A workplace retirement plan is the number one savings vehicle outside of an everyday savings account for those in Generations X and Y, but research from Fidelity Investments found that 40% of workers age 20 to 40 cash out of their retirement plan when they change jobs. And they change jobs much more than their Baby Boomer predecessors.
Fidelity says 20 to 40-year-olds will make up 60% of the workforce in two years, and the firm already provides workplace and retail products to 5.6 million investors in this age group. These generations need more education on the benefits of tax advantages and compound interest, said Pamela Norley, executive vice president, Fidelity Consulting Group, speaking with PLANADVISER.com. “We can do a better job as an industry on educating this group of investors on the benefits of long-term savings,” she said.
The majority of both Generations X and Y do not think they are making good financial decisions, according to the research. In fact, the largest concern among both generations is money—even before family, health, and career. Parents top the list as the main source of help for these generations (28%, Gen X; 43%, Gen Y). However, one in five is not seeking financial help at all, even from print or online resources.
Although many in Generations X and Y say that saving for retirement is a priority or goal (55%, Gen X; 44%, Gen Y), they also are too bogged down in debt to save for it. About half (51%) indicated that other financial priorities are keeping them from saving for retirement, and mortgages and credit card debt are listed as higher priorities than retirement for both generations. As previous research has found, younger generations are putting retirement savings on the back burner (see GenXs Put Retirement at End of Financial Priorities)
Keep it Simple
Norley said that the opportunity is strong for advisers to reach this segment of investors, who would like to know more about their finances. “Advisers have a big opportunity with this group if they can start relationships early,” she said.
Many younger investors think they don’t matter to financial advisers because their assets are not large enough. They are slightly intimated by the idea of meeting with an adviser, Norley said. The lack of assets might be a fair reason why younger investors aren’t working with an adviser, but many advisers know that reaching younger clients now means building a relationship over time. Mintel research firm found that Generation Y makes up only 5% of the client base of financial advisers (see Y Not?).
For retirement plan advisers, reaching out to those younger plan participants now could be critical in ensuring they have enough savings for retirement. A recent study by Charles Schwab found that 70% of all generations—and 80% of Generation Y—would like more financial advice from their employer (see Four Generations Agree: We Need More Advice). Generations X and Y are also open to the do-it-for-me approach, which is why Fidelity has been striving to implement autoenrollment, auto-increases, and auto-defaulting assets to the right allocation, Norley said. Research released from the Employee Benefits Research Institute (EBRI) last week found that Generation X and Y both overwhelmingly support the idea of autoenrollment (see Gen X, Y Support Autoenrollment).
Fidelity’s research found that the younger generations are looking for information that is instant and simple—but not necessarily just online. “They’re skeptical about the information that they find online,’ Norley said. “They feel they need to validate it. They’re not just going to take the information off the Web sites—they actually want to talk to somebody.” Norley noted that while 80% of 20 to 40-year-olds deal with their financial assets over the Web, they still want their financial institution to have “bricks and mortar.” Although these generations are known for being tech-savvy, they appreciate the human connection and crave objectivity. “They want education, they want guidance, and they want it to be from credible sources,” Norley said.
The Fidelity research looked at 1,200 adults, using both quantitative and qualitative research.