Data and Research November 17, 2017

Two-Thirds of Millennials Are Saving for Retirement

Sixty-four percent have financial goals.

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In a new report, “Breaking the Millennial Myth,” Natixis Global Asset Management examines the financial goals of Millennials, those born between 1980 and 2000. The oldest, Natixis says, are 37—raising families and buying homes. They are anything but the “slackers” other generations may think of when they hear the word Millennial.

Natixis says that Millennials “are risk-conscious and have retirement in their sights, and when it comes to their finances, they are very much goals-focused.” Sixty-four percent say they have financial goals, and 59% have a financial plan in place to achieve them.

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However, some Millennials are too focused on the short term, with 64% saying the time horizon for their investments is five years or less and 87% saying it is less than 10. Natixis says “this likely reflects their current life stage in which anticipated events such as marriage or starting a new family, or significant purchases such as a new car or first home, may be only a few short years away.”

Nonetheless, 66% of Millennials are saving for retirement. But they need help learning about how much they should save, as their average deferral rate is 10.9%, compared to 13.5% for Baby Boomers and 12.1% for Generation X.
Fifty percent of Millennials say they need help understanding financial risk and 46% say they would like help with tax planning. Twenty-eight percent would like guidance on the financial basics of budgeting and managing debt. Surprisingly, the same percentage wants help with estate planning, even though they are only between the ages of 17 and 37.

Only 64% of Millennials feel financially secure, compared to 70% of Boomers. However, 61% of Millennials say they are comfortable taking on some financial risks to boost performance. At the same time, 75% say that if they were forced to choose, they would select safety over investment performance, and 65% say market volatility interferes with their long-term goals.

“In short,” Natixis says, “Millennials may have high hopes for returns on their investments, but in reality, many are not emotionally equipped to take on the added risk needed to pursue long-term return assumptions.”

Asked when they plan to retire, on average, Millennials say at age 61. And they expect to live an average of 24 years in retirement. Sixty percent of Millennials believe Social Security will still be in existence when they retire, whereas 69% of Boomers believe this.

Seventy-three percent of Millennials have tried to figure out how much they will need in retirement, but only 64% explored retirement income options. Fifty-one percent think their children will help them out in retirement.
While 87% of Millennials trust themselves to make financial decisions, nearly as many, 86%, say they trust their financial professional as much as themselves. This trumps their reliance on family members, friends and co-workers (71%) and the financial media (58%).

Natixis says that for all of the belief that Millennials are addicted to their cellphones and social media, only 39% say they trust social networks that cover finance, such as Twitter and Yahoo Finance. However, 44% say they would prefer digital advice to a face-to-face meeting.

When asked about passive investing, 68% understood correctly that these types of funds track the markets, and 60% realize that they charge lower fees. However, 65% incorrectly said that passive investments are less risky than active investments, 66% think that they protect investors on the downside, and 62% think they offer access to the best investment opportunities.

Natixis says that Millennials hold in high regard the concept of socially responsible investing. Eighty percent want to invest in companies that represent their social values, and 75% want their investments to do social good.
“The financial industry would do well to recognize the social focus of these individuals if they are to earn their trust as investors and clients,” Natixis says.

CoreData Research conducted the survey of 8,300 investors around the word in February and March for Natixis. Of the total surveyed, 2,434 were Millennials.

Benefits November 17, 2017

Leadership Forum Urges Update of Open MEPs

Any large-scale action on retirement reform will require trust, a willingness to take risk and experiment, and a sense of the greater good.

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J.P. Morgan Asset Management this week hosted an informative video webcast on the topic of “Building a More Robust and Inclusive U.S. Retirement System Amid a Changing Economy.”

PLANSPONSOR was invited to attend the live event and to speak afterwards with the presenters, who included Anne Lester, head of retirement solutions for J.P. Morgan Asset Management, as well as Ida Rademacher of The Aspen Institute Financial Security Program.

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Their presentation mainly focused on lessons learned from the April 2017 inaugural Aspen Leadership Forum on Retirement Savings, held in Middleburg, Virginia. The forum brought together roughly 60 senior leaders from industry, government, academia and the lobbying community to discuss “breakthrough solutions to one of the most critical financial challenges facing American households—the lack of adequate savings for retirement.”

Reporting her experience at the forum, Rademacher said at least one thing is very clear: “Any large-scale action on retirement reform will require trust, a willingness to take risk and experiment, and a sense of the greater good.”

Among the diverse stakeholders there was actually significant agreement on the challenges facing U.S. retirement savers—as well as those workers who aren’t saving at all. Rademacher ran through the list: “Millions of Americans have no easy way to save for retirement through work. While forum participants disagreed about the exact size of the gap and how best to measure it, most agreed that it was a fundamental shortcoming of the current system that not everyone has an opportunity to save at work. There was further widespread agreement about the challenge presented by increases in longevity. Even as workers face economic headwinds, they are generally enjoying longer lifespans—and thus longer and frankly more expensive retirements.”

During the presentation both Lester and Rademacher repeatedly stressed the huge opportunity open multiple employer plans, or “open MEPs,” offer for broadly improving retirement readiness in the U.S. workforce. This approach would allow small employers to take advantage of the same economies of scale that make large 401(k) plans effective savings vehicles from both the perspective of the employer and the employee. 

Both speakers noted that the Pension Protection Act of 2006 has helped many employers implement increasingly successful individual retirement savings programs. In short, they argued, employers that are committed to automatically enrolling employees into a robust defined contribution (DC) plan that features automatically diversified and rebalanced portfolios are already seeing success in boosting retirement readiness among populations of workers not offered a traditional defined benefit pension plan.

“It is simply common sense to open up this effective DC system to more workers through open MEPs,” Rademacher stated. “Open MEPs will take the pressure off of small employers while delivering professional management and support to individual savers.”

Both Lester and Rademacher suggested they have seen an increasing number of members of Congress “become interested in the open-MEP issue as a way to solve one of our biggest challenges.” So far there is not quite enough political will to take up open-MEPs as a stand-alone issue, the pair agreed, but this could very soon change.

“Although forecasting the future is a risky undertaking, there is no doubt that the retirement system will continue to undergo significant change for the next few decades,” Rademacher concluded. “The nature of the change, however, is not predetermined. Decisions made by those leaders today in government, business, academia and the non-profit sector, will shape the system the next generation inherits.”

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