Why Does It Matter?
It is important to remember that, although there has been all of this focus on Baby Boomers, the Millennials have 100 million people, and will be in the workforce for quite some time, says Deanna Garen, Managing Director of Participant Solutions at New York Life Retirement Plan Services.
Some of the barriers to accumulation cited often by the retirement plan industry are already evident among Yers: They aren’t saving enough; they cash out when they switch jobs—and they switch jobs a lot; and they are concerned more with short-term savings than long-term savings.
A Fidelity survey released last year found that retirement is a priority or goal for 44% of Generation Y—but they are too bogged down to save for it, and it is ranked low on their list of financial priorities. While Generation Y, like Generation X, is reliant on workplace DC plans for long-term savings, 40% of members of Generations X and Y, who have changed jobs at least once and had funds in their DC plans, cashed out, according to Fidelity.
The Cash-Out Dilemma
New York Life’s Garen, like others, sees the cash-out rate of young participants as the largest concern for their retirement savings, suggesting that it is an industrywide problem—and not one with an immediately obvious answer. “Advisers really need to think about how they can help plan sponsors understand that you want to do everything you can to help those participants for the time they are with [the employer],” she says.
The cashout rate is a scary statistic, notes financial adviser Tom Ruggie, President and Founder of Ruggie Wealth Management and 401(k) Generation in Tavares, Florida. “From an educational standpoint, it really needs to be engrained in their head that ‘this is not money you can tap into,’” he says.
Reaching this transient demographic comes down to looking at not only educational strategy, but also plan design. For instance, Tom Makeever, National Sales Manager at Access Control Advantage, a 401(k) loan provider, says it will be important to work on ways to make 401(k)s more portable and flexible to make participation more desirable to younger workers. However, education might be a strategy advisers can implement immediately. John Drahzal, Managing Director of Sales and Marketing at Access Control Advantage, says that, short of changing the whole industry structurally, “the only tools we have in our toolbox are educational tools.” In order to make education effective, it requires speaking to the demographic in a relevant way, such as using appropriate technology, he says.
Garen and others agree that targeting generations (and other employee groups)—nothing new to educational strategy—is key to making sure that education is relevant (see “Zooming In,” PLANADVISER, May-June). “We definitely encourage plan sponsors and advisers to realize that every participant is different and people have similarities in age groups or in their lives,” Garen says.
For instance, the concept of retirement needs to be packaged within relevant life-stage communication, says Danelle Kronmiller, Assistant Director of Participant Marketing at Principal Financial. Principal uses the word “future” to talk to the younger generation, and presents goals such as getting rid of credit card debt and saving $1,000. “Their eyes will gloss over if you start talking about retirement,” she says.