Current Thinking

The Millennial SmartPath™: A Great Tool to Help Millennials with Retirement Savings

We’re pleased to introduce the latest in our Pentegra SmartPath™ Thought Leadership Series: The Millennial SmartPath™, an exclusive report detailing best practices and strategies for millennials to help improve retirement readiness and overall financial wellness.

Millennials, also known as Gen Y, are perhaps not surprisingly the fastest-growing segment of the population. According to the U.S. Census Bureau, as of 2016 there were an estimated 71 million millennials in the U.S.; the Pew Research Center predicts they will grow to 73 million this year and displace baby boomers, whose numbers are expected to decline to 72 million, this year.

Millennials are generally defined as being tech-savvy, family-centric and achievement- and team-oriented. They have also been characterized as caring about such socioeconomic factors as protecting the environment, supporting world peace via NATO, and basically making the world a better place.

But when it comes to planning for retirement, they are (perhaps unsurprisingly) not so well-prepared or thoughtful. As we know, all-too-many people are saving an insufficient amount of their income to fund a comfortable retirement – something that is unfortunately reflected by our Millennial SmartPath™ report.

While not necessarily exclusive to millennials, their general pattern is to put off starting their retirement planning for a number of reasons, including that there are other expenses they consider more immediately important and that it’s too early to concern themselves about something that could be several decades away from occurring.

We recognize that the early years of a millennial’s career can be chaotic and stressful. Entering the workforce, paying back student loans, buying a home, starting and raising a family, navigating debt issues, advancing a career — all of these can be financially challenging.

There is so much to juggle for this younger generation, especially when it comes to money. As the first true “post-pension” generation, millennials must save enough for retirement largely on their own … an often-intimidating situation for a group that is saddled with record levels of student loans.

According to Forbes, there now are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the United States, making student loan debt second only to mortgage debt when it comes to consumer debt. And according to the Institute for College Access and Success, borrowers in the Class of 2017, on average, owe $28,650 in student loans.

Our report provides tips, advice and a better understanding of best strategies for millennials — including harnessing the power of compounding, finding extra dollars to save, saving for college and retirement, managing debt, and asset allocation guidance.

Among the recommendations to be found in The Millennial SmartPath™:

Do the math. Calculating a retirement savings goal involves more than just coming up with a reasonable estimate of how much money one will need in the future. It also involves answering such questions as when and where one hopes to retire, what expenses may increase and decrease during that period, and what – if any – supplemental sources of income one may want or need to explore, from an evolving investment strategy to liquidation of assets and even taking a post-retirement job.

Take full advantage of the tax-deferred benefits of saving through a 401(k) plan or 403(b) plan. Contributions to such plans are deducted from one’s paycheck before federal income taxes are owed – meaning a participant actually saves more in the plan than they sacrifice in take-home pay. For example, if a person is in the 15 percent tax bracket, they save 15 cents in taxes for every dollar they put into their plan, so their out-of-pocket cost is just 85 cents per dollar saved.

Consider increasing one’s savings rate by 1 to 2 percent of salary each year. As one’s rate of pay increases, so should their contributions to a retirement savings plan. Most people receive salary increases at the end of the calendar year; that is often the perfect time for taking some of that increase and putting it directly into a retirement savings plan.

Understand asset classes. What are the pros and cons of stock funds, bond funds, and fixed-income funds? Should you go with one type of fund, or diversify?

Additional data and information included in The Millennial SmartPath™ can help take the mystery out of – and, most importantly, encourage changes in behavior towards – saving for retirement.

The good news is that we are seeing many millennials rising to the challenge. In fact, studies have shown that despite the stereotypes, millennial money habits are just as good — or perhaps better — than other generations.

 That being said, we wanted to create this tool exclusively for them, to provide valuable information to help millennials master the financial strategies they should look to adopt right now. Our goal is to offer practical ways to achieve greater financial wellness and retirement readiness.


About the Author

Richard Rausser

Richard W. Rausser has more than 30 years of experience in the retirement benefits industry. He is Senior Vice President of Thought Leadership at Pentegra, a leading provider of retirement plan and fiduciary outsourcing to organizations nationwide. Rich is responsible for helping to shape and define Pentegra’s viewpoint on workplace retirement plans, plan design strategy, retirement success and employee savings trends. His work is used by employers, employees, advisors, policymakers and the media to produce successful outcomes for American workers.  In addition, Rich is responsible for Pentegra’s Defined Benefit line of business, which includes a team of Actuaries and other retirement plan professionals as well as Pentegra’s BOLI line of business.  He is a frequent speaker on retirement benefit topics; a Certified Pension Consultant (CPC); a Qualified Pension Administrator (QPA); a Qualified 401(k) Administrator (QKA); and a member of the American Society of Pension Professionals and Actuaries (ASPPA). He holds an M.B.A. in Finance from Fairleigh Dickinson University and a B.A. in Economics and Business Administration from Ursinus College.