Market Downturn May Drive Millennials to Cash Out Retirement Plans

New retirement research shows that plan participants are increasingly growing frustrated in today’s market. 

Retirement plan participants are frustrated by prevalent market volatility and fearful of a significant market slump, according to new research.

The Cogent Syndicated DC Participant Planscape report from Escalent shows that in the event of a market downturn—in which the major market indices decreased 10% or more—61% of Millennials will likely liquidate their retirement plan assets, pay taxes to withdraw and any applicable penalty, compared to 35% of Gen Xers, and 26% of Baby Boomers.  

Millennials are spooked by market volatility and fears of increased inflation above other generations in the survey: Gen X, 2nd Wave Baby Boomer, 1st Wave Baby Boomer and the Silent Generation (born 1928-1945). With more time to save and invest for retirement, anxiety and fear among Millennials can cause participants to be vulnerable to concerns affecting their ability to save for retirement, the report finds.  

The research shows that 73% of active defined contribution plan participants are Millennials and Gen Xers, compared to 50% in 2020 and 54% in 2021. 

Millennials and Gen X participants “are primed to be more reactive than their older peers, underscoring the necessity for providers to offer guidance and reassurance,” the report states.

Sonia Davis, senior product director at Escalent, says in a press release that plan sponsors must react with bolstered financial wellness and planning resources for participants.  

“These findings underscore the overarching need for increased education and investment guidance, especially as anxiety around market volatility and inflation persist,” she says. “Retirement plan providers and investment managers play a critical role quantifying retirement savings goals, connecting participants with resources to ensure confidence, and ultimately, encouraging them to stay committed to the long game for their personal financial betterment.”

Among all survey respondents, 27%—the most frequent—say concerns about market volatility are the reason for decreasing their retirement plan contributions. Less income is the prompt for 21%, followed by needing to pay down debt or bills (19%) and needing money for everyday expenses (18%).  

In the event of a 10% market downturn, among all generations of retirement plan investors, 62% would be extremely likely to talk to their financial adviser, 54% to contact their retirement plan representative, and 53% to decrease their risk tolerance from aggressive to moderate, the report finds. 

The report suggests that plan sponsors may be able to mitigate increased retirement anxiety—from market volatility and recession fears—with financial tools for participants, that can provide guidance and a measure of reassurance.

“This [is] an opportunity for firms to quickly intervene and provide guidance and reassurance to plan participants,” the report states. “Financial wellness programs have proved instrumental in creating more confidence and retirement readiness, with users citing significantly higher confidence rates in achieving their retirement savings goals.”

The report finds users of financial wellness programs have higher confidence in their ability to achieve retirement savings goals, as 35% of users are “extremely confident,” compared to 17% for non-users.

Millennials and Gen Xers show the most confidence, because the “levels are most pronounced among Millennials (42% of users vs. 15% of non-users) and Gen Xers (30% of users vs. 15% of non-users),” the report finds.

The research was conducted by Cogent Syndicated, a division of Escalent, from May 10 to June 1. The online survey gathered responses from 4,011 defined contribution plan participants, 18 years of age or older, contributing at least 1% to a current retirement plan and/or have $5,000 or more in at least one former plan.