Retirement Challenges Millennials Can Avoid

Millennials born between 1979 and the mid 2000’s represent the largest, most diverse and educated generation in the US, but also have been challenged with certain situations unlike any generation before.

Whatever they do or do not do in regards to retirement security will have a significant impact on the US economy, according to the Transamerica Institute, a nonprofit private foundation dedicated to educating the public about health coverage and retirement through research and study.

“As the economy continues its prolonged recovery from the recession, our survey found upbeat news that many employers are hiring additional employees. Moreover, they recognize the value of offering retirement benefits,” said Catherine Collinson, president of TCRS.

Seventy-two percent of employers have hired additional employees in the last 12 months (compared to only 16 percent that say they have implemented layoffs or downsizing). Among employers that offer a 401(k) or similar plan (e.g., SEP, SIMPLE), the vast majority (89 percent) believe their plans are important for their ability to attract and retain talent.

Employers are increasingly offering 401(k) or similar plans to their employees. Between 2007 and 2014, the survey found that the percentage of employers offering a 401(k) or similar plan increased from 72 percent to 79 percent. The offering of a plan is highest among large companies of 500 or more employees (98 percent) and small non-micro companies of 100 to 499 employees (95 percent) and lowest among micro companies of 10 to 99 employees (73 percent).

Professionally-managed services such as managed accounts and asset allocation suites, including target date and target risk funds, have become staple investment options offered by plan sponsors to their employees. These options enable plan participants to invest in professionally-managed services or funds that are essentially tailored to his/her goals, years to retirement and/or risk tolerance profile.

Eighty-four percent of plan sponsors now offer some form of managed account service and/or asset allocation suite, including:

  • 56 percent offer target date funds that are designed to change allocation percentages for participants as they approach their target retirement year
  • 54 percent offer target risk funds that are designed to address participants’ specific risk tolerance profiles
  • 64 percent offer an account (or service) that is managed by a professional investment adviser who makes investment or allocation decisions on participants’ behalf

“For plan participants lacking the expertise to set their own 401(k) asset allocation among various funds, professionally-managed accounts and asset allocation suites can be a convenient and effective solution. However, it is important to emphasize that plan sponsors’ inclusion of these options, like other 401(k) investments, requires careful due diligence.”

“Roth 401(k) can help participants diversify their risk involving the tax treatment of their accounts when they reach retirement age,” Collinson said.

The Roth option allows participants to contribute to their 401(k) or similar plan on an after-tax basis with tax-free withdrawals at retirement age. It complements the long-standing ability for participants to contribute to the plan on a tax-deferred basis. Plan sponsors’ offering of the Roth 401(k) feature has increased from 19 percent in 2007 to 52 percent in 2014.

“Expanding coverage so that all workers have the opportunity to save for retirement in the workplace continues to be a topic of public policy dialogue. A tremendous opportunity for increasing coverage is part-time workers,” Collinson said.

Only 49 percent of 401(k) or similar plan sponsors say they extend eligibility to part-time workers to save in their plans.

“Employers should consider consulting with their retirement plan advisers and providers to discuss the feasibility of offering their part-time workers the opportunity to save for retirement,” Collinson said.

Guardian Life insurance also surveyed Millennials with the assistance of Learnvest; a survey of 797 male and females, 21-40 years of age with annual household incomes over $30,000 to look at their attitudes and behaviors toward life and disability insurance, two products of which Guardian has been an industry leader for years. The good news is that Millennials understand the necessity of life insurance and retirement options but did not know how to calculate the coverage amounts needed.

Financial professionals can help this generation in taking the best advantages of 401ks, as well life insurance with a long term future break down.

Want to learn more about life insurance? Read our article The Most Frequently Asked Life Insurance Questions.

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