The life and times of younger generations point to a bleak post-workforce future
Much has been said about the retirement challenges faced by different generations. For boomers, some of the greatest threats come from a pension shortfall and higher-than-expected expenses. For Gen Xers, getting sandwiched between older and younger dependents is arguably the most major killer.
It’s hardly surprising, then, that things don’t look much better for the millennial generation. A recently released paper titled How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation. Conducted by academics from the Brookings Institution and Johns Hopkins University, it delves into the different factors that affect millennials’ saving and investing for retirement, and how compare with previous generations.
The fact that they are more educated than any previous generation works in their favour as it increases their earning potential. Their better state of health also gives them a longer window to work, save, and invest for retirement, though it also creates a measure of longevity risk.
Unfortunately, the researchers’ rundown of millennials’ disadvantages relative to past generations exceeds the advantages. They noted that millennials’ “careers have gotten off to a rocky start because of the financial crisis… and the ensuing slow recovery over the subsequent few years.” Those employed are also more likely than previous generations to be in contingent jobs that come with little to no access to retirement programs with automatic enrollment or contribution features.
Compared to past generations, millennials also generally have lower net worth. Part of the problem is the amount of student debt they have had to carry, which could also be contributing to most millennials’ decisions to marry, buy homes, and have children later in life compared to their forebears. The delay in settling in presents a psychological challenge for retirement saving, which tends to enter people’s minds after they’ve passed such milestones. Buying property at a later age, the researchers added, leave’s less time before retirement for residential assets to appreciate.
The study also noted how current macroeconomic conditions create an inhospitable environment for retirement savers. Compared to those that came before them, millennials face a future with lower rates of economic growth and investment returns, including less lucrative equity returns and slim-to-negative interest rates.
Stubborn wealth inequality is also a concern, as millennials that aren’t born among the very wealthiest families stand to remain locked out in the future.