Study: Millennials saving less for retirement, saying they ‘don’t see a point’

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Millennials are bucking the trend that saving for retirement represents the norm everyone aspires to, according to studies.

The younger “next gen” portion of the demographic has recoiled from saving for retirement in a big way. Of those surveyed in a 2022 State of Retirement Planning report released by Fidelity Investments, almost half the adults between the ages of 18 to 35 (45%) “don’t see a point in saving until things return to normal.”

Plus, over half (55%) of the same age group had “put retirement planning on hold” during the pandemic. This is despite banks and credit unions reporting record-level deposits in savings accounts during the pandemic, illustrating the complexity of the economy in the pandemic, according to wealth advisers, bankers and economists.

“Younger generations don’t participate in employer-sponsored (retirement) plans as much as other generations,” said Puspa Amri, a Sonoma State University economics and banking professor, referencing baby boomers and Americans from the Greatest Generation.

Millennials, also referred to as the 72.1 million in Gen Y, were born between 1981 and 1996. The Fidelity researchers stretched the traditional definition of millennials by including 18- to 25-year-olds, who are considered Gen Zers. They called the new group a “next gen” demographic.

Amri cited “FOMO,” as in “fear of missing out,” as one reason millennials have elected to spend their money elsewhere. Many millennials have delayed other traditional norms such as buying a house, getting married and having children, which require a cache of funds. Instead, they may go on vacation, economists report.

“They’re also worse off because of when they graduated,” Amri said

The Great Recession impact of 2008-2009 brought them a “disadvantage,” Amri said. At that time, the job market provided fewer opportunities, and they were still burdened by paying off college tuition. That student debt has impacted their ability to buy into the maddening housing market, which is flanked by high prices and low inventory.

“Many have given up on buying a house. They don’t make it as much of a priority,” she said.

Rather, they seem to have sought other ways to make them happy, “with the cards we’ve had dealt to us,” she said.

Getting millennials to the table to sign up for retirement programs will most likely require a different approach, according to Amri, while citing a Charles Schwab study released two months ago.

The study called “Retirement Reimagined” showed the millennials that did opt into retirement planning accounts put in less. Researchers found millennials are more likely to use their savings to achieve their dream lifestyle and pursue their passions, with 61% prioritizing travel versus home ownership. Consequently, they view retirement less as a target number and date and more like a state of mind.

“And (the investment) has to presented as a shiny object,” she said, adding the ‘next gen’ demographic is more apt to invest in crypto currency. “But they have to know their own risk tolerance.”

JDH Wealth Adviser Matt Delaney has discovered he has to appeal to millennials by demonstrating how much investments compound. Otherwise, “they’ll always have excuses,” he explained. They also need to be shown on paper just how much they’re spending in their day-to-day “experiences,” whether it involves a Netflix subscription, restaurant visit or Amazon purchase.

He uses stark number crunching noting a 25-year-old making $15 an hour putting away 2.8% of their salary at $16.90 per week may accumulate $310,000 in 40 years.

“You have to get in front of them,” he said, referring to the coronavirus outbreak as a “wake-up call” to those wondering about their futures.

The Santa Rosa wealth manager has heard all the excuses — from “I don’t make enough” to “I will once I get a raise.” It’s the reason many employers have sponsored plans that require opting out instead of opting in.

Millennials have endured many economic challenges, with the pandemic being the latest in a series of financial tests that prompt them to think about what’s important. Understanding their socioeconomic attitudes is just as important for wealth managers to provide meaningful advice as telling them how others behave, economists claim.

“The majority of millennials grew up without the word ‘no’ in their vocabulary,” said Neil Hennessy, who serves as chief market strategist, president and board chairman for Hennessy Funds in Novato.

Adding to the list of challenges is a looming recession characterized by high inflation, low supplies of goods and the promise of rising interest rates. But this threatening recession is at least far different than what the millennials faced upon high school college graduation in 2008, Hennessy pointed out.