Retirement attitudes are significantly more upbeat among young investors. Why are Millennials so optimistic?
Retirement looks rosier to members of Generation Y even though, as a group, Americans age 30 and younger have been hit hardest by the economic downturn.
“Millennials are generally more upbeat about a range of financial issues in addition to retirement,” said Catherine McBreen. “Part of this optimism is life-cycle related. Investors in their 20s tend to feel they have plenty of time to build their careers and save for retirement. Part may reflect the unique personality of the Generation Y, which is a more community-oriented, confident and connected group than Generation X and the baby boomers.”
More than two-thirds (68 percent) of investors age 31 and younger said they were confident they will have “sufficient funds to live in a manner I like during retirement,” in a Millionaire Corner study of Mass Affluent investors conducted in December 2010. Mass Affluent investors, who have a net worth of $100,000 to $1 million, not including primary residence, are generally more concerned about retirement. Less than 58 percent are confident they will be able to afford a comfortable retirement.
Millennials voice greater optimism, though they have been the hardest hit by the recession and its aftermath. More than one-third (36 percent) say they have had to take money out of their retirement funds because of financial hardship. Only 20 percent of the Mass Affluent as a whole has had to make hardship withdrawals.
Many employers cut their contributions to employer-sponsored retirement plans, such as a 401(k) during the recession. Generation Y was more likely to suffer as a result. More than 45 percent of investors age 31 or younger said their employer has reduced contributions to retirement accounts, while fewer than 23 percent of Mass Affluent investors as a whole experienced the cuts.
Younger investors are more optimistic about retirement, but they also hold a more positive short-term view of their financial status. In a September survey of 1,099 investors, 55 percent of participants age 40 and younger predict they will be better off financially in one year than they are now. Less than one-third of investors as a whole shared this positive outlook, and the share who felt they would be better off declined steadily with age. Fewer that 27 percent of investors age 60 and older said they expect their finances to improve in the next 12 months.
The positive attitude prevails despite financial concerns that include monthly bills (43 percent) and delaying retirement (38 percent) by working longer than originally planned.
“It’s good to be positive, but it’s also important to be realistic,” said McBreen. “Generation Y needs to be concerned about retirement to the point that they develop and follow through on a sound savings plan.”