Millennials are getting the message about the benefits of saving early for retirement, a study shows. The question now is whether they're getting their financial advice from the best sources.
According to a survey by Natixis Investment Managers, millennials started saving for retirement 11 years earlier in life than baby boomers did, and on average they're contributing a hefty 16% of their annual salaries toward it.
The study found serious shortfalls in retirement savings, though, especially among baby boomers, with 58% of boomers saying their biggest regret is that they didn’t start saving sooner.
The report also showed that a third of millennials get their retirement investment advice from TikTok, Twitter and other social media. That said, nearly half say recent market volatility taught them the value of professional advice.
“It is overwhelming to realize how much information there is available and how much of it is contradictory. Millennials are looking for trusted professionals to weed out the bad and help guide them to make better decisions that are tailored to their goals,” said Robert Pearl, wealth advisor at SageView Advisory Group.
“American workers are feeling the weight of responsibility for retirement funding, and younger generations, in particular, are pushing for changes that will better meet their distinct needs and preferences,” Liana Magner, head of retirement and institutional in the U.S. for Natixis Investment Managers, said in a statement.
The fear that Social Security won't be around in its present form to aid them in retirement might be spurring younger generations to save more. The study showed that 83% of millennials and 78% of Generation X think Social Security benefits will be dramatically reduced by the time they retire. In fact, only 46% of millennials — half as many as baby boomers (90%) — are even factoring Social Security into their retirement income planning.
Their fears are not unwarranted either, especially in the wake of last month's announcement from the Social Security Board of Trustees that the combined asset reserves of the Old-Age and Survivors Insurance and the Disability Insurance Trust Funds are projected to be depleted in 2034, one year earlier than projected last year, with 80% of benefits payable at that time.
Unlike generations before them, millennials are looking beyond the traditional sources of retirement income such as pensions, Social Security and defined-contribution plans to fund their retirement. The report showed that millennials plan to use all available sources, including equity in their homes (29%), inheritances (24%), rental income (19%), the sale of a business (19%) and support from their children (19%) to finance their golden years.
“My initial reaction to the finds by Natixis are that millennials are getting some things very right and some things very wrong. Saving early and often while relying less on Social Security is a solid start to a healthy financial plan," said Nina Lloyd, president and CEO of Opus Financial Advisors, part of Advisor Group. "Counting on support from adult children and/or an inheritance from parents in retirement can be problematic.”
Considering their skepticism about the future of Social Security, millennials are also pushing their employers — and prospective employers — to do more on the retirement front. For example, the study shows that 81% of respondents, including 88% of millennials, think employers should be required to offer retirement plans, and 78% of those surveyed, including 87% of millennials, believe employer matching contributions should be mandatory.
Moreover, millennials don’t mind being “nudged” into saving for retirement. The study showed 69% of respondents, including 82% of millennials, say individuals should be required to make contributions toward their retirement savings.
“With the amount of pensions being phased out over that last 30 years and social media being a major source of information, millennials have been forced to pay more attention to their personal finances and employer offerings," said Christina Nash, founding partner and financial advisor at Knox Grove Financial, part of Advisor Group. "As a result, employers have begun to provide additional education and resources to support the employees in saving for their future.
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