The biggest retirement barriers for millennials, and how financial advisors can help

It’s no secret that saving for retirement is harder today than it’s ever been. Millennials face more barriers to retirement saving than perhaps any generation to come before them—from student loans, to rising property costs, to the way modern society pressures them to spend more and “level up,” even when it’s at the expense of their savings.

Let’s take a look at some of the most significant challenges millennials face when it comes to retirement, and how we as financial advisors can step in to help.

Barriers to entry: why it’s harder for millennials to save for retirement

  • Higher monthly expenses: Millennials carry more student loans than previous generations, and have higher monthly costs (for example, studies have shown that the average household spends $47 per month on streaming services, with seven to nine monthly subscriptions). These higher recurring expenses make it significantly harder for Millennials to achieve two mainstays of financial health: a rainy-day fund of six to nine months’ worth of expenses in case of emergency, and completely paid off credit cards.

  • Delayed entry into the job market: Though millennials have proven to be good savers, many kick-started their careers later than members of previous generations. This disrupts their saving cycle and 401(k) progress; some millennials jumped into their first full-time job in their mid-to-late twenties, and getting a late start on retirement savings can have long-term impacts.

  • Rising popularity of the gig economy: Many millennials are turning to the gig economy to make financial ends meet, and unlike traditional career paths, there are no 401(k) options there. In turn, this inhibits millennials from following the tried-and-true advice I always give to people beginning their careers: to get started in their company’s retirement plan right away, to automatically contribute at least what their company matches, and to utilize other employer-provided benefits such as long-term disability and life insurance.

  • The impact of social media: The rise of social media in millennials’ lifetimes has fueled a rise in social comparison and socially motivated spending. Social media exposes us to the lifestyles of the rich and famous—whether it’s a peer on an exotic vacation, or a successful influencer showing off the latest brands. This creates a “keeping up with the Joneses” mentality to splurge and live beyond one’s means.

  • Fewer retirement resources: Unlike previous generations, millennials can’t rely on social security or company-funded pensions. The onus of saving for retirement falls entirely on their shoulders.

  • Access to financial advice: Finally, younger generations often see quality financial advice as an unnecessary expense. And with some professionals imposing investment minimums of $100,000 or more to bring on new clients, it’s really no surprise.

What we can do about it: financial advisors’ role in removing those barriers

What’s a millennial to do when they’re just starting out, in need of financial advice, and unsure how to get it? A little research goes a long way: it’s important for millennials—and anyone seeking financial advice—to do their due diligence before putting their financial futures into an advisor’s hands. There are plenty of advisors out there ready and willing to guide millennials through overcoming the financial barriers to their successful retirement. And it’s on us, as the professionals, to make it clear that we’re available to help and provide guidance.

Working with an advisor will give millennial clients expert help in putting together a comprehensive financial plan. This plan should outline how much a client needs to save to achieve both their short- and long-term financial goals. This plan could include:

  • An understanding of investment risks, and likely a higher percentage in stock investments to achieve higher returns since millennials have a longer horizon for retirement planning. The power of compounding is impressive, and it takes less money in our younger years to build a healthy nest-egg.

  • A consideration of tax-free growth benefits, like Roth 401(k) options.

  • A plan for the client’s children’s education, if applicable. This will often include a 529 savings plan, or age-based portfolios that help clients stay ahead of the rising cost of college.

  • Systematic savings into an investment account outside of the client’s retirement plan.

  • A plan for life insurance. What level of coverage would the client’s family need if they were to pass away prematurely? A financial advisor should review the different types of insurance and develop a cost-effective plan to cover their client’s risk.

  • A will and other essential estate-planning documents.

The inconvenient truth is that it’s much harder for millennials to save for retirement than it has been for members of generations past. But alongside the barriers come plenty of opportunities, if you just know where to look and how to save smartly. Working with a financial advisor can be a huge benefit to millennials, to ensure they’re on the right path and maximizing their benefits and savings toward a secure financial future.

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