With millennials seeing a future of paying down debt, how are retirement advisors going to reach them?
It’s no wonder retirement advisors struggle to get millennial employees on track with retirement investing: since 1980, college tuition rates at public universities have nearly quadrupled, according to a College Board Annual Survey of Colleges report. Today’s graduate of a four-year university is no longer able to fund their college debt with the summer job as their parents once did.
So saddled with mountains of debt post-college, the millennial investor isn’t thinking about investing. Couple that scenario with that of watching their parents lose retirement savings during the 2008 financial crisis and it’s no wonder why today’s millennial is growing up thrifty. With millennials seeing a future of paying down debt, how are retirement advisors going to reach them?
It’s a problem that’s punctuated by the fact that today’s millennial doesn’t readily trust the stock market. In a recent Bankrate survey, 39% of millennials aged 18-29 preferred cash over the stock market. The survey reveals that they’re looking for safe options, not big returns.
Here are a few ways you can help millennial investors connect emotionally with their retirement:
Take the focus off
price. Giving millennials a price target may seem like a good way to entice
them to invest, but the arbitrary nature of the final figure often has no
emotional connection for the younger investors. Instead, advisors can focus on
lifestyle. Would you like to retire at 65 or 55? What would life after work
look like if it could be anything? How will children impact their financial
Set short-term targets. It’s tough helping a 22-year-old investor understand how much they’ll need at age 65. Yet it’s a bit easier helping them decide how much they’d like to have saved in 5 years or even 10 years. What savings goal would make them feel they’re on the right track?
Work in incremental investment increases. Even if employers match retirement contributions, your millennials may not be in a financial position to take advantage of the full match. Instead, work with them to understand their debts and when loans will potentially be paid down. Suggest an annual ½% or 1% increase in their contributions and couple that with the annual raise or bonus so that the additional amount isn’t noticed.
Pull them into their retirement years. Too often, millennials are underestimating how much money they’ll need in retirement. An Insured Retirement Institute and the Center for Generational Kinetics study shows that 70% of millennials think they’ll spend less than $36,00 annually during retirement when the reality is that today’s retiree spent roughly $10,000 more than that in 2013, says the Bureau of Labor Statistics. Ask millennials for specific retirement goals: will you travel? How often? Are you thinking of owning a second home? What hobbies will occupy your time? How much will you spend on recreational equipment?
The millennial employee is not averse to retirement investing, but simply needs to help in focusing on the importance of long-term planning. In a world of instant gratification and market uncertainty, it’s up to the retirement advisor to build that bridge and sell the value.
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