Millennials Are Beating Boomers in Retirement Planning

Say what you want about millennials, but one thing, and a positive one at that, is becoming clear about the generation born in the 1980s and 1990s: they’re heading toward some comfortable retirements.

In fact, millennials are outpacing baby boomers when it comes to retirement preparedness, according to new research from Vanguard. The inaugural Vanguard Retirement Outlook report leverages the newly minted Vanguard Retirement Readiness Model (VRMM), which is accessible to registered investment advisors, to get a handle on how the various generations stack up when it comes to retirement readiness.

That’s important news for advisors working with younger clients, particularly because these clients tend to have ambitious retirement goals. Here’s something advisors really need to focus on working with clients in the millennial and Gen Z demographics: A recent survey by the World Economic Forum found that 44% of people under 40 want to retire by age 60.

One of the reasons millennials are doing so well when it comes to retirement planning is increased access to employer-sponsored retirement plans, including 401(k)’s. Obviously, access is one thing. Taking advantage of it is another and whether by incident or intent, that’s what many millennials are doing. In fact, many in this age cohort confess to participating in a 401(k) simply because they were automatically enrolled in it by their employer.

“Notably, although many portray younger generations as facing more hurdles for retirement savings, this Vanguard research demonstrates that millennial and Gen X savers have benefitted significantly from improved defined contribution plan design that encourages saving and investing in age-appropriate asset allocations,” said Fiona Greig, global head of investor research and policy at Vanguard.

Millennial Retirement Details

While the survival of Social Security is a source of debate, assuming that it is there in full effect for millennials, roughly half the demographic will be able to generate retirement income equal to 50% of pre-retirement earnings, according to Vanguard.

“The generational gains in retirement readiness are even larger for higher-income workers. Early millennials at the 70th percentile of the income distribution are on track to reach a sustainable replacement rate of 66%, 15 percentage-points higher than late baby boomers, and a level that will enable them to just about meet their projected spending needs in retirement (68%), per HRS data,” adds the Vanguard survey.

There’s clearly benefit in automatic enrollment because many clients, regardless of age demographic, like “set it and forget it.” Additionally, of these plans feature automatic contribution increases from workers as they age and earn more money. Some even feature default investment options.

Lower Income Workers Need Help

Not surprisingly, advisors actively seek out clients that can bring substantial assets to the table, but there is value in approaching these prospective clients. After all, they need retirement planning guidance and their incomes will rise with time.

Fortunately, bolstering the retirement security of millennials, boomers and everyone else doesn’t fall squarely on the shoulders of advisors.

The Vanguard report “reveals that policymakers have an opportunity to connect low-income workers with the capital markets to reduce their projected retirement readiness gap. Further, employers can help workers save adequately by adopting best practices in retirement plan design,” concludes the fund giant.

Related: Advisors Should Enlighten Clients to HSA Benefits