Millennials’ Retirement Prospects Are Challenging

They earn less than older generations, are less likely to participate in a retirement plan, and will have to contend with longer life spans and rising health care costs.

Retirement prospects for Millennials are particularly challenging, the Center for Retirement Research at Boston College says in a new brief, “Will Millennials Be Ready for Retirement?”

Many Millennials, those born between 1981 and 1999 and, thus, between the ages of 37 and 19, began their careers in a tough job market following the bursting of the bubble in 2000 and the Great Recession of 2008 and have substantial student debt, The Center for Retirement Research says. Further, many employers are cutting back on pensions and health care benefits, and Millennials’ life spans will likely be higher than previous generations due to increasing longevity. They also face the prospect that Social Security benefits will be cut or, perhaps, not exist at all, and they will have to grapple with rising health care costs.

The Center says that the story about Millennials starts off on a positive note, as Millennials are more likely than earlier generations to have a college degree. Citing a 2014 Pew study, the Center notes that the median income for Millennials with a college degree is 63% higher than for high school graduates. Their unemployment rate is also 8% lower and they reported greater job satisfaction.

However, because many Millennials entered the job market between 2002 and 2012, fewer male and female Millennials have a job than older generations. Furthermore, the Center says, “regardless of their ability to find some type of job, one apparent struggle for both men and women has been finding quality jobs—career-track positions with good compensation.”

They also earn less than older generations and are less likely to be offered a retirement plan and health insurance: “The percentage of [Millennial] workers participating in a retirement plan is sharply lower for both men and women. This lack of a savings vehicle is a particular concern given that individuals who do not have a workplace retirement plan rarely save for retirement on their own. Similarly, a much smaller share of male and female workers are covered by employer-provided health insurance.”

Poorer job prospects and student debt have caused the percentage of Millennial men married at age 25 to be less than half for late Baby Boomers and only two-thirds of that for Gen Xers. Likewise, by age 35, 50% of Millennials own a home, compared to 60% of late Baby Boomers and Gen Xers.

The Center found that among Millennial households between the ages of 25 and 28, 49% are saddled with student debt, compared to 29% of late Boomers and 32% of Gen Xers in that age group. “Research has shown,” the Center says, “that young workers with student debt have less in retirement plans and are more likely to end up at risk in retirement. The increase in student debt, low rate of home ownership and low rate of participation in retirement savings plans has produced a big decline in the median ratio of wealth to income compared to earlier cohorts. Saving for retirement is clearly getting harder for Millennials.”

The Center for Retirement Research concludes that the outcome for Millennials could possibly improve, given the fact that they still have a long time horizon to save, the markets could deliver strong returns and the government could save Social Security. The full “Will Millennials Be Ready for Retirement?” brief can be downloaded here.