Thought Leadership in Action

Millennials are the first generation of workers to fully benefit from improvements made to retirement plans over the last decade, including the introduction of automatic features, and these improvements are reflected in their retirement savings habits and attitudes, the results of a survey conducted by retirement benefits consultancy Empower Institute indicate.

The survey of 4,038 working adults aged 18 to 65 was conducted between December 18, 2017, and January 21, 2018. Researchers observed that the landmark Pension Protection Act of 2006 (PPA), which was enacted at a time when the millennials were first entering the workforce, recognized the importance of employer contributions to employee accounts, and reformed workplace retirement plans in a number of ways.

Most significantly, researchers noted, the PPA allowed retirement plan sponsors to implement automatic enrollment of plan participants and automatic escalation of participants’ contributions. The survey found that 41% of millennial respondents are automatically enrolled in a defined contribution plan, compared to 38% of Gen Xer and 33% of baby boomer respondents; and that 38% of millennial respondents are enrolled in a plan with auto-escalation features.

The survey results included a retirement progress score (RPS), or a numeric estimation of the percentage of working income that U.S. households are on track to replace in retirement. The findings showed that the median projected income replacement among all the survey participants is 64%. Broken down by generation, the findings indicated that respondents of the millennial generation (born after 1981) are on track to replace 75% of their income in retirement, compared to 61% for Generation X and 58% for baby boomer respondents. Researchers also observed that there is an 11-point difference in median income replacement percentages among participants across all generations who were enrolled automatically in a defined contribution plan and those who opted into a plan.

In addition, the survey results suggested that attitudes about retirement planning differ across the generations, with millennial workers expressing less certainty than their older counterparts that Social Security will provide them with retirement income in the future. When asked to identify the sources they expect will provide them with income during retirement, 59% of millennial respondents cited Social Security, compared to 88% of boomer and 73% of Gen X respondents. By contrast, 61% of the millennials surveyed, compared to 55% of the Gen Xers and 47% the boomers, said they see defined contribution plans as a likely source of income in retirement. Moreover, 48% of the baby boomers surveyed said they believe they will need to work at least part time in retirement, compared to 44% the Gen Xers and 40% of the millennials.

The findings further indicated that while millennial respondents currently have smaller amounts of investable assets than Gen Xers and baby boomers, who have been in the workforce longer, these younger workers are more likely than their older counterparts to have a financial advisor and a formal retirement plan: 24% of millennial respondents reported having a formal retirement plan, compared to 19% of Gen X and 17% of baby boomer respondents. The overall retirement progress scores of respondents were also found to vary depending on whether they reported receiving paid advice: those with a paid advisor had a median retirement progress score of 91%, while those without a paid advisor had a median RPS of only 58%.

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