Retirement myths are a dime a dozen. Reaching the promised land of financial freedom and tranquility is no easy journey given the perpetually-changing retirement landscape. In addition to the usual questions like how much money should I save, workers are becoming increasingly responsible for their own nest eggs. However, how much do we really know about retirement planning?
Defined contribution retirement plans like a 401(k), where certain amounts of money are invested by employers and employees on a regular basis, are the new primary source of retirement funds for younger generations. In fact, State Street Global Advisors (SSGA) released a report taking a closer look at who they call “Generation DC.” This group is made up of employees aged 22-50, and are the 401(k) guinea pigs providing valuable insight about false beliefs.
“Many long held beliefs about how millennials and Gen Xers want to engage with their DC plan are off base and call for some myth-busting,” says Fredrik Axsater, senior managing director and head of Global Defined Contribution at SSGA, in a press release. “When employers combine a deeper understanding of employees’ views about retirement and focus their engagement efforts around important life stages, like starting a career or starting a family, savings programs can be far more successful.”
Let’s take a look at five surprising retirement myths that just got debunked.
1. Humans are obsolete in the retirement planning process
Retirement planning? Is there an app for that? Of course, we have apps for everything these days, from tracking your investments to showing you what you’ll look like when you’re old and gray. But, that doesn’t mean millennials would necessarily prefer to interact with apps rather than humans when it comes to managing their financial futures. SSGA finds 59% of workers aged 22-25 “want an in-person meeting once a year and technology isn’t really going to help.” Surprisingly, only 38% of Gen Xers aged 45-50 say the same thing. Employers should keep this in mind when offering retirement guidance to their employees.
2. Millennials are too young to care about their golden years
Though millennials are often stereotyped as carefree kids living in their parents’ basement while spending any money they have on iPhones and lattes, research reveals they are aware of the importance of saving and financial planning. Eighty-eight percent of millennials in the survey agree it’s important to start saving for retirement early, two percentage points better than their more experienced Gen X counterparts. Furthermore, 83% of millennials and Gen Xers both agree saving for retirement is a priority.
Similar conclusions are found in a recent Facebook analysis. According to Facebook IQ, 86% of millennials say they save money, while 46% define financial success as being debt free. Only 4% define financial success as being able to buy nice things. Additionally, millennials drive 40% of the financial conversation on Facebook, generating 6.5 million posts, comments, likes, and shares.
3. Time heals all wounds
We’ve come a long way since the darkest depths of the financial crisis. The headline unemployment rate has been cut in half, stocks have recaptured their previous highs and then some, and national home prices continue their impressive rebound. Yet, we haven’t forgotten the meltdown of yesteryear. Over half of millennials (54%) admit their parents’ experience with the financial crisis that began in 2008 hinders their confidence as investors. That figure climbs to 60% for respondents aged 33-39.
Market volatility is a part of investing in stocks. If you allow it to control your retirement planning too much, you risk being too conservative with your portfolio and falling short of your financial goals. Remember, the broad market typically moves higher over long periods of time. Making large financial decisions based purely on emotion is typically a losing strategy.
4. It’s up to employers to educate employees about retirement
Employers sign paychecks and provide benefits to workers, so it makes sense that they are the primary educators about retirement, right? Wrong. Despite more employers providing financial wellness programs to workers these days, friends and family come first when it comes to influence. SSGA finds 68% of Generation DC say friends and family are the ones who told them to start saving, and over 90% indicate their spouse/partner’s annual salary play a significant part in their own financial wellbeing.
This makes sense considering friends and family are not likely to speak in financial jargon, or host boring slideshow retirement meetings where people are too afraid to ask a question. Research from Thrivent Financial finds millennials are even willing to ask faith communities, religious leaders, or faith-based financial education programs for money advice.
“When asking friends and family for advice surrounding contributions, savers need to ensure that the person they’re turning to is taking their financial situation, age, and career trajectory into consideration, as these all directly correlate to if it would benefit the saver to pay taxes now or later. These types of decisions are personal and unique to the individual and their path, and it’s important to evaluate your current situation before taking action,” explains Mich Wells, Saver Ambassador at Ubiquity Retirement + Savings, to the Cheat Sheet.
She adds, “If friends and family are helping with investment guidance initially, you should be able to maintain this level of attention to your finances. Staying on top of reporting and looking into the performance of your funds will be necessary to maintain the most lucrative outcome. If you want a low-touch experience with your 401(k), you might want to look into the default fund option within your plan!”
5. Everybody needs more financial education about the basics
Our education system does a lousy job teaching people about money. Look no further than this list of money questions Americans get wrong. Even though 60% of Americans have a credit card, among the highest usage rate in the world, 67% of them are financially illiterate, and only 57% correctly answer the interest topic questions. However, experience is a good teacher, and it shows in the SSGA survey.
Not everyone needs to be taught the basics. For example, SSGA finds 46% of millennials know that buying a single company stock carries more risk than a stock mutual fund. That figure jumps to 57% for Gen Xers and 77% for respondents over age 45.
“Our research highlights numerous opportunities where employers can tailor approaches to meet employees where they are in their life, not necessarily where we believe their generational preferences may exist,” explains Axsater. “Employers can reach employees well ahead of retirement by targeting the 40 plus age group with clear, actionable steps for a better retirement including communications on how to save more, diversify investments and spend down savings in retirement. For younger employees, an over-emphasis on auto-enrollment may be causing employers to miss an opportunity to discuss savings goals and strategies. We recommend rethinking those assumptions.”
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