Employers may find that financial planning for millennials can be an uphill struggle. Here's how to improve it using the right approach.
Employers may find that financial planning for millennials can be an uphill struggle. The implementation of automatic enrollment plans have shown to be incredibly effective in boosting retirement planning participation rates with this group. To ensure continued participation, employers should proactively raise awareness through education and simplified plan integration and access processes.
Millennials and Retirement Planning Insights
According to Wells Fargo, 84.9 percent of millennials enrolled in a 401(k) plan stay in that plan when automatically enrolled, compared to just 37.8 percent without automatic enrollment. Wells Fargo reports that millennial participation has improved by 13.3 percent since 2012. Additionally, 30 percent of millennials maxed out contributions to meet their full employer match.
While these are optimistic statistics, employers should focus on improving participation rates for the less inclined millennials. It's easy to just assume millennials are too preoccupied these days to focus on retirement planning, but this assumption shouldn't apply for all. There is a deeper-rooted reason behind their seemingly apathetic efforts and lack of prudence.
Understanding the Millennial Mindset
Millennials now represent the largest age-based demographic in the United States, according to Goldman Sachs, with a population of 92 million, surpassing the 77 million baby boomers and 61 million Gen Xers. Born from 1980 to 2000, their ages range from 22 to 38, representing the youngest segment of the professional workforce in their early to mid-career stages. The hesitancy associated behind the low rate of manual retirement planning amongst millennials may stem from the trauma suffered by their parents through two extreme bear markets since 2000.
The 2001 internet bubble and the 2008-2009 financial crisis both slashed the Standard & Poor's 500 index in half, triggering catastrophic losses in retirement savings, mass bankruptcies, mass layoffs, loan defaults and widespread foreclosures. Having possibly witnessed their parent's retirement savings literally vaporized twice in their lifetimes, is it any wonder why millennials may be apprehensive to participate in their own retirement planning?
Why Automation Works for Millennials
As first generation digital natives, the tech-saavy millennial demographic has been conditioned to embrace frictionless processes stemming from mobility integration, technology and digital innovations. The revolution of convenience places top priority on portability, access and instantaneous responses. Social media, smartphones, connected devices and apps are the embodiment of this movement.
It's no surprise that employer automated 401(k) enrollment has resulted in higher participation and engagement rates for millennials since automation falls right into their comfort zone. The preference for simplified, frictionless process automation has spawned and fueled the fintech era and the surge in adoption of robo-advisors, banking and budgeting apps, artificial intelligence-enabled virtual assistants, connected devices and internet of things (IoT). Millennials are not only accustomed to, but oftentimes depend on, these delivery channels to function both professionally and socially. Big banks have discovered that millennials have become accustomed to seamless and frictionless processes for common tasks but prefer high-touch engagements for more complex issues.
Boosting Sustained Participation
Raising awareness about financial planning for millennials starts with addressing the root of concerns through education. Millennials may be mostly paranoid of stepping into another bear market collapse like their parents endured. Address this directly. Stress the reality of market cycles with facts like how the average bear market lasts 1.4 years, averaging a cumulative loss of negative 41 percent, according to First Trust Portfolios. But the average bull market lasts almost five times longer, at nine years with an average cumulative total return of 470 percent.
Educate them on diversification and how it can offset draw downs during falling markets. Inform them of the advantage of the long-term compounding effect of pretax dollars and most importantly the employer contribution matching polices, which can also buffer draw downs. Prepare them with a foundation of knowledge so they feel prepared to engage with plan administrators.
Choose the Right Administrators
As illustrated earlier, millennials expect convenient frictionless access for common tasks but need high-touch engagements for more complex tasks. With this in mind, selecting the right plan administrators can be key to ensuring the sustained participation in retirement programs. The administrators must provide intuitive smartphone apps that allow for easy navigation, robust account information and seamless controls. Additionally, they must provide omnichannel support with knowledgeable live specialists that can provide high-touch engagements with convenient in-app scheduling.
Raising awareness and providing omnichannel digital/live support to accommodate your millennials conveys the message that your organization is looking out for their financial future. This can go a long way in galvanizing the loyalty and morale of your workforce.
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