Let’s help millennials see that saving $1 million for retirement is possible!
By Joe Mishriki, President Inland Orange County Hills, Wells Fargo
Whether you are a millennial, the parent of a millennial or a boss, let’s encourage this generation with facts so they begin their journey to retirement on the right foot!
Young adults are making an impact on culture and in the workplace. This age group is busy building a career, paying off student loans, and planning for their futures. For many, though, planning for their financial future looks very daunting, according to results of our recent millennial study about retirement.
A sizable majority, 64%, said they will never accumulate $1 million in savings in their lifetimes in our 2016 Wells Fargo Millennial Study. However, it might not be as unattainable as they think given they have time on their side when it comes to savings compounding over decades. It’s a simple math problem, a $1 million goal that’s attainable for an adult with a $32,000 salary at age 25 if they start putting 5% of their salary in a retirement plan and increase the percentage saved by 2% each year until they reach 13%. This scenario works if the person has a 2% annual salary increase, is invested in the market and sees a 7% return on invested assets.
In our millennial study, we surveyed more than 1,000 U.S. adults, between the ages of 22-35, with an additional oversample of 500 Hispanic millennials for comparison purposes. We’re glad to report that 59% of those surveyed said they are saving for retirement, but that of course leaves 41% who are not. Their obstacles to not saving for retirement sound familiar for people of any generation—living paycheck to paycheck, not routinely checking their finances or having a budget, and worries about the current economic environment.
What we stress with employees in retirement plans we manage is to not only enroll in the plan but keep contributing throughout your career. Staying committed to that retirement savings journey, along with increasing the percentage saved as your salary grows, are important behaviors to promote a better financial footing. It’s a time-tested strategy, no matter how scary it might feel to save for 20-30 years of living in retirement.
Student loan debt remains a financial challenge for the millennial generation. Thirty-four percent told us they currently had student loan debt, with a median debt load of $19,978. For 75% of the millennials with student loan debt, the word to describe their loan is “unmanageable.” To their credit, 70% of those with this unmanageable debt are still saving for retirement. We’re encouraged by their determination to save for their financial future despite their current financial challenges.
A closer look: ethnicity, gender
Pew research says that one-quarter of all Hispanics in the United States are in the millennial generation. That made us interested to understand this group’s attitudes about finances and retirement. Sixty-six percent of the 500 Hispanic millennials identified in our study have a budget, compared with 54% of their peers in the general population. They also tended to be more optimistic, believing they will be better off than their parents at a rate of 63% vs. 49% in the general population. Given those results, we expected Hispanic millennials to be well on their way towards saving for retirement, but 52% told us they were saving for retirement, as compared with 59% of the general population. One possible reason why the retirement savings number isn’t higher: 30% said they are supporting two or more generations in their family.
Gender differences between male and female millennials also stood out in our survey data. Men reported a median income of $39,100, compared with a median income of $28,800 for women. Both experience the reality of living paycheck to paycheck, with 54% of women and 43% of men acknowledging this was their situation. A large majority of women–73%–thought accumulating $1 million was unattainable, quite different from the 56% of men who had the same attitude. Both are retirement savers, with men edging women by just a few percentage points: 61% of men vs. 56% of women have already started saving for retirement.
Some potential strategies
We’re hopeful that more millennials will save for retirement and develop increased financial confidence for the future. It was encouraging to see that 85% of millennials viewed saving for retirement an important part of becoming a “financial adult” and that 69% think that having a retirement plan like a 401(k) plan is extremely important. As retirement plan providers and employers, I hope we can continue to find ways to encourage these thoughts to boost the number of millennials who begin saving for retirement at the start of their career. There are plenty of plan design features, such as automatic enrollment and an automatic increase program, that are great tools to get this younger generation started on the right path.
A little education on how to invest, with special emphasis on long-term investing and stock market exposure, is critical to help millennials generate returns that will grow their nest egg at significant rates. We recognize there’s still a perception that the market is too volatile, but at Wells Fargo, we stress the importance of having many different types of investments—including bonds and stocks—in order to achieve financial goals and protect against drastic swings in account balances. Target-date funds can be a great option for diversifying within a fund, with a glide path to change the investing strategy as you get nearer retirement.
We recognize it’s challenging to balance today’s financial needs with the need to save for the future. These studies give us great insights into millennials’ attitudes and behaviors. We plan to take what we’ve learned to try new approaches to reach this segment of the workforce, a group that has a great opportunity to prepare for a better retirement.