Despite dour prognostications regarding baby boomers’ retirement preparedness post financial crisis, a recent research report finds that there are other segments of the population who are in deeper trouble when it comes to retirement planning — like Millennials.
In its third annual research report on the state of U.S. employee retirement preparedness, Financial Finesse, an unbiased financial education company that offers counseling programs, found that Millennials have a significant risk of not being able to achieve retirement security.
With just 17 percent of Millennial employees surveyed stating that they anticipate being able to retire with 80 percent of their income goal, there is ample need for concern. Although baby boomers had the curveball of the financial crisis thrown at them as they were approaching retirement, Millennials will have to deal with myriad other issues that may pose an even greater challenge.
Systemic issues, such as rising health care costs and a possibly insolvent Social Security system will acutely impact Millennials. Couple that with the fact that many Millennials can expect to live longer than older generations and the prospect becomes even more unsettling.
Drawing a link between the generation that arrived home after World War I only to have to contend with the difficulties of a shifting cultural, political and financial climate, the research paper invokes “lost generation” when discussing the retirement challenges Millennials face.
The report finds that 87 percent of Millennials are saving for retirement through their employer-sponsored retirement plan, which the research suggests can be attributed to the fact that many employers utilize an automatic enrollment strategy. The concern is that Millennials could be taking a “set it and forget it” approach to retirement planning which could give them a false sense of security.
The report cites a Mercer study which found that individuals in automatic enrollment retirement plans defer on average 3.5-4.4 percent of their income into their plan compared to 7 percent of individuals who proactively contribute. Millennials are a generation, the report points out, that use automation to pay their bills, and similar systems could work well for them when it comes to retirement planning, but it would behoove them to take a more proactive approach.
The report also identified other groups who are at risk when it comes to retirement preparedness, among them, women and lower-income employees.
Just 17 percent of women surveyed were confident that they would be able to reach their income-replacement goal in retirement — an increase from 13 percent in 2012 — but still a number far too low, the report warns. Due to the fact that, on average, women both live longer and earn less than men, they need to make retirement preparedness a top priority.
Lower-income employees, defined in the report as those with total annual household income of $60,000 or less, experience setbacks in retirement preparedness compared to the previous year. A lesser percent reported:
- Participating in 401(k) plans — 84 percent in 2013 compared to 86 percent in 2012;
- Feeling confident in their retirement income-replacement goal — 10 percent versus 11 percent in 2012; and
- Having calculated a retirement projection plan, 33 percent compared to 36 percent last year.
On a positive note, the report found that the overall state of retirement planning among employees has improved since 2011.