REVIEW: Who Needs a Retirement Plan? Apparently Not Millennials

Employers with younger employee demographics frequently tell me their staff isn’t interested in their retirement plan. Often, these staff members are struggling with various financial issues such as repaying student loans, paying down credit card debt, paying rent, or saving for a future home purchase. Retirement savings are often the last thing on their mind.

And yet a recent article in US News and World Report highlights that while only 40% of millennials are currently saving for their future income needs, they are generally optimistic about their retirement.

Millennials’ seemingly care-free attitude toward saving for the future is concerning. Saving for retirement early allows workers to take advantage of compound interest, which can significantly boost account balances over longer periods of time. Saving is not enough—the key to compound interest for a 401k investor is to ensure that the investment mix used will grow the account.

Many younger workers tend to be conservative investors and typically opt for a money market or stable value fund to protect their savings from market volatility. While these investments may preserve their contributions, they most likely won’t protect these young investors from the corrosive effects of inflation or provide enough growth to meet retirement income needs. This illustrates why including higher-risk options such as equity mutual funds is important for all retirement savers, especially those with longer time horizons.

Having access to a financial professional can help these younger workers understand the risks associated with not saving enough or investing too conservatively. Unfortunately, their lack of investable assets and inability to overcome the cost barriers associated with financial advice tend to leave millennials to their own devices when planning for their financial futures.

The exception to this scenario is when an employer offers access to financial advice through the company-sponsored retirement plan, such as a 401k. Employees are able to obtain personalized financial guidance about their situation without worrying about a high price tag. Offering access to these types of services can greatly benefit employers in the form of increased employee loyalty, more satisfaction with retirement benefits, and increased productivity as a result of reduced financial stress.

Are your employees happy with their retirement benefits package? Click here to download a survey that can help you identify if adjustments may be needed to increase employee satisfaction and engagement.

 

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