Investment advice: Millennials as retirement optimists? Baby-boomers should be concerned…

Published April 18, 2019

For most millennials (born 1981-1997), life feels like a test they didn’t study for. Born in 1984 and a millennial myself, I can attest to that as I co-author this article with my business partner (many years my senior). Considering our differences being born generations apart, our joint concern for the future of younger generations is strong. Most baby boomers share this concern.

The total number of millennials (83.1 Million) has surpassed baby boomers (75.4 million) according to the U.S Census Bureau. Challenges faced differ from previous generations. Millennials are the highest educated generation with more than 60% attaining college degrees. While this sounds great, this also means many are overeducated for job opportunities and left with debt. According to U.S Census data, 40% of unemployed Americans are millennials.

Despite these challenges, millennials remain optimistic about the future. But is this optimism irrational? Studies indicate that if millennials do not take steps to move forward in planning their future, the future may not look as bright.

According to a study conducted by North American Company in May 2018, 26% of millennials gave themselves an “A” grade regarding their retirement planning compared to 21% of baby boomers. Sixty-Six percent are confident they will meet their retirement savings goals compared to 53% of baby boomers. In addition, 60% of millennials believe they will be better off than their parents in retirement. There are meaningful barriers millennials need to navigate in order to make their optimism come to fruition.

For instance, 52% of millennials report less than $5,000 saved for retirement. Studies also indicate 44% of millennials, are financially supporting others besides themselves. In addition, only 26% of millennials are “very confident” they will be able to count on social security as a source of income during retirement. Baby boomers in this same category more than double that statistic (59%).

With retirement close to 40 years away, how do we combat these trends and help millennials work toward the future they are optimistic about?

To overcome some of the challenges, millennials need to be convinced to (1) INVEST EARLY and leverage tax-advantaged accounts including insurance-based products and qualified employer accounts like 401ks, IRAs, etc. Many employers offer retirement plans that include a match of 3%. This is a gift of 100% return guaranteed, so take advantage of that. If that were $100 bill on the ground, you’d pick it up, wouldn’t you?

In addition to investing early, millennials have a healthy skepticism of the market which has left scars for older millennials given what we witnessed in 2000 and 2008. Millennials have grown more conservative at a younger age. We tell millennial clients to (2) DIVERSIFY by utilizing financial planning tools that leverage protected growth strategies for only a portion of their retirement portfolio. Diversifying in this fashion allows you to take on more risk with money directly in the market when younger because you’ve safeguarded a portion you can count on. You also have more time to make up any loss from market downturn before retiring.

The third way to combat trends is to (3) CREATE A SAVINGS ACCOUNT FOR EMERGENCIES. Would you drive a car with no airbags? Of course not! Allow a cushion for “life happens” expenses like being disabled, your car breaking down, home repairs, etc. Ten to Twenty percent should be set aside for this account until you have 6 months of expenses covered.

Lastly, any money left over after bills and the employer 401k match should be used to (4) TACKLE DEBT. Start tackling debt with the highest interest rate and work your way down. It’s amazing what you can accomplish with a little financial discipline.

Despite positive traits and optimism, most millennials lack motivation and financial discipline needed to reach their full potential. Act now and leverage help from a professional to secure your future. For advice leading to financial success, please contact our office at 408-767-2572.

Bob Price and Brian Harrigan are the owners of Executive Plan Design in Gilroy. They wrote this column for Gilroy Life.