6 Ways the Future of Retirement Looks Different for Millennials Than Boomers
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Maddie Duley
4 min read
The financial landscape has undergone a profound transformation over the past three decades, leading to a markedly different future of retirement for millennials compared to their boomer counterparts. Unlike baby boomers, who came of age in a more economically favorable era, millennials are navigating a complex financial terrain marked by soaring student loan debt, exorbitant housing costs and the scarcity of jobs offering traditional pension benefits.
Baby boomers enjoyed the security of defined benefit pension plans throughout their careers, providing them with a dependable stream of retirement income that allowed for modest yet comfortable retirements.
“The biggest difference is that the baby boomers began their careers in an era of defined benefit pension plans,” said Robert Johnson, CFA, PhD and professor of finance at Creighton University. “They didn’t have to be concerned with saving for retirement as they were covered by these pension plans. And, they weren’t raised by parents who emphasized saving for retirement as their parents were often covered by defined benefit plans.”
Millennials Grapple With Defined Contribution Plans
In stark contrast, pensions have become a rarity for millennials, forcing them into a proactive approach toward retirement savings and investment.
“The past 30 years have seen a major shift in retirement plan schemes from defined benefit plans to defined contribution plans,” Johnson said. “Defined benefit plans are now largely concentrated in state and local government workers. According to the U.S. Bureau of Labor Statistics, only 15% of private industry workers had access to a defined benefit plan, compared with 86% of state and local workers. This means the burden for savings is on the employee.”
Millennials predominantly rely on savings vehicles like 401(k) plans, IRAs and similar plans for their retirement security. Coupled with doubts about the future of Social Security retirement benefits, millennials are increasingly under pressure to ensure their financial stability in retirement through their own diligence.
Millennials Start Saving Earlier Than Boomers
A silver lining for millennials is their proactive approach to saving for retirement at a younger age compared to previous generations.
“According to the National Association of Plan Advisors, millennials actually started saving at a much younger age (age 25) than boomers (age 35),” Johnson said.
Although their early contributions may be modest due to financial constraints in their early years, this generation tends to increase both the amount and percentage of their savings as they age, according to Akeiva Ellis, CFP and expert contributor for Annuity.com.
Millennials Allocate a Higher Percentage of Their Income to Savings
However, millennials are not necessarily saving a larger absolute amount but are dedicating a higher percentage of their income to retirement savings. The reason behind this trend is the burden of student loan debt, which continues to plague a significant portion of this generation.
“According to a 2021 study by the Center for Retirement Research at Boston College, 40% of millennial households between the ages of 28 and 38 had a large student loan debt burden that amounted to more than 40% of their income,” Johnson said.
Millennials Face Tougher Financial Challenges Early in Their Careers
Both generations experienced major financial crises during their formative years — the Great Depression for the WWII Generation and the Financial Crisis for millennials. Millennials, however, entered the job market during the aftermath of the Financial Crisis, which led to reduced employer contributions to defined contribution plans. This placed an even greater burden on millennials to secure their retirement savings.
“The Financial Crisis caused many firms to reduce employer contributions to defined contribution plans, placing an even larger burden on the employee for their retirement savings,” Johnson said.
While millennials grapple with burdensome student loan debt and a fiercely competitive job market, they also face the challenges of surging inflation rates and rising interest rates. These factors have made achieving financial security an increasingly formidable task. The soaring costs of healthcare, child care and education have led many millennials to postpone marriage and starting families. In stark contrast, baby boomers enjoyed a more favorable economic environment that facilitated the achievement of these milestones with greater ease, according to Ellis.
The Impact of the Digital Age on Millennials’ Retirement Savings
The digital age has brought both opportunities and challenges to millennials’ retirement planning. While social media and digital platforms have made expert financial advice more accessible, they have also become breeding grounds for misinformation.
“Millennials, arguably more than previous generations, need to be investment-savvy,” Ellis said. “Information about investments and financial planning is readily accessible through digital sources, including platforms like TikTok. However, it’s essential to exercise caution, as this accessibility has also given rise to misinformation. It’s crucial for individuals to fact-check and verify the financial advice they encounter online to make informed decisions about their retirement savings.”
