The Demographics of Advisory

Planning In The Millennial Mindset

Uncovering truths about Millennial 401(k) investors and how to help them succeed

by Nathan Voris

Mr. Voris is Managing Director, Business Strategy, Schwab Retirement Plan Services Visit

Millennials, America’s largest generation, are playing an outsized role in our nation’s workforce as the oldest among them approach their late thirties.

For retirement plan advisors, the time is ripe to take a close look at Millennials’ investment habits in order to construct effective, tailored, employer-sponsored retirement plans – and to help advise plan sponsors on selecting appropriate offerings to meet this generation’s unique needs.

Millennials have certainly taken their lumps in the press, with no shortage of commentators describing them as “lazy and entitled”; however, a recent Schwab survey* of Millennials who currently save in a workplace 401(k) plan (“savers”) paints a very different picture. The survey found that savers in this generation are actually savvy, confident investors who prioritize financial health and care about saving for retirement.

Interestingly, the survey also showed that they are open to professional advice, creating an enormous opportunity for advisors who can understand their mindset and leverage that understanding to add value to their relationship.

The Millennial Mindset

In order to understand the investment habits of Millennial savers, it’s important to set the scene and take a look at some challenges that have shaped their relationship to their finances.

Millennials came of age during the Great Recession, and many were in college or were just entering an uncertain workforce during the financial crisis. They may have seen their parents and older family members lose significant wealth as their 401(k) account balances and home values declined. Thus, many Millennials gained an early understanding of the importance of thoughtful saving and, as a result, some may have erred towards more conservative investment strategies. Such an early introduction to the volatility of the markets may have instilled a fear of future downturns that could have dramatic effects on their savings, thereby shaping their approach to investing.

Even against this backdrop, the Millennial 401(k) savers in Schwab’s survey report that they are quite confident when it comes to investing, even more so than their older counterparts. Nearly two-thirds of them say they are very or extremely confident making investment decisions on their own, and over half (51%) say that fees influence their choice of 401(k) investments “a lot.” While we know that fees shouldn’t be the only factor when choosing investments, it is clear that those Millennials surveyed understand the importance of analyzing their investment options and recognize that fees can have a significant impact on their account balance over time.

It is important to note that just because many Millennials say they are confident, that doesn’t mean they want to go it alone with something as critical to their future as saving for retirement.

In fact, the survey found that 80 percent of them want personalized, professional advice for their 401(k)s, and 93 percent would take advantage of a financial wellness program if it were offered at work. Moreover, the percentage of those who would feel very or extremely confident making investment decisions would skyrocket to 85 percent with the addition of this type of counsel.

Unpacking Millennials’ Financial Habits and Stressors

While largely on top of their personal finances, Millennial savers report facing formidable financial stressors, with 35 percent of them noting that financial stress has even affected their job performance. Perhaps unsurprisingly, one of the biggest culprits is student loan debt, with nearly a quarter (24%) citing it as a source of financial stress.

With pension plans now virtually obsolete in the private sector, Millennials face the added pressure of ensuring the tools they do have at their disposal are helping them save adequately for a comfortable retirement. This is something Millennials seem to understand well, with those surveyed demonstrating their reliance on the 401(k) as the cornerstone of their savings strategy. In fact, 78 percent of Millennial savers surveyed say a 401(k) is their largest or only source of retirement income.
As someone who has spent many years in the defined contribution industry, I find it very encouraging that, despite the many sources of financial stress they face, the youngest retirement savers have a strong sense of financial responsibility and are taking the right steps to manage their money now with an eye toward the future.

What Millennials Want to Know – and How to Help

While 70 percent of those surveyed say they know the percentage of their salary they should contribute to their 401(k) to build up an adequate nest egg, the survey showed that they don’t quite understand what saving at that target rate adds up to in reality

Despite having less time in the workforce to accumulate wealth than older generations, nearly two-thirds (64%) of Millennial savers feel that their financial situation warrants professional advice. And from my point of view, they’re right. No matter how much a person has saved, he or she should seek help to make the most of that wealth.

But what does help mean in practice? The survey uncovered a number of specific areas in which Millennial savers would appreciate guidance, and these findings can help retirement plan advisors as they tailor their counsel and help plan sponsors structure holistic financial wellness programs.

While 70 percent of those surveyed say they know the percentage of their salary they should contribute to their 401(k) to build up an adequate nest egg, the survey showed that they don’t quite understand what saving at that target rate adds up to in reality. For example, 57 percent of savers say they would like advice on calculating how much money, over the course of their career, they need to save for retirement, and almost half of respondents say they want advice on determining at what age they can afford to retire.

Additionally, Millennial savers made it clear that they want a better understanding of how the financial decisions they make now will impact them down the road. According to the survey, 40 percent of respondents want advice on how to manage their current expenses so they can save more for retirement.

This highlights the value of a well-structured financial wellness program and creates an opportunity to educate plan sponsors. When designing a plan to fit the unique needs of Millennials, plan sponsors should not be afraid to adjust their typical offerings. Knowing that Millennials have an appetite to learn, plan sponsors should consider adding robust educational resources that help with budgeting and holistic financial planning.

Where We Go From Here

If those surveyed are any indication, Millennials savers are conscientious, proactive individuals who know what they know and can admit they need help with what they don’t know. The circumstances that ushered them into adulthood have resulted in a unique set of pressures, desires and needs when it comes to saving for retirement.

Financial professionals would do well to work to understand these circumstances, and the habits and attitudes they’ve engendered, to help Millennials prepare for future stages in their lives. As Millennials enter a prime time in their careers, retirement plan advisors can play a critical role in helping them succeed by working with plan sponsors to create an offering that appeals to all workers, while specifically addressing the concerns of the largest working generation. ◊



*2017 401(k) Participant Survey conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is not affiliated with Schwab Retirement Plan Services, Inc.
The information contained herein is proprietary to Schwab Retirement Plan Services, Inc. (SRPS) and is for informational purposes only. None of the information constitutes a recommendation by SRPS. The information is not intended to provide tax, legal, or investment advice; please consult with your accountant / investment advisor for how this applies to your specific situation. SRPS does not guarantee the suitability or potential value of any particular investment or information source. Certain information provided herein may be subject to change. None of the information contained herein may be copied, assigned, transferred, disclosed, or utilized without the express written approval of SRPS and its affiliates.