Millennials are ahead of their parents when it comes to retirement savings

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Millennials are way ahead of baby boomers when it comes to retirement savings, according to new research from investment firm Charles Schwab. This younger generation is already accumulating funds in their mid-twenties, beating their parents by about a decade.

But it’s not all good news. The increase in savings could be due to the fact that millennials do not expect to receive employer-sponsored pension plans when they retire. In 1981, 84% of full-time workers in large companies participated in a pension plan; in 2020, that percentage has dropped to just 28%, according to the Bureau of Labor Statistics.

“A lot of baby boomers felt like their retirement was taken care of for them,” said Angela Montez, special adviser at law firm Eversheds Sutherland, where she focuses on retirement and investment policy.

Millennials don’t have that luxury. According to the National Institute on Retirement Security, about 72% of millennials are significantly pessimistic about financial security in retirement, compared to 43% of baby boomers. Saving at a younger age has done little to ease retirement anxiety.
That’s likely because millennials are worse off in nearly every aspect of their financial well-being. They entered the Great Recession, faced Covid and their second recession just as they reached their maximum earning potential. Now they are bracing for what financial analysts predict will be another recession, this time coupled with levels of inflation not seen in 40 years.
Millennials now make up the majority of the U.S. workforce, but account for only 6% of total household wealth. (Baby boomers own 50% of the wealth and Gen Xers own 30%). It’s not uncommon for wealth to accumulate in older generations, but in 1989, when baby boomers were around the same age as millennials, they made up more than 20% of all household wealth. .
Student debt has also exploded. A millennial who started college in 2007 paid an average of $19,400 a year for tuition, room and board. In 1974, a college freshman baby boomer paid about $10,300, adjusted for inflation.

Lifestyle goals also play a role in increasing savings, Montez said. Millennials are more mobile than previous generations, so investing in a home isn’t necessarily a priority, and their money tends to go into 401(k) plans.

About three-quarters of baby boomers and Gen Xers expect to own a home in retirement, while less than half of millennials do. More than 60% of Millennials will prioritize travel in retirement, according to the Schwab study.

Millennials also said they would spend less time managing their finances and investments once they retire, the study found, because they aren’t as focused on pursuing wealth accumulation anymore. later in life than Gen Xers and baby boomers.

“Millennials view retirement less as a target number and savings date and more as a target mindset or lifestyle,” said Jonathan Craig, head of investor services and marketing at Charles Schwab. .

There is one thing Millennials are focused on: cryptocurrency. Schwab found that around 25% of Millennials plan to invest in digital currencies, compared to around 5% of Boomers.

Asset managers are trying to adapt to the change: Fidelity, the nation’s largest provider of 401(k) plans, announced on Tuesday that it will allow its investors to put a portion of their savings into Bitcoin, as long as employers would be on board.

Advisors remain skeptical of such changes.

“Success in retirement comes from tried and true things like diversification, participating in the growth of the US and global economy through traditional equities – things that have cash flow and generate growth” said Rob Williams, managing director of financial planning, retirement income and wealth management at Schwab. “Crypto is not currently considered to have that.”

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