The New Retirement

Storm Clouds Forming for Gen-Y?

Retirement savings are hampered by student debt and limited employment opportunity

by John O. Nauss III

Mr. Nauss is a Financial Consultant for the Institutional Business division at TIAA-CREF. Visit

While many individuals stray from putting the time and effort into saving for retirement, it is often less complicated than many think.
Saving for retirement is an easy thing to put off, particularly when you are young in your career. With 35 to 40 years between you and retirement, contributing to a savings plan can oftentimes sit low on your list of priorities.
During your 20s, young adults face a new slew of financial obligations including paying student loans, monthly rent, transportation and utilities.

Student loans, in particular, have proven to be difficult for Millennials to overcome, as college debt continues to grow year by year. According to The Institute for College Access & Success, the average amount of student loan debt college graduates had in 2013 was $28,400, which was an increase from 2012. Similarly, a study by Experian in 2014 found that a total of 40 million consumers now have some form of student debt.

With this in mind, this younger generation, the Millennial Generation, faces a challenging and unique financial environment. In order to better understand their financial habits and attitudes towards retirement, TIAA-CREF conducted its annual Lifetime Income Survey on this particular demographic.

Analyzing Generation Y’s Financial Habits and Values

Findings from the Gen Y Lifetime Income Survey provided helpful insights into Gen Y’s outlook on retirement. According to the survey population of 1,000 adults ages 18 and older, Gen Y is generally more conservative when it comes to retirement savings. In fact, 34 percent of Millennials (ages 18-34) say their primary goal in saving for retirement is to ensure their funds are secure, which was higher than any other age group and more than twice as much as 35-44 year-old respondents.
Additionally, Gen Y has lower expectations they will receive Social Security benefits by the time they retire. In fact, only 56 percent of Millennials are counting on Social Security, compared to 76 percent of those ages 35-44 and 73 percent of those ages 45-54.

Breaking Down Millennials’ Conservative Approach to Saving

Millennials’ conservative approach to their retirement savings can be attributed to a couple of different things.
As mentioned above, a good portion of this generation is fresh out of college and left with a great amount of student debt, making it challenging to dedicate a portion of their paychecks to retirement savings.
As the results from the survey illustrate, only 38 percent of Gen Y is contributing more than 7 percent of their annual income toward their retirement savings. This, again, can be attributed to early careers and nagging student debt. As they endured the Financial Crisis of 2008, many of their conservative financial preferences and behaviors were influenced firsthand in seeing how the investments of their parents and Gen X suffered with the market slide.

While these circumstances offer some explanation as to why Millennials possess precarious views on investing, this demographic also appears reluctant or unable to start saving for retirement altogether. The survey found that nearly one-third of Gen Y respondents are currently not saving anything for retirement. Out of the two-thirds that are saving for retirement, 34 percent of Millennials are planning for a retirement that lasts more than 25 years – a higher number than any other age group surveyed. In order to enjoy a retirement of this magnitude, individuals need to ensure they have a consistent source of income.

The Disconnect Between the Desire for Lifetime Income and Annuities

14 percent of Gen Yers have already purchased an annuity. For a generation that is often seen as lazy or uncommitted, this is a promising result when compared to the 8 percent of 35-44 year-olds

While 61 percent of Gen Y – the most of any other age group – said they would devote a portion of their savings toward a steady stream of monthly income for the rest of their lives, a surprising total of 72 percent are not familiar with annuities.
This is not necessarily an anomaly compared to other age groups, but the disconnected thinking between the desire for a source of lifetime income and the lack of understanding of annuities is telling. While this disconnect is not uncommon for a generation that is new to investing, it underlines the importance of seeking advice from credible sources when it comes to the financial stability of your future.

Some Millennials are actually ahead of the game when it comes to saving for their future, however. According to the survey, 14 percent of Gen Yers have already purchased an annuity. For a generation that is often seen as lazy or uncommitted, this is a promising result when compared to the 8 percent of 35-44 year-olds with annuities.
Millennials are confident in their financial state during retirement. According to the survey, less than half of Gen Yers are concerned they will run out of money in retirement in comparison to the 57 percent of 35-44 and 45-54 year-olds that are concerned.

Connecting Financial Advisors with a New Generation

Instilling good habits in Millennials is a matter of exposing them to objective and professional financial advice. But how do advisors connect with a generation that is increasingly digital and independent?

For one, advisors should realize that Gen Y relies on a vast network of individuals when it comes to financial advice. A 2014 TIAA-CREF survey found that 47 percent of Millennials include their parents when seeking advice on financial matters, compared to just 19 percent of the general population. What’s more, Gen Y is also more likely to involve extended family and other trusted adults. It is important for advisors to understand this because it could lead to more of their clients coming in with preconceived notions regarding retirement or general investing.

Secondly, advisors need to address Gen Y based on their own circumstances, rather than basing advice on the experiences of generations past, especially since the retirement savings landscape is rapidly changing on its own. By taking a values-centered approach to advising Millennials, advisors can better convey advice that speaks to Gen Y’s life priorities.
To help Gen Y clients, financial advisors should encourage setting a budget and emphasize the importance this will have in laying the foundation for planning for a steady financial development and the desire for a strong retirement. By setting up a steady budgeting system, Millennials can get a sense of their income and expenses, and then can find ways to free up funds to allocate toward their savings when it makes sense and is comfortable.

But the vast majority of Millennials may require a deeper, more complex approach to budgeting in order to deal with the struggle of debt repayment while trying to save for retirement. According to the 2014 Gen Y financial advice survey, 72 percent of Millennials expressed an interest in receiving advice on budgeting, while 53 percent are seeking advice on managing student loan debt. In order to tackle this often troubling task of saving while repaying, it is important for Millennials to designate separate shares of income for debt repayment, savings and spending. That way, their income is neatly divided, simple to track and easily managed.

By following these steps, Gen Y will likely be well on their way to getting rid of that nagging debt while setting themselves up for a long retirement. ♦




End Notes
1. “Project on Student Debt: State by State Data,” The Institute for College Access & Success, 2014.
2. “Experian Analysis Finds Student Loans Increased by 84 Percent Since the Recession,” Experian, 9 Sept. 2014.