How do millennials stack up when it comes to retirement savings as opposed to members of Generation X?
According to a recent national survey, millennials are socking away money in 401(k)s and individual retirement accounts at nearly the same rate as Gen Xers, even though millennials are further away from retirement.
Morning Consult and Business Insider found in a survey released in November that about 45% of millennials have a 401(k) or IRA, and 33% are actively contributing to them. Meanwhile, about half of Generation X respondents reported having a retirement account, with 36% regularly contributing to it.
Some Rhode Island financial experts say retirement savings trends in the Ocean State follow similar patterns.
Pension reforms over the past decade seem to be an incentive to save for the long term for many millennials who watched their parents struggle financially after their pensions were adjusted, said Nick Loring, principal of Loring Advisory Group in Smithfield.
Loring, a millennial himself, works with one woman from his generation who has already saved $500,000 for retirement because she did not want to experience the insecurity that her mother has.
“When Generation X entered the workforce, they didn’t have things [such as] social media, but they still had pension programs in place,” Loring said. “As a millennial now, there’s literally almost no employer that offers a pension unless you’re going into municipal or government work.”
‘It’s just more top of mind with the millennial generation.’
NICK LORING, Loring Advisory Group principal
The Morning Consult/Business Insider survey collected responses from 2,000 people – 670 were millennials and 566 were members of Generation X. Survey guidelines defined millennials as people between age 23 and 38, and Generation X between age 39 and 54.
Many millennials entered the workforce after the Great Recession, setting them up for better success for saving for their later years than those who began working years earlier, Loring pointed out.
Since the end of the recession, the investment vehicles for many retirement funds have been generally on an upward trajectory, he said.
“Millennials have done really well because all I’ve seen is the market go up in the last 10 years,” Loring said. “I think the data is pretty good, at least from the trends that I see in my own practice.”
Immediate financial pressures stemming from family needs are also affecting the ability of many Gen Xers to save, said Derek Amey, a partner and portfolio manager at StrategicPoint Investment Advisors LLC in Providence.
While he considers the Morning Consult/Business Insider survey a likely realistic interpretation of retirement savings activity by generation in Rhode Island, Amey, a Gen Xer, said that millennials as a whole may not be facing the same needs as the older generation.
“One thing I’m seeing with Generation X recently that could explain the disparity, both in my practice and with friends, is that my generation is starting to send our kids off to college. Without sufficient means to accomplish all their financial goals many Gen X Rhode Islanders are then forced to decide to continue to save for retirement or help their kids pay for college,” he said.
Although understandable, a decision to put college tuition ahead of retirement preparations is a “huge financial mistake,” Amey added, citing a 2018 national survey done by T. Rowe Price that reported 74% of parents prioritize saving for their children’s college over contributing to their retirement funds.
That sentiment is on the rise, according to the survey, which found that 68% of parents in 2017 and 67% in 2016 felt the same way.
“Where I see Gen X get into trouble is when they forgo retirement savings entirely to try and help their kids. For them, college is a now expense or perhaps a few years off, while retirement in their minds is 10 to 20 years away,” Amey said. “So people tend to focus on what’s in front of them now, which is why they are making the decision to prioritize their child’s education. Admittedly college is expensive, but it’s typically a four-year expense. Retirement, however, can last 20 or 30 years.”
Those determined to work longer in order to make up for shortfalls may be sidelined because of health problems, one of the most common issues that pulls people out of the workforce as they age, Amey added.
For millennials with children, though, paying for college is in the distant future.
Timing, combined with the copious financial advice available online and over social media, gives millennials the means and awareness to take retirement seriously, despite the fact that it could be more than three decades away, Loring said.
“Most people are thinking about it,” he said. “The millennial generation is very plugged in to Twitter and LinkedIn, and there’s a lot of content out there that says by the time you’re a certain age, you should be saving a certain amount. It’s just more top of mind with the millennial generation because everybody’s always looking at their phones.”
Elizabeth Graham is a PBN staff writer. Contact her at Graham@PBN.com.
