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The Generational Retirement Divide Between Millennials and Baby Boomers

CaptureIt’s an unfortunate reality today that most millennials expect Social Security to be completely dried up well before they retire. Most know that they’re practically on their own when it concerns their retirement. One big issue millennials are facing is that they’re not saving as much as they could, the full percentage allowed by law, and while there are several varying factors as to why that is, one major one is that, according to a survey done at Harvard University, more than two-in-five (42%) millennials between 18- and 29- years old report that they, or someone in their household has student loan debt.

Student debt aside, there are just simply some things that millennials are doing a little more efficiently than their parents before them. With government safety nets failing the American people, we’ve learned that we need to adapt, and evolve the way that we’re preparing for retirement.

Types of Investments

What millennials want to invest in is rather different than what previous generations have chosen to invest in. They want variety, they want tech, they want futuristic, they want to be green. In an article from The Street, they talk about how millennials’ distrust for Wall Street is illustrated by how few members of this generation have invested in stocks. Only 26% of millennials invest in equities, according to a Bankrate survey.

The types of investments that have grown the last few years definitely reflect that sentiment, and are expected to only keep expanding further away from the traditional stocks and bonds. Some of the most popular investments include:

  • Microfunds/loans
  • Energy
  • Crowdfunding
  • Tech startups

Saving Habits

Seventy percent of millennials are already saving for retirement and started saving at the unprecedented young age of around 22. Seventy six percent are discussing saving, investing, and planning for retirement with family and friends. And eighteen percent of millennials describe themselves as frequently talk about it. Two-thirds of millennials expect their primary source of income in retirement to be self-funded through retirement accounts, or other savings and investments.
To say that the millennial generation is ill-prepared is only to vastly underestimate them.

Learning from Past Generations

One major advantage that millennials have is being able to witness what most definitely does not work, and what financial decisions should be made when. A recent Wells Fargo study finds that an impressive 80 percent of millennials feel that the Great Recession taught them to save for the future in order to weather tomorrow’s economic turmoil.

Another point that has been coming across loud and clear to the millennial generation is that starting to save early is key to a successful retirement. And we mean aggressive saving.
The importance of portfolio diversification is a lesson that the younger generation takes seriously to heart, because some boomers didn’t establish a proper allocation of investments into non-correlated asset classes. Instead, many boomers were oblivious to risk or focused on chasing returns from the hottest funds.

When Traditional Routes Fail

For most of our parents, pensions were what they depended on for being retirement ready. Until recently, a pension seemed almost as good as money in the bank. Companies who offered pensions would set aside money for their employees’ retirement. But, unfortunately, it has become obvious that most pensions plans are falling short. We all prefer to spend more today and deal with the future when it comes. In short, pension plans have done this by promising generous benefits without a clear plan to pay for them, resulting in heavy dependence on them by employees, with little savings outside of the pension plan.

A 401K and other defined contribution plans can also be an unreliable sole retirement plan. They require employees to decide, individually, to set aside money for retirement, and to invest it wisely, as rookies (as most of us are) over the course of 30 or so years. The bad news is that research suggests that people are remarkably bad at both. Resulting in about 20% of eligible employees not participating in their 401K plan.