Millennial Retirement Savings Habits Can Increase Fees in Company Retirement Plans
Millennial Retirement Savings habits is a large contributing factor as to why you should anticipate an increase in company retirement plan fees. Another reason plan fees may cost more in the future is due to Baby Boomers rolling their assets out of their workplace retirement plan accounts as the group exits the workforce in record numbers.
The challenge for this millennial retirement savings dilemma lies in figuring out how to enroll more millennials, and soon. Sponsors must do this not only as a way to improve younger workers’ ability to achieve a financially secure retirement, but also to offset the outsized drawdown of Boomer assets, which may leave many plans struggling to pay their expenses. Increasing millennials’ participation rates can help mitigate this concern, according to a recent Employee Benefit News (EBN) article.
Citing data from PEW Research Center, EBN points out that millennials make up a third of the U.S. workforce, making the cohort the single-largest generation to represent the country’s working population. In addition, while two-thirds of millennials work for employers with retirement plan offerings, only half of those participate, according to the National Institute on Retirement Security. In other words, just one-third of working millennials are saving for retirement in employer-sponsored plans. Millennial retirement savings rates are impacted by the choice of the group to not take advantage of the company retirement plan.
A big issue is that since most millennials are relatively new to the workforce. This group does not immediately meet the eligibility requirements for participation — the number of hours worked or tenure with a company. Hopefully, as time passes, more millennials will choose to join the plans upon meeting eligibility requirements.
Another concern for most millennials? Student loans. While millennials have earned the greatest share of college degrees for their generation, that education has also come at a cost — many are saddled with high levels of student loan debt. They’re also earning less in their careers than other generations at their age. This lethal combination makes it challenging for millennials to prioritize retirement savings. As such, EBN points out, plan sponsors should figure out how to help with millennials’ financial needs in ways that cater to their strengths.
Tech-savvy millennials prefer to interact online. As such, providing tools like loan payment calculators and retirement savings projections in an interactive, online environment may boost engagement among this generation, EBN points out. However, with this tech acumen comes a tendency to over-analyze, which is a detriment to their long-term investment strategy. Citing TIAA research, EBN notes that millennials are three times as likely as Boomers to tinker with their investment mix during a market downturn — generally a practice that leaves them ill-prepared for the next upturn, causing them to miss out on significant gains. Target date funds can help mitigate this risk, eliminating the need for millennials to worry about allocations and, instead, focus on raising their savings rates or working on repaying their loans.
Education is also key to helping millennials succeed in improving their retirement readiness. Teach them about the benefits of compounding, both in terms of helping their money grow for retirement, and how paying down their loans earlier, if possible, can help them avoid paying more interest over time. Employer-assisted student loan repayment is one possible option, and it can be anything from instructing them to enroll for dedicated loan repayments to help them refinance or consolidate multiple loans. Offering tuition reimbursement for employees who want to go back to school is another option that can fall under the “education umbrella.” In addition, any program that helps to reduce employees’ financial stress — such as a comprehensive financial wellness program — can also help improve productivity, an obvious bonus for employers.
Millennials make up a significant portion of America’s workforce, yet the millennial savings rates do not represent an engaged workforce. Employers can help foster engagement in their retirement savings plans by meeting them where they are; in other words, by catering to their unique financial needs and strengths. Key offerings such as technology and planning tools, easy-to-use investment options like target date funds, and ongoing education and financial wellness efforts can make a world of difference when it comes to helping millennials get on the right path to a more secure retirement. Sponsors could start with any or all of these. The important thing is to take action to help millennials prepare and save for the future. Even a small step could make a huge impact.
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