Investing in America's Future

Investing in America's Future

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“Millennials” might be the hottest new buzzword of, well, the current millennium. While there is a fairly large age gap among the generation – they span between 1982 and 2000, according to the US Census Bureau – the group does have a lot of similarities among them, and a few shortfalls when it comes to finances and looking towards their financial future.

Despite what many think, millennials are more educated than previous generations, including the generations of their parents and grandparents. Much like those generations, though, the millennial generation lived through a massive economic change. Making it through “The Great Recession” has left many of them much more risk adverse, and they are likely to begin trying to save for retirement at a much earlier age than those before them.

With a large majority of these 18 to 36-year-olds are worried that Social Security will not be available to them at retirement age, many fear that they will have to rely entirely on a built-up savings, with little to no outside support. More than half of surveyed millennials believe this might end up being their only option for a retirement nest egg.

According to the Census Bureau, there are approximately 53 million millennials in the workforce today, with many of them facing severe money-related issues, including trillions of dollars in student loan debt. Helping to teach these young adult workers the importance of long-term financial security will be an investment in their future. For example, someone begins saving $100 a month for their retirement, starting at age 27. Another full-time worker, age 37, begins to do the same. By the time they both reach the retirement age of 67, the person who began saving at 27 will have contributed only one-third more than the person who began saving at 37, but they would have accumulated twice as much in savings based on a standard 6% annual rate of return.

Because today’s younger workers tend to skew their employment towards more “non-traditional” job settings, and also switch jobs throughout their life more than other age groups, the constant change can hinder their retirement savings options. Millennials tends to do a lot more “freelance” and gig-related work than other generations, with upwards of 50% of the generation doing some sort of side work in addition to their regular employment.

What this means for them is a greater income instability, and often leads to loss of access to employer-sponsored retirement plans. Because they may not be working full time, or they may be only doing freelance work, often millennials find themselves working to pay for their own daily needs, on top of trying to put away money for their retirement.

Because millennials have a lower level of “financial literacy” than generations past, they are often described as the “do it for me” generation when it comes to financial planning. They would rather work with an investment professional, and are appreciative of alerts and notifications from their financial institutions, such as banks or financial advisors. For their generation, these types of small nudges towards financial security prove especially effective, as Transamerica reports that over 52% of millennials that they surveyed simply made up a figure that they needed to save for their retirement, with only 10% actually using a retirement calculator or other worksheet.

Addressing common budget questions and challenges with younger workers, such as paying off student loan debt, mortgages, and credit cards, could help them to save more – and sooner – for their retirement. The greatest success that a financial professional can attain in strengthening retirement security doesn’t come from helping those who are nearing or already in retirement. It will come from helping the younger workers; those who desperately want to be prepared for their future, but need the guidance and knowledge to get there.  Providing the right opportunities and clearer focus on the big picture of their financial future will help these young adults to have a much clearer path for their retirement.