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Millennials, Women Most Vulnerable to Being Unprepared for Retirement

"(Millennials) are participating in retirement plans, but not actively involved in the…process, likely because it is so many years ahead and this generation tends to focus on the here and now."

| BY Donald Liebenson

Millennials, women and lower-income employees are at “significant risk” of not being able to achieve retirement security, according to a new study.

The third annual Financial Finesse research report on the state of U.S. employee retirement preparedness finds steady overall improvement since 2011. For the first half of this year, the report states, 20 percent of employees that took a financial wellness assessment reported being on track to their their income-replacement goal in retirement, up from 14 percent two years ago.

Among the red flags of this encouraging trend is that the majority of employees have done very little to prepare for retirement, with almost two-thirds (61 percent) indicating that they have not used a financial calculator to run a retirement projection. In addition, improvements to employees’ retirement preparedness seemingly stem from market appreciation and improvements employees are making to their investing behaviors rather than from changes to their spending behaviors, which is the biggest driver to achieving retirement security, the report states.

Only 17 percent of Millennial employees self-reported they are confident about being on track to retire with 80 percent of their income (or their goal) in retirement. This is down from 19 percent last year and concerning for an age group which faces comparatively lower Social Security payouts, higher health care costs, and longer life expectancies. In comparison, 28 percent of early Baby Boomers ages 55-64 said they are on track to reach their income-replacement goal in retirement, up from 24 percent in 2012.

“Although they have more time than the Boomers and Gen Xers, they face far more economic and financial challenges than any other demographic, and they’re not recognizing retirement planning as a priority, noted Financial Finesse CEO Liz Davidson in a statement. Tellingly, only 29 percent of Millennials reported using a financial calculator to run a retirement projection, down from 32 percent last year, the report finds.

Women’s retirement preparedness continues to lag behind men’s. As with Millennials, only 17 percent are confident that they will be able to reach their retirement income goals. This is an increase from 13 percent in 2012, but still low considering the economic challenges they face, including a longer life expectancy, salary inequality over the course of their careers, and investing more conservatively.

Employees with a total annual household income not exceeding $60,000 reported declines in several key retirement planning areas this year, Financial Finesse reports. Eighty-four percent reported participating in their 401(k) plan in 2013, down from 86 percent last year. Similarly, 10 percent are feeling confident about their ability to reach their income-replacement goal, down from 11 percent, while 33 percent said they have run a retirement projection, down from 36 percent last year.

Of these “at-risk” groups, Davidson said she is most concerned with Millennials. “The biggest issue isn’t only external factors they will have to overcome,” she said, “it’s also internal ones. I’m concerned by the mentality this generation has about retirement planning. They are participating in retirement plans, but not actively involved in the…process, likely because it is so many years ahead and this generation tends to focus on the here and now. We need to relate better to them and make long-long-term financial planning easier and more accessible. Some of this means breaking financial guidance into small steps that can provide a sense of instant gratification and accomplishment. This can be paired with technology they can use to manage their progress and alert them with important steps they need to become more financially secure.”

About the Author

Donald Liebenson

Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.  

A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.