Will Millennials Have a Tougher Time Retiring?

Posted by Brandon Conroy | October 24, 2018 | Thought-Leadership

That is a hard question to answer because the definition of retiring is changing. We need to adjust our antiquated view. The Social Security Act of 1935 established the normal retirement age as 65 years. That was 80+ years ago and much has advanced since that time. We are living a good bit longer these days, as discussed here (see my previous blog, Employees Unable to Retire Could Be a Financial Nightmare for HR).

In those days, many people performed physically taxing jobs, causing their bodies to wear down as they neared retirement age. Physically demanding jobs still exist, but are not as numerous as they once were.

 

Source:  Pittsburgh Collection, sub-collection of the Pittsburgh Photographic Library Collection, Carnegie Library of Pittsburgh, Pennsylvania Dept., Unknown Author under CC BY-NC

 

Source: Ford Motor Company assembly line.jpg, Created: 7 January 1928, Unknown Author under CC BY-SA

 

Many people in the steel industry retired early from the workforce, at around the ages of 50 or 55.  Today’s retirees are leaving the workforce much later. Phased retirements are very popular and really cloud both the accepted retirement age and retirement lifestyle. By the time Millennials retire, the “normal” retirement age will be even more blurred.

Many factors contribute to the difficulties all generations face concerning retirement, but Millennials, right or wrong, have greater deterrents from retiring.

Present Bias

Present bias, the tendency to place a greater value on a reward achieved in the present moment, has always existed. Unfortunately, this bias cloud our thinking about caring for ourselves, in terms of employee benefits, through the lack of retirement savings or ignored preventive health visits. Under defined benefit pension plans, employers were financially responsible for their employees’ retirement income. Now, with 401k plans, present bias is magnified, as employees are more responsible for their retirement incomes. Setting money aside for retirement is imperative, but often ignored for more immediate needs or wants.

Many factors contribute to the difficulties all generations face concerning retirement, but Millennials, right or wrong, have greater deterrents from retiring. – Brandon Conroy, Innovu Practice Director, Retirement…

Present bias is also magnified in Millennials because of immediate gratification. Technology provides the world at our fingertips. As a society we get what we want virtually immediately…. think smart phones, DVRs, Amazon, Netflix, Tinder, etc. Those immediate wants result in lower retirement savings rates among Millennials, and often, higher credit card debt.

A couple of things are going on with education that affects Millennials differently than other generations.

Student Loans

More workers have Bachelor’s degrees today.

 

 

The cost of a degree is higher today as well. College tuition increases vastly outpace wage growth.

 

 

Despite their education, Millennials are earning less than Gen Xers and Baby Boomers did at the same age, according to the Center for Retirement Research.

  • The hardest-hit Millennials are spending up to 45% of their income on student loan payments, leaving less money to invest in retirement.

Government Assistance

Millennials don’t know if the government will be able to provide retirement assistance. The deterioration of Social Security is real. At worst, a portion of the Social Security benefit will be unavailable to Gen Xers and Millennials. At best, reform will need to occur to readjust the Social Security benefit system.

Tweet: The deterioration of Social Security is real. At worst, a portion of the Social Security benefit will be unavailable to Gen Xers and Millennials. At best, reform will need to occur to readjust the Social Security benefit system. – Brandon Conroy, Innovu Practice Director, Retirement Analytics

Health

The mortality improvements seen over the past 30+ years are continuing and should continue, but maybe not to the same degree as they have. But at any rate, Millennials are likely to be living longer than the Silent Generation.

Healthcare costs have risen well above wage inflation over the past 30 years. The future cost of healthcare is a definite unknown. Healthcare costs have an upside because of the population living longer, but it costs a lot to pay for those advances to extend life.

Long-term care is a large end-of-life expense. These costs are higher now than in the past because of the healthcare advances that allow us to live longer. Sometimes that means living in a care facility for a portion of our retirement living.

Security

The chances of getting a portion of savings and income stolen through fraud, cyber scams, and data breaches are more prevalent. The Silent Generation, for the most part, didn’t have to live through data breaches that are prevalent today and are bound to worsen in the future.

Colleague Sashi Segu wrote 2 great blogs about protecting employee data:

Millennials are Financially Overwhelmed

Millennials are most likely to report feeling overwhelmed:

  • 40% report they feel this way when reviewing their financial situation compared to 22% of all other generations.

Given the financial burdens Millennials currently face and the concerns they have for the future, it is not surprising that 56% say their generation has it harder than their parent’s generation when it comes to achieving financial security. But it isn’t just Millennials who think this. In total:

  • 44% of Baby Boomers and the Silent Generation think that younger generations have it harder than they did when it comes to financial security (Society of Actuaries).
Understanding your employees’ financial wellness and each generation’s issues and needs is key to a productive workforce. – Brandon Conroy, Innovu Practice Director, Retirement Analytics

Understanding your employees’ financial wellness and each generation’s issues and needs is key to a productive workforce.

Brandon Conroy
About The Author

Brandon Conroy

Brandon Conroy, ASA, FCA, MAAA, is a leader in developing and implementing new tools and strategies that reduce client risk. He’s developed and implemented an interactive healthcare cost projection model, underwriting templates, renewal presentations, IBNR tools, a health plan chooser tool, and financial wellness education models. Leveraging his actuarial consulting expertise in both health and retirement practices, he is leading Innovu’s efforts to build a Retirement Analytics solution to assess the financial preparedness of client populations.

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