In addition to being more technologically savvy and more in tune with social media, the millennial generation, in general, is also better than the baby-boomer generation at preparing for retirement.
Within this broad statement — and the data that backs it up — are solid lessons on how financial advisers can expand to the next generation of clients.
While millennials, especially those in the early part of their careers, don't always max-out their retirement plan savings contributions, they are earning a reputation for being financially focused.
A survey of 1,505 millennials with 401(k) plans found that 75% carefully track expenses, 67% stick to a budget and 40% have increased their retirement savings contributions over the past 12 months.
By comparison, only 64% of boomers track expenses, only 55% stick to a budget and only 21% have increased retirement savings over the past 12 months, according to the retirement savings and spending study conducted by T. Rowe Price Associates Inc.
“The majority of my clients are baby boomers, but I agree that millennials are generally more attuned to finances than boomers are,” said Tish Gray, wealth planning adviser at Sagemark Consulting, a division of Lincoln Financial Advisors Corp.
“The millennials have watched their parents go through hardships, including the 2008 financial crisis, and they're also more attuned to the higher divorce rates, which has them waiting longer to get married and buy houses,” she added. “Millennials don't usually have a lot of assets for me to work with, but I always tell them to put as much as you can in your retirement savings.”
LIVING WITHIN THEIR MEANS
When it comes to saving, the study found that millennials are saving 8% of their income on average, while baby boomers are saving 9% on average. But millennials are more likely to live within their means, with 88% describing themselves as pretty good at living within their means and 74% saying they are more comfortable saving and investing extra money than spending it.
“It's encouraging to learn that millennials are so receptive to saving for retirement and are generally practicing good financial habits,” said Anne Coveney, senior manager of retirement thought leadership at T. Rowe Price.
“These millennials are working for private-sector corporations, with a median personal income of $57,000 and an average job tenure of five years, so their circumstances may be somewhat driving their behaviors,” she added. “When they have the means to do the right thing, it appears that they often do.”
Nearly three-quarters of those surveyed said that they are somewhat or much better off financially than their parents were at the same age.
When asked to rank financial priorities, millennials listed saving for retirement and paying down debt as top priorities.
Part of the driving force behind the strong focus on retirement savings is that 60% of survey respondents are not expecting to receive anything in the way of Social Security income.
“The difference between millennials and baby boomers have significant implications for retirement plan sponsors and advisers,” said Aimee DeCamillo, the head of T. Rowe Price Retirement Plan Services.
“Baby boomers have largely shaped the defined contribution system, but it's clear that millennials think differently and are more comfortable being auto-enrolled at higher levels,” she added.
“Because millennials are the largest generation ever within the U.S. and are entering the workforce in large numbers, plan sponsors and advisers need to begin incorporating millennials' preferences and practices into their workplace retirement plan designs.”