Data & Research April 18, 2016

Millennials View Retirement as a New Chapter in Life

Many are looking forward to it with excitement.
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Millennials are looking forward to retirement in new and refreshing ways, suggesting that retirement in the future could become something very different from what it is today. That was the main focus the latest Merrill Edge Report, a survey of 1,000 mass affluent Americans.

Fifty-three percent of Millennials say that retirement can be the start of something exciting. Ten percent said they are likely to further their education, and 7% said they might start their own business.

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Forty-one percent of Millennials plan to retire when they hit a certain financial milestone or savings goals, whereas their older counterparts plan to retire at a certain age or when they can no longer work due to health concerns.

In addition, 47% of Millennials believe the outcome of the 2016 presidential election will have a positive impact on their long-term financial goals, higher than any other generation.

“It’s refreshing to see the mindset around retirement evolve, particularly a strong optimism and a goal-oriented approach from younger generations,” says Aron Levine, head of Merrill Edge and Bank of America. “This focus is a great start, but one of the keys to a successful retirement is to ensure savings are prioritized early and often. Year over year, we continue to see today’s non-retirees struggle with the impact short-term spending has on their long-term financial future.”

NEXT: Areas of concern

While Millennials are taking more of a goal-oriented approach to retirement than other generations, they share Americans’ realization that they need to be more proactive. Forty-eight percent say they are insecure about some aspect of their finances, be it their financial future, retirement or income. Retirement savings is one of the top insecurities, cited by 21%, followed by personal relationships (10%), judgment of others (6%) and career path (4%).

Asked what their financial concerns will be in retirement, the first one cited is daily expenses (28%) followed by health care expenses (17%) and housing expenses (17%).

Asked to grade themselves on how well they are preparing for retirement, 38% gave themselves a “C” or lower. Only 18% gave themselves an “A”.

“It has become increasingly apparent that retirement planning is not only evolving but also has become a moving target that Americans must continuously revisit to pursue their goals and priorities,” says Ken Dychtwald, founder and CEO of Age Wage. “As we see in the latest Merrill Edge Report, retirement planning requires a new mentality. ‘Set it and forget it’ is a thing of the past. As Millennials are envisioning living very long lives, this study reveals new priorities they have for work, leisure, success and money as they are coming to realize that everything they do today, financially speaking, can impact the lives they’re hoping to live in retirement.”

NEXT: Retiree realities

The survey also asked retirees what they have done in retirement that they didn’t expect. The top response was spend more money than anticipated (30%), followed by moving to a new location (19%) and feeling a lack of purpose (18%).

Retirees were also asked about their top priorities. The biggest one was maintaining their standard of living (29%), closely followed by spending time with loved ones (27%) and maintaining their health (23%).

“Today’s retirees tell us they are experiencing a very different retirement than non-retirees are envisioning,” Levine says. “With continuing savings challenges and potential economic uncertainties ahead, non-retirees should have a plan in place and regularly revisit it to make sure it still aligns with what’s most important to them for their retirement years.”

Data & Research April 18, 2016

Behavioral Finance Analysis Highlights Savings Commitment Issues

Americans may be increasingly eager to save according to some measures, but that doesn’t mean they’re excited about earmarking dollars for retirement, or that people are widely committed to the long-term side of savings. 
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When it comes to saving, Americans are more inclined to set aside earnings for purchases that can be enjoyed sooner rather than later, leading to biases against the “long-term” language increasingly stressed by the retirement planning industry.

According to the new “Digital Motivation Research” report from MotiveIndex, a firm specializing in behavioral finance and market research, four out of five individuals recently surveyed “do not believe in delayed gratification when it comes to saving, yet that is the message given to most of them through various financial education programs.” 

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Among a sizable sample of 4,500 workers, the analysis shows those who are less likely to save for retirement also “feel alienated and turned off when a financial institution tells them to change their behavior and/or think long term.” Perhaps most striking, the MotiveIndex findings showed that these consumers are actually compelled to lie when asked about their financial intentions and plans, “as they are emotionally unwilling to change their spending habits.”

Nearly half of the non-saving population (40%) also believes that spending money and taking on debt is “okay as long as it’s done with the welfare of others in mind and justifies spending decisions based on the belief that it benefits others in their family or circle of friends,” the researchers explain. “These individuals have a vision for how their life is supposed to be, so they do everything in their power to achieve it.”

It won’t exactly be news to experienced financial advisers to hear that emotion factors into clients’ decisions about saving, but MotiveIndex warns that near-term emotional thinking cannot be underestimated as an obstacle to positive retirement outcomes, even among experienced clients who understand more than the basics of finance. In other words, even committed savers will now and again face strong emotional pressures to break with a long-term financial plan—and many will choose to do so without careful guidance. 

NEXT: Emotion and finance go hand-in-hand 

MotiveIndex says its research is unique because of the depth to which it explores the semi-rational thinking behind what are ostensibly bad financial decisions.  

“Whether it involves investing in organized sports for their children, buying a bigger more expensive home, upgrading their cars, or even rewarding their loved ones with expensive dinners and experiences, this cohort often ignores logic for the emotional satisfaction of doing something that benefits others,” the report explains.

The analysis goes on to suggest these motivations for spending more than is strictly necessary for oneself and one's family and friends are “often unspoken” or tied up with other complex considerations, but they are nevertheless extremely influential in the financial decisionmaking process of the typical American worker.

“By analyzing the unspoken motivations of consumers, we were able to discover that traditional education methods were ineffective, as consumers considered the messages used by financial institutions to be more like finger wagging,” explains Jason Partridge, co-Founder of MotivIndex. “To truly resonate with individuals, the financial community should start with programs that provides individuals with a reason to save short term by connecting it to important events in their lives. The bottom line is that financial institutions must build trust before trying to get people to think about the future.”

Additional research results are presented here. 

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