IN BRIEF

The millennial generation (individuals born between 1982 and 2000) is the subject of intense scrutiny: their likes and dislikes, social media inclinations and digital footprints, fashion sense, dining habits, reproductive trends, political and religious views, workplace objectives, etc. This year, millennials will overtake the baby boomers as the largest living generation in the United States, so there are plenty of reasons to study them.

Our focus here is not on smartphone usage or cultural preferences, but on how millennials will manage their finances and maintain their financial independence throughout their working years and through retirement. Our analysis is presented in the form of a proposal for a web-based show (The Millennials) available for live streaming, complete with backstory, a list of episodes and detailed production notes.

Millennials that binge-watch the series in its entirety, as well as their financial advisors, employers and parents, will gain a greater understanding of the drivers of financial security in a rapidly changing world, one that the millennials will now inherit.

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Summary of findings

  • Today’s millennials are highly educated, but face headwinds in terms of student debt, global competition for the best jobs, below-trend wage growth and rising pressure on the federal government to curtail the entitlements they currently and will eventually receive
  • At the same time, millennials are often inclined to hold more cash than prior generations, are less likely to marry or own a home, and will increasingly finance their own retirements due to declining availability of defined benefit pension plans. Given rising life expectancies, their retirements may be longer than their working years
  • To add to these challenges, more than three-quarters of adults in their 50s experience job layoffs, widowhood, divorce, new health problems or the onset of frailty among parents or in-laws, all of which disrupt their ability to save
  • The good news: the financial tools needed to deal with these challenges are within reach, provided that millennials use them early enough
  • How can median-income millennials do it? It starts with a plan to put 4%-9% of pre-tax income into Retirement accounts each year, starting at age 25. For affluent millennials, the range would be 9%-14%; and for high net worth millennials, 14%-18%
  • The rest of the plan is based on additional savings from after-tax income, employer matching contributions and consistent investment discipline
  • One possible consequence of inadequate saving in advance of adverse events: sharp declines in “income replacement ratios”, which measure the amount of money millennials will be able to spend in retirement
  • It may be hard for millennials to “invest their way out” of adverse events. Example: single individuals retiring three years earlier than planned may accumulate lower savings before retirement, draw on savings sooner, and accelerate Social Security at a discount. To fill the gap, they would need to earn real equity returns over their lifetimes that are close to the highest levels seen since 1935

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