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Ebix Spotlight

How Millennials Are Thinking About Retirement

Millennials are the youngest generation in the workforce, but they’re already thinking about retirement: HSBC’s Future of Retirement research says millennials expect to retire at age 58 and are working hard to make that happen. It also found that 80 percent of millennials have started saving. But how does their approach differ from other generations?

“Millennials tend to invest in themselves more than other generations, get married later in life and not place value in things like homeownership,” says Angela Coleman, a fiduciary investment adviser at Unified Trust Co. “Their views on finances and investment strategies have largely been shaped by the Great Recession, which translates into a desire to invest less while using more conservative strategies.”

Here’s what you need to know about millennials and their retirement plans.

They’re Financially Literate, But …

Millennials grew up using technology to get information and research opportunities, so when when it comes to learning about how to invest for retirement, they will generally do their homework, experts say. Millennials tend to have above-average financial literacy, says Justin Chidester, owner of Wealth Mode Financial Planning. “They’re very comfortable looking up and finding research on their own.”

However, this can lead to “analysis paralysis,” he says — the inability to make a decision because of too much information. “I've been surprised at how many new clients have so much cash saved up but have not invested it, simply because they freeze up about exactly what account and asset allocation to invest in,” he says. They may have difficulty choosing between a traditional or Roth IRA, for example. Advisers can expect a short learning curve, but should be prepared to help guide younger clients at the moment of decision.

They Need Flexible Options

As the nature of work changes, millennials don’t expect to spend a long time at any one particular employer. “The life path that many millennials want throws the traditional model out the window,” Chidester says. “A married couple may switch breadwinner roles several times throughout the coming decades to take turns raising children. They may want to take a midlife sabbatical to travel the world, rather than wait for the end of life when there's the risk of health or other things getting in the way. They may want to keep the option open to have a drastic career change and go to school in something new.”

As a result, saving for retirement looks very different than it does for other generations, Chidester says. “If you're going to be having midlife mini ‘retirements,’ then stockpiling money only in tax-deferred qualified accounts like 401(k)s and traditional IRAs isn't going to work, because of their age-based restrictions on withdrawals,” he says. More flexible options or “lifestyle” investments such as rental property in a favorite vacation spot may serve their goals better.

They’re More Hands-On

For older generations, retirement savings is something they are more used to thinking about only occasionally, such as at tax time or when an asset reaches vesting status. Millennials, however, are much more hands-on with their finances, says Divam Mehta, a certified financial planner. “Millennials are more apt to make changes to their portfolios on their smartphones vs. waiting for a quarterly review with their adviser,” Mehta says.

Financial planners who work with younger generations should be ready for frequent communications and be able to offer mobile options that make it easy for clients to tweak or check up on their investments. Because millennials have started to save early and generally have clear goals for their savings, they’re looking for ways to maximize their returns. “Time is their greatest ally,” Mehta says. “With this type of enviable head-start, millennials know they have many years’ worth of long-term investing.”

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