Encouraging Millennial Employees to Exceed Savings Goals
posted by Fisher 401(k) January 29, 2018
Millennials are saving. As a generation, they save an average of 10% of their income, which is more than Generation Xers at 8%, and double what Baby Boomers save at 5%. They are also generally earning less than their parents, but by saving and investing early, Millennials are on track today to save potentially twice as much as a Boomer making the same amount of money by retirement age.
As an employer, you have the opportunity to embrace this positive energy among your Millennial employees and encourage them to meet or even exceed their savings goals. Here are five aspects of retirement planning you can discuss with your younger workers to help them stay on track for a dignified retirement.
1. The longer you invest, the more stable your investments are.
Historically, the economy has its ups and its downs. Periods of growth—“bull markets” in Wall Street language—follow recessions, or “bear markets.” And while the prospect of a market downturn might be scary for some younger investors, it’s historically nothing to be afraid of. In fact, as Ken Fisher pointed out in a recent USA Today article, stocks always do better than bonds over rolling 30-year periods of time, with an average return of 2,417%! Since most Millennials today can expect to work for the next 30 years or so, that means they have a good opportunity to start investing now and enjoy steady average returns over the course of their careers
2. Social security isn’t going away—but it might pay out less in the future.
While some analysts like to say that social security is going to disappear before Millennials make it to retirement age, there’s no reason to believe social security is going away anytime soon. It could, however, pay out less in the future. Today’s Social Security benefits are paid for in two ways: The Social Security tax, and a trust fund. The most recent report by the Social Security trustees claim this trust fund will run out by 2034, but the tax alone is sufficient to pay for 77% of today’s benefits. That means smaller Social Security payouts, which may require Millennials to rely less on Social Security benefits and more on their personal retirement savings.
3. It’s important to update your assumptions about retirement every few years.
Assumptions about social security aren’t the only ones that should be revisited occasionally. Tools like retirement calculators can be immensely helpful when thinking about today’s income, tomorrow’s financial needs in retirement, and how much money should be saved to meet those needs. That said, they do rely on certain assumptions about investment return rates, Social Security benefits, and expenses in retirement. For the most reliable calculation, Millennials should lean on an experienced retirement professional, who can offer additional insight into each unique situation. Periodically remind your younger employees about tools and resources that can help them think through their needs in retirement and their savings goals.
4. Savings rates should change at different points in your career.
Although Millennials are ahead of previous generations by saving at an average of 10%, savings should increase over time. As an individual, make sure your current saving rate is aligned with your retirement goals and the current stage of your career. People early in their careers should save 5%, established professionals should save 10%, and those near to retirement should save as much as 15%. Encourage Millennial employees to consider how much they can afford to save, and the power of compounded earnings with increased savings rates.
5. Always embrace employer contributions—and then some.
If you choose to offer an employer match to your employees, encourage them to take full advantage of it. Among the different types of financial benefits an employer can offer, the most widely valued (by nearly 73% of employees) is a 401(k) employer match, perhaps because of the impact it can have on retirement savings. Remind Millennials that in order to meet their savings goals, they will likely want to save more than the amount needed to max out the employer match benefit.
Millennials are already doing a great job with saving. By encouraging your young employees to revisit their assumptions about retirement, adjusting their savings rates over time, and embracing every opportunity to add to their retirement accounts, you can help them meet and maybe even exceed their goals, whatever the future may hold.