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Millennials and DC Plans

Plan sponsors should re-examine their methodology and effectiveness for how they communicate with the millennial population. Generally recognized as individuals born between 1980 and 2000, the millennial generation currently represents the largest cohort in history and includes 92 million people in the United States. This generation needs to be treated differently for a number of reasons.

Although millennials are the most educated generation of young adults in American history, a survey from Pew Research (2014) found that 51% of millennials don’t believe there will be any money left in the Social Security system by the time they reach retirement and like other generations financial knowledge is limited. In addition, 50% of this population feel they may be worse off economically than their parents. Health trends indicate that millennials could also be the first generation in the last century to live less than their parents and grandparents.

Millennials are the first generation to have less wealth accumulation than their two predecessor generations (Generation X and Baby Boomers) had at the same stage of their life cycle (Pew Research, 2014).

Factors that are contributing to lower wealth accumulation compared to prior generations include:

  • Highest level of student loan debt
  • Delaying or foregoing home purchases, which has traditionally been an individual’s greatest asset. If a house is not purchased or owned over a shorter period, it doesn’t allow for the potential compounding of this asset.
  • Potential lower career earnings as millennials may have had a delayed start to their working careers due to the 2008 financial crisis and may not advance as quickly as older workers hold on to positions longer because they cannot afford to retire
  • Potential lower inheritance from parents as people are living longer and these assets may be consumed by healthcare and nursing home care later in life

Despite their financial burdens, millennials are the nation’s most stubborn economic optimists. More than 80% say they either currently have enough money to lead the lives they want (32%) or expect to in the future (53%) (Pew Research, 2014). Still, Millennials also show signs of being the most risk averse investor group (ICI, 2013). However, they are benefitting from auto-savings programs used in retirement plans.

Given the potential influence this sizable generation may have on retirement plans and their unique circumstances, plan sponsors should engage with their recordkeepers on how to address the needs of millennials.