Millennials, the disruptive generation once stereotyped as tech-obsessed, entitled job-hoppers, are all grown up and looking ahead to a future where nearly 4 in 10 won’t have enough income by the time they reach age 70.
According to a new study by the nonprofit Urban Institute, 38% of early millennials born in the 1980s will have inadequate income at age 70 due to Social Security benefits being smaller, a continued shift away from traditional pensions and people not saving enough in their 401(k) accounts, and earnings from men failing to increase.
That compared with 28% of pre-boomers (born between 1937 and 1945) and 30% of late boomers (born between 1955 and 1964) who failed to have adequate income at age 70, the study found.
Things don’t look great for Generation X, either, with 35% of early Gen Xers (born 1965 to 1972) failing to have adequate income at age 70, and 39% of late Gen Xers (1973 to 1979) predicted to fall short, the report said.
“It’s striking that the retirement outlook for millennials is so much worse than their counterparts,” said Richard Johnson, a senior fellow in the Income and Benefits Policy Center at the Urban Institute, where he directs the Program on Retirement Policy. “We have some positives that women are working and earning more, but men’s earnings are stagnating.”
Retirement security is projected to be especially precarious for early millennials of color, those with little education and limited lifetime earnings, and those who are not married, Johnson said.
The Urban Institute classified income as inadequate at age 70 if it was projected to fall below 25% of the annual national average wage, a level deemed necessary to cover basic needs, or replaced less than 75% of annual preretirement earnings.
The outlook for millennials could worsen if policy makers fail to shore up Social Security. The rate of millennials with insufficient funds would increase to 49% if Social Security reform fails to pay full benefits, the study said.
“It’s striking to me how much of this hinges on Social Security. If federal policy makers don’t put more money into Social Security, then the outlook becomes even more bleak. With no new funds, half of millennials will struggle in retirement,” Johnson said.
Still, while the retirement outlook for early millennials is concerning, retirement is still more than two decades away for those born in the 1980s, and their financial security in old age will hinge on several factors that have yet to play out.
“Millennials are still a long way off from retirement, so their retirement is not set in stone. The obvious thing is to save more. With this knowledge in hand, ask ‘how much do I want to consume today versus in the future,’” Johnson said.
Strategies to save more, maximize 401(k) contributions and paying off debt before retirement will be even more important for millennials to help them get better footing for their later years, he said.
Public policy changes also will be crucial to help millennials and other generations.
“Social Security has historically taken a crisis before reform occurs,” Johnson said. “Dealing with Social Security’s problems as soon as possible, though, would give people what they need and time to adjust to any changes.”
Shoring up Social Security’s finances would forestall significant benefit cuts and prevent older adults from becoming even more financially fragile, the study said. Adding a meaningful minimum benefit to Social Security and making the benefit formula more progressive would increase payments to low-income retirees, the report said.
The report also called for mandating employment-based retirement savings opportunities, and increasing savings incentives.
“We need to bolster social safety nets. We need better protections when things go bad – when there’s a disability and people need home care. We also need to nudge people to save more and have more automatic savings,” Johnson said.
With the outlook worsening for each generation, younger people should take note, he said.
“I would be concerned if I was a member of Gen Z. In general, there’s consistent worsening with each generation. The dour outlook and factors are not going away,” he said.