For Millennials, Retirement Is A Distant, Ever-Moving Target
Younger generations have to think and learn a lot more about long-term financial strategies than those who came before them. Tech can help.
As a prime focus for marketers and social scientists, millennials have spawned plenty of stereotypes about how they work, spend, save, and think about the present vs. the future. The common wisdom: They don’t work, save, or plan all that much.
But that's far too simplistic—and, in some cases, dead wrong.
"One myth of millennials is that they aren't wanting to save," said Steve Dorval, head of innovation for John Hancock, in a recent panel discussion at the Fast Company Grill during South by Southwest 2018. "And in reality what we heard is that they are good savers. It's the investing chasm that they can't cross over." Many millennials think that simply putting money in the bank counts as saving, said Jason Dorsey, the president of research firm Generational Kinetics. Dorsey's research also busts the slacker myth. "More millennials are working in the United States than any other generation in the workforce," he says.
(From left) Canva’s Guy Kawasaki, John Hancock’s Steve Dorval, Broke Millennial’s Erin Lowry, and Generational Kinetics’ Jason Dorsey
So when it comes to retirement planning, millennials at least have a good foundation. What they often lack is a strategy to get from today's earning to tomorrow's equity. "I have found so many millennials are incredibly overwhelmed by the topic of investing," said Erin Lowry, author and founder of Broke Millennial. "They don't even understand that if they're contributing to a 401(k), they already are investing."
Yet this generation is expected to make more of its own decisions on investment strategy. While a lot of large employers automatically enroll employees in 401(k) plans, a number of retirement plans still require you to opt in: If you don't take initiative, you don't invest anything. Employer-sponsored retirement programs aren't part of the growing gig economy, and often aren't offered by the startups attracting many of the best and brightest college grads.
Zooming out to the big picture, it's harder for millennials to grasp a future that's decades away in such a fast-changing world. With life expectancy soaring and technology enabling people to work longer and with greater flexibility, it's challenging to conceive of what retirement will look like, and when it will come—if ever. "So if you're sitting there at 25," says Dorval, "and somebody's telling you that you need to be worried about retirement at 65, you say, 'The world is going to look drastically different, and I'm approaching the world drastically differently than any other generation has before.' "
One likely outcome is that they’ll work longer. If retirement is expected to come later, that makes the prospect of sacrificing to save for retirement even harder. John Hancock is taking this into account, said Dorval, with technology tools that help young people balance their needs and desires today—and tomorrow. One of them, the Twine app, allows couples to set multiple, tangible savings goals.
"One of my favorite things to tell people is to nickname your savings accounts," said Lowry. "So it says something like, 'Japan trip, June 2019.' The more specific you can get, the more likely it's going to throw out that psychological block for you." Twine does just that, said Dorval, allowing users to set multiple, specific goals—from a trip in one year to saving for a home down payment in five years, to retirement in 40, or even 50 years.
Twine, the first savings app built for two.
Talking about tangible goals rather than investment strategy is one way to get young people over the psychological hump, according to Lowry and Dorsey. "People are more likely to save if they have an image of what they're saving for," he said, although that gets challenging the longer the time horizon. "'I wanna take a trip,' it's tangible then. 'I wanna retire in 40 years.' It's too big," he said.
One way to help with longer-term planning, the panelists agreed, is to automate the process as much as possible. Replacing opt in with opt out 401(k)s would go a long way for traditional retirement planning, said Lowry, since the default would be to save and invest. For freelancers, she suggested setting aside money for taxes and retirement at the same time. "Save 40% of every single one of your paychecks," she said. "You've gotta have 30% for taxes, so add another 10%."
To that end, Twine enables automatic, recurring deposits, said Dorval. "We wanted to leverage behavioral finance and say, let's make it easy, and let's get you on autopilot," he said.
This jibes with lessons of behavioral economics, said panelist Guy Kawasaki, the tech marketing guru who now serves as chief evangelist for design software company Canva. He recommended the ideas that Nobel Prize-winning economist Richard Thaler described in his 2008 book Amazon, that simply removing the friction for making the right choice, such as automating a process, is enough to push us toward better long-term decisions.
But how do you motivate people to plan for the long term? One approach is to look at life as a continuum of opportunities, rather then just working life and retirement. That's a more accurate picture in which people do gap years, and sabbaticals, partial retirements, and post-retirement careers. In lieu of planning for end-of-life retirement, we can plan for a lifetime of flexibility. "It's hard for any of us in here to project what life is going to be like in 40 years," said Dorsey. "But I like optionality. I want to have options."
This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial advice. It is intended to promote awareness and is for educational purposes only. It has been created for and commissioned by John Hancock.