Millennials’ retirement: The retirement reality check

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  Quantumrun Foresight
• December 23, 2024

Insight summary

Millennials face significant challenges in saving for retirement, with many struggling due to economic instability and personal financial setbacks. While reliance on 401(k) plans instead of traditional pensions has made retirement planning more complex, policy changes and financial tools are helping some Millennials catch up. However, the long-term effects could lead to more people working later in life, a shift in housing demand, and increased pressure on government programs like Social Security.

Millennials’ retirement context

Millennials face unique challenges when it comes to retirement savings due to economic shifts and personal financial circumstances. According to a 2023 report by Goldman Sachs, 34 percent of Millennials feel they are behind on their retirement savings, often due to economic hardships or stepping away from the workforce for caregiving responsibilities. These setbacks, coupled with rising living expenses, leave many Millennials with stagnant savings, sometimes for years. Furthermore, recent economic crises, such as the COVID-19 pandemic, have worsened these challenges, leading to a generation that has had to constantly adapt to financial instability. Despite these issues, many Millennials still aspire to retire early, a goal that remains difficult to achieve for most.

Millennials' approach to retirement has been shaped by significant policy and economic changes. Unlike older generations with access to employer-provided pensions, Millennials rely more on 401(k) plans and other defined contribution retirement accounts. This shift requires individuals to take on more responsibility in managing their retirement funds, which can be daunting for those without financial expertise. According to the Transamerica Center for Retirement Studies' 2023 survey, only one-third of Millennials have a written retirement plan, and many face a substantial retirement savings gap. For example, a 2022 study by Northwestern Mutual found that Millennials have saved an average of USD $62,600 for retirement, far below the USD $1.65 million they believe they need.

Despite these hurdles, there are reasons for optimism. Millennials tend to start saving earlier than previous generations, with a median age of 25 compared to 30 for Generation X, as noted in the Transamerica survey. Additionally, advancements in retirement plan designs, such as automatic enrollment in 401(k) plans, help increase participation rates and savings contributions. New policies, such as the Secure 2.0 Act, also make it easier for employees to receive employer matches on their 401(k) plans while paying down student debt. 

Disruptive impact

With rising costs of living and stagnant wages, many Millennials may struggle to maintain their desired lifestyle in retirement. For example, those who continue to save less than the recommended amount may rely more heavily on social safety nets like Social Security, which could lead to reduced financial independence. Additionally, longer life expectancies will require them to stretch their savings over more years, putting further strain on their resources. As a result, younger generations may need to work longer or compromise on their retirement goals, such as delaying travel or reducing living expenses.

Businesses may face increased pressure to offer more attractive retirement savings plans, such as higher matching contributions in 401(k) plans or automatic enrollment features to encourage participation. Furthermore, companies may need to adjust their talent retention strategies as employees who cannot retire early remain in the workforce longer. This shift could affect promotions, workforce dynamics, and succession planning. For instance, businesses might have to create roles that accommodate older workers, potentially offering more flexible working conditions to keep experienced employees engaged and productive.

Meanwhile, governments may face challenges due to this trend, particularly in terms of social safety net programs and long-term economic planning. As more Millennials delay retirement savings or retire with insufficient funds, governments may be pressured to increase funding for public pension systems like Social Security. New policies focused on financial literacy and retirement planning education may also be needed. Policymakers could also consider reforms to healthcare costs, as an aging population with inadequate savings will likely strain public healthcare systems. 

Implications of Millennials’ retirement

Wider implications of Millennials’ retirement may include: 

• Anincrease in freelance work opportunities due to Millennials needing to extend their careers beyond traditional retirement ages.
• Companies creating flexible benefit packages, such as phased retirement plans, to retain older workers who wish to work part-time.
• Financial technology firms developing more tools for real-time financial planning to help individuals track retirement savings progress.
• Governments incentivizing delayed retirement through tax breaks or extended benefits to alleviate pressure on Social Security.
• A shift in real estate markets as older individuals continue to rent or downsize, affecting housing demand and pricing structures in suburban areas.
• Political advocacy groups gaining more traction on retirement-related issues, influencing policies on pensions and healthcare costs.
• Education systems integrating mandatory financial literacy programs to better prepare future generations for long-term financial planning.
• The rise of intergenerational households as more Millennials, unable to retire comfortably, choose to live with family members to reduce living costs.
• Labor shortages in certain physical-demanding industries as younger generations avoid these roles due to perceived long-term instability in retirement benefits.

Questions to consider

• How prepared are you for unexpected financial challenges that could impact your retirement plans?
• How could extending your working years affect your personal and family life?