No wonder Millennials cite retirement as the number one cause of significant stress (according to a recent Schwab survey) ahead of monthly expenses, student loans and credit card debt. McKinsey estimates that younger workers will have to work seven years longer and save twice as much to enjoy the same retirement as their parents. Something has to change and companies offering retirement plans have to deal with this younger generation differently if they want to attract and retain them.
Younger workers not only realize that traditional pension plans will not be available, they are not even counting on Social Security which means their 401k plan may be the main source of retirement income. With traditional western stocks and bonds predicted to yield significantly lower returns than in the past, younger workers have to save more, work longer or invest in more promising emerging markets which also comes with greater risk.
What can companies do? Paperwork, something foreign to a generation used to digital interfaces, are limiting enrollment by Millennials with just 30% signing up on their own. Auto-enrollment helps as does auto-escalation with younger workers saving at a lower rate.
Some of the issues are caused by job hopping as new workers are reset at their new employer’s default rate even though they might have been saving more previously. Leveraging the job-hopper phenomena, why not contribute 50% of the pay raise that often comes with a new job to retirement savings before it even shows up on their paycheck? And why not help Millennials to consolidate old DC and even IRA accounts through roll-ins?
The good news is that more Millennials are taking advantage of Roth 401k’s and fewer are raiding their retirement plans to take loans. But with so much focus and stress on retirement by younger workers, savvy companies will design plans catering to Millennials to attract and retain these peripatetic workers.
