The term millennial is becoming increasingly popular in news and conversation, but not many know which age range it actually covers. For the uninitiated, Millennials are generally defined as being born between 1981 and 1996 and while there is fierce debate from older generations over how difficult life as a Millennial really is, one fact that is becoming increasingly apparent is that this group will suffer some of the worst retirement periods due to a frequent change of jobs and a tendency to cash out retirement benefits when this happens.
According to a report by LinkedIn, it is suggested that this generation will change their jobs at a much higher level than those previous, as in the past 20 years the number of companies that people worked for in the five years following their graduation has nearly doubled, while Viresh Maharaj, CEO of Client Solutions at Sanlam Employee Benefits says the statistics estimate Millennials having between 12-15 jobs in their working life.
He said: “Our contention is that the number one baseline, foundational reason people don’t have good retirement outcomes is a lack of preservation. It doesn’t matter what investment strategy you’ve got, what costs are in play, what type of advice is there, the counselling, annuitisation, nothing. Nothing else matters if you don’t preserve.” He also suggested that if a greater increase in changing jobs was due to an evolving nature of employment, Millennials were far more likely to risk non-preservation.
In addition to non-preservation, other factors contribute to the promise of a poor retirement, such as fear of financial services institutions which may have caused issues for their parents through hidden fees, confusing technical jargon, or a lack of financial knowledge.
One way this can be combated however is developing a greater understanding of finances which may help people to save, stay out of debt and generally develop a more robust level of financial literacy. We recommend checking out this guide for a 5 minute crash course to help you on your journey.
Despite representing more than 50% of the workforce, Millennials do not actively consider their later lives and associate retirement with the fear of aging and an idea of being old which planning for may not seem like a priority. Maharaj said of Millennial focus groups conducted as part of Sanlam’s annual retirement research, “Millennials do not relate cognitively [or] emotionally with retirement because of the negative associations… and therefore they don’t engage with the process.”
However, despite the pressure for Millennials to find stable long-term employment, build savings and plan for future retirement, the research also showed that the age range is one of the most optimistic with a strong belief in their ability to make their own plans. This is also despite the fact that they are often not targeted by financial advisors, further contributing to a lack of financial literacy which Maharaj believes is the perfect combination for creating future instability.
He said: “[Millennials] are typically left to their own devices. They don’t receive financial advice, are untrusting of financial services, have a low degree of financial literacy, are overconfident in their own abilities [and] are disengaged with the retirement fund. It is a perfect storm that we’ve got going on for 50% of our members.”
He believes that one of the ways to combat this issue is with techniques that work with the beliefs and benefits of this generation, rather than against them, such as accounting for the fact that they want to feel in control of their life choices and feel informed enough to make their own decisions, meaning the financial industry has a large role to play in engaging with them, providing help and instilling confidence.