Study: Millennials saving less for retirement, saying they ‘don’t see a point’

Millennials are bucking the trend that saving for retirement represents the norm everyone aspires to, according to studies.

The younger “next gen” portion of the demographic has recoiled from saving for retirement in a big way. Of those surveyed in a 2022 State of Retirement Planning report released by Fidelity Investments, almost half the adults between the ages of 18 to 35 (45%) “don’t see a point in saving until things return to normal.”

Plus, over half (55%) of the same age group had “put retirement planning on hold” during the pandemic. This is despite banks and credit unions reporting record-level deposits in savings accounts during the pandemic, illustrating the complexity of the economy in the pandemic, according to wealth advisers, bankers and economists.

“Younger generations don’t participate in employer-sponsored (retirement) plans as much as other generations,” said Puspa Amri, a Sonoma State University economics and banking professor, referencing baby boomers and Americans from the Greatest Generation.

Millennials, also referred to as the 72.1 million in Gen Y, were born between 1981 and 1996. The Fidelity researchers stretched the traditional definition of millennials by including 18- to 25-year-olds, who are considered Gen Zers. They called the new group a “next gen” demographic.

Amri cited “FOMO,” as in “fear of missing out,” as one reason millennials have elected to spend their money elsewhere. Many millennials have delayed other traditional norms such as buying a house, getting married and having children, which require a cache of funds. Instead, they may go on vacation, economists report.

“They’re also worse off because of when they graduated,” Amri said

The Great Recession impact of 2008-2009 brought them a “disadvantage,” Amri said. At that time, the job market provided fewer opportunities, and they were still burdened by paying off college tuition. That student debt has impacted their ability to buy into the maddening housing market, which is flanked by high prices and low inventory.

“Many have given up on buying a house. They don’t make it as much of a priority,” she said.

Rather, they seem to have sought other ways to make them happy, “with the cards we’ve had dealt to us,” she said.

Getting millennials to the table to sign up for retirement programs will most likely require a different approach, according to Amri, while citing a Charles Schwab study released two months ago.

The study called “Retirement Reimagined” showed the millennials that did opt into retirement planning accounts put in less. Researchers found millennials are more likely to use their savings to achieve their dream lifestyle and pursue their passions, with 61% prioritizing travel versus home ownership. Consequently, they view retirement less as a target number and date and more like a state of mind.

“And (the investment) has to presented as a shiny object,” she said, adding the ‘next gen’ demographic is more apt to invest in crypto currency. “But they have to know their own risk tolerance.”

JDH Wealth Adviser Matt Delaney has discovered he has to appeal to millennials by demonstrating how much investments compound. Otherwise, “they’ll always have excuses,” he explained. They also need to be shown on paper just how much they’re spending in their day-to-day “experiences,” whether it involves a Netflix subscription, restaurant visit or Amazon purchase.

He uses stark number crunching noting a 25-year-old making $15 an hour putting away 2.8% of their salary at $16.90 per week may accumulate $310,000 in 40 years.

“You have to get in front of them,” he said, referring to the coronavirus outbreak as a “wake-up call” to those wondering about their futures.

The Santa Rosa wealth manager has heard all the excuses — from “I don’t make enough” to “I will once I get a raise.” It’s the reason many employers have sponsored plans that require opting out instead of opting in.

Millennials have endured many economic challenges, with the pandemic being the latest in a series of financial tests that prompt them to think about what’s important. Understanding their socioeconomic attitudes is just as important for wealth managers to provide meaningful advice as telling them how others behave, economists claim.

“The majority of millennials grew up without the word ‘no’ in their vocabulary,” said Neil Hennessy, who serves as chief market strategist, president and board chairman for Hennessy Funds in Novato.

Adding to the list of challenges is a looming recession characterized by high inflation, low supplies of goods and the promise of rising interest rates. But this threatening recession is at least far different than what the millennials faced upon high school and college graduation in 2008, Hennessy pointed out.

“The root of the problem now is market volatility,” he said.

But even with an economy flush with cash ($7.5 trillion sitting in the accounts of 500 top U.S. corporations), going to Hawaii may seem like an attractive option in the moment to a generation bent on experiences versus stashing money into retirement savings plans, Hennessy hinted.

But recent signs of the market slipping, inflation’s grip and rising interest rates may be a foreshadow of other challenges to come.

Summit Bank CEO Brian Reed is convinced the banking world’s quarter-after-quarter of record deposits will slow this year as consumers, including millennials, deal with inflation at the gas pumps and grocery checkouts.

“What we have seen in the banking industry through the pandemic is increased deposits, primarily from funding from the government,” Reed said. “There’s the preponderance of that money still sitting in banks, but we have already seen some of that money flowing out (of accounts).”

Before the pandemic from 2009 to 2020, the Bureau of Economic Analysis examined the personal savings rate on U.S. incomes after purchases and paying taxes as 7.25%. The percentage more than doubled during the pandemic in 2020 and 2021 to 17.9%.

What’s next?

“Who knows what the right timing is (on investments), which makes it a challenging period. There are so many economic variables at stake,” Reed said.

Credit union executives also anticipate record-high banking deposits will either plateau or decline going into summer of 2022 as local households continue drawing down their unprecedented savings to afford today’s price inflation for goods and services across the Greater Napa Valley region. The California Credit Union League defines the Greater Napa Valley region as the combined counties of Napa, Sonoma, Solano, Mendocino, Sutter and Yolo.

In turn, the job market may see changes in that regard.

“As households’ financial flexibility is eroded by inflation and they continue drawing down their deposit savings, some former workers and recent retirees are starting to take note of the healthy jobs market and high number of open positions,” said Sonoma State University Economics Professor Robert Eyler, who is also economist for the League.

Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. For 27 years, Susan has worked for a variety of publications including the North County Times, Tahoe Daily Tribune and Lake Tahoe News. Reach her at 530-545-8662 or susan.wood@busjrnl.com

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