How many times have you come across a member of the Millennial generation who is concerned with whether or not they're saving enough for retirement? I’m sure the answer is either "never" or "not very often.' As a Millennial myself, I'm one of the few who is thinking about my future retirement plans. But, it makes sense that I'm thinking about retirement since I work in the industry.
As a Millennial, I have some of the same financial concerns many in my generation are facing – student loans, child care costs, health care costs and more. But, that doesn't deter me from setting aside a small amount for retirement savings, and up until a few months ago, I thought I was on the right track.
The National Institute on Retirement Security released a new report a few months ago which shows the financial struggles facing many Millennials and where they stand in regards to preparing for retirement. I’m sorry to say Millennials are currently behind financially than previous generations. We're less likely to own a home and have accumulated less wealth than previous generations. As well, a large majority of the Millennial generation is saving 6% or less into their 401(k) type plans (National Institute on Retirement Security).
what’s concerning about Millennials being less financially equipped is that the previous generations have a significant retirement savings gap themselves.
To me, what’s concerning about the Millennials being less financially equipped is that the previous generations have a significant retirement savings gap themselves. So, we're setting ourselves up to have a larger retirement savings gap than other generations. Additionally, with many private companies doing away with the traditional secure pension, Millennials are going to be required to save more because they won’t receive secure income like previous generations.
Yet, many believe the best way for government and private companies to provide retirement benefits is through a 401(k). That’s right; they believe if people save money properly, they'll be able to achieve retirement security without secure pension income. However, what we're seeing is the opposite. Many Americans who are nearing retirement have not saved enough to achieve a financially secure retirement. According to a 2015 study by the National Institute on Retirement Security, “62 percent of working households age 55-64 have retirement savings less than one times their annual income.” So, if the previous generation doesn’t have enough saved and Millennials are not on the right track, are 401(k) plans the right solution? I don’t think so.
62 percent of working households age 55-64 have retirement savings less than one times their annual income.
The best solution for both the employee and the employer is providing a retirement system that will reward longevity by providing secure retirement income based on the employee’s career within that system. The employer benefits from a longevity based system by retaining the employees during their most productive years, and when someone is ready leave employment, they have an avenue to achieve a dignified and financially secure retirement. In other words, turnover happens when it is supposed to happen. This is beneficial in two ways: the employer may save money from less turnover, and the organization will be able to promote employees they have retained with their retirement system.
Of course, the most efficient way to achieve a longevity based system is through a defined benefit plan, like LAGERS. To find out more about how LAGERS is benefiting the State of Missouri, visit www.showmesecurity.molagers.org.