as the main driver dropped from two-thirds (67%) in 2015 to 44% in 2016.

More companies are using their captive as a strategic tool to manage risk and benefit costs proactively and to analyze claim data to identify and address key cost drivers. Many also look to employee benefits as a source of diversification to more traditional lines of risk typically included, such as property, casualty or business-related risks.

Willis Towers Watson polled more than half of the employee benefit captives operating globally as part of its specialist Captive User Group forum, held in London and New York in May and June, and found half (50%) of those questioned use their captive vehicle to provide death and disability benefits as well as health care or medical benefits.

Proactive risk management was also reflected in the influence employee benefit captives have over pricing, with half (50%) indicating that their captive has full determination or significant influence over pricing rather than relying purely on local insurers’ underwriting. Looking ahead, nearly half of the employee benefit captive users (47%) indicated that they are also considering a captive pension transaction, either in the next three to five years (41%) or within the next 12 months (6%).

“We continue to see a broadening use of employee benefit captives. Companies continue to explore further areas in which they can take on more of the risk and manage it internally in order to save money and mitigate risk,” says Mark Cook, director at Willis Towers Watson. “Also, many companies now recognize captives’ importance as a tool in benefit cost management, by identifying and addressing the key cost drivers. Successful employee benefit captives can stabilize and slow down benefit cost increases in an environment where medical costs continue to increase.”

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