When we talk about retirement security, it’s usually older workers we have in mind. But what about millennials? People currently aged 23 to 39 now make up the largest portion of the U.S. labor force. The future of retirement is, literally, the future of millennials.
On the fifth and final (for now!) episode of my podcast Reset Retirement, we explored what’s next for American retirement. For millennials, it’s a mixed bag. While their savings are less than ideal, thanks partly to the bad luck of entering the job market during a deep recession, they are not the profligate spendthrifts older generations make them out to be.
What remains to be seen is whether millennials will accept the commercialized, do-it-yourself nature of the current retirement system—or push for a system that protects everyone.
For the millennial perspective I spoke with Owen Davis, a 31-year-old research assistant and New School economics PhD candidate (and one of my students). Owen has personally experienced a wide range of workplace retirement benefits. As a public school teacher out of college, he contributed to a pension. Later, as a reporter, he saved into a 401(k). Now a grad student, his retirement savings are on hold.
Owen told me that having a pension guaranteed by his union was ideal, and that having a work-provided 401(k) was also helpful. “Those are situations where I felt I can comfortably fit into this system and it’ll work for me,” he said. “And then outside of those situations it’s a dog-eat-dog world where if I don’t provide my own retirement savings: too bad, that’s my fault.”
On the whole, Owen expressed ambivalence about saving for retirement. Like many millennials, he is wary of the system but also determined not to lose out on a secure retirement. “For my generation, the trauma of the financial crisis weirdly instilled both a fear of the financial sector but also a respect for saving in the future,” Owen told me.
According to survey data (and perhaps surprisingly to some), millennials might even care more than previous generations about saving and retiring well. A majority of millennials set saving and budget goals, and millennials tend to report saving more than Generation X.
Despite the stereotypes, millennials do not blow all their income on lattes and avocado toast. The best research on this question shows that millennials are much like previous generations in their consumption habits.
The major difference with millennials is choosing to be born in the wrong decade. Having the misfortune of entering the job market around the time of the Great Recession, millennials have struggled to secure decent jobs with solid benefits, a necessary ingredient for retirement security.
Another challenge is changing workplace norms around retirement. Previous generations have already been affected by the decline of pensions, the rise of individualized savings plans and pervasive low pay. If these negative trends continue, the coming retirement crisis could be a preview of what’s to come for millennials.
According to one report, two-thirds of millennials lack any retirement savings whatsoever. For 40% of them, this comes down to failing to qualify for retirement benefits at work, whether that’s because of too few hours or not enough seniority. Job instability is another obstacle. A quarter of millennials report having been laid off, and a quarter see themselves as part of the gig economy.
As millennials try to save, Silicon Valley has detected an opportunity to market new savings solutions. Nearly a third of millennials use some type of investing app. Some of these apps, like Acorns, automatically accumulate savings for users. Others, like Betterment or Wealthfront, aim to provide the investment services of a financial adviser without the actual human.
Owen doesn’t use any of these apps, but he sees their popularity as part of the millennial generation’s mindset, shaped by the financial crisis. “We might not trust JPMorgan and Goldman Sachs generationally but we have a little bit more trust (at least for now) in Silicon Valley,” Owen said.
I applaud millennials for their gumption—saving adequately is not easy in the do-it-yourself retirement system. While nearly half of millennials worry about their own retirements, more than 90 percent believe the nation’s retirement system needs reform. They seem to understand a lasting solution is a political solution. What counts is whether they will push for a way forward that guarantees retirement security for all.
Owen thinks his peers could use some prodding toward a political solution. “I think that few millennials would see their retirement situation as connected to that of their generation or that of other people in their class,” he told the podcast. “I don’t think there’s a lot of awareness that there are actually policy options that could make this a collective issue and not just a personal problem.”