Are Millennials Heading for a Retirement Crisis, Too?

We’ve heard over and over that many boomers will face a retirement crisis (if they haven’t already). But if you’re a boomer parent, you’re probably wondering: Will my kids’ generation, the Millennials, face one, too?

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Of course, it’s way to early to say for sure either way. After all, these 83.1 million Americans are only 19 to 35. But based on the Wells Fargo Millennial Study released today and other data I’ve reviewed, I’d say that quite a few Millennials just may be heading towards a retirement crisis.

The good news: Unlike the boomers, Gen Y has enough time to reverse course.

I think what saddened me most about the findings from the Wells Fargo poll of 1,005 working Millennials wasn’t how much this generation is saving. It was how despondent they seem about their retirement prospects — especially the Millennial women. Consider:

• 64 percent of the Millennials surveyed said they will never accumulate $1 million in savings over their lifetime (73 percent of the women felt this way)
• 54 percent of the Millennial women said their finances were stretched too thin to save for retirement (just 43 percent of the men said so)
• 52 percent of respondents overall said stock market volatility makes them worry they will lose their retirement savings in the market

“This generation is saving and investing for the first time, and the market volatility has been a little bit of sticker shock for them,” said Joe Ready (yes, that’s really his name), director of institutional retirement and trust for Wells Fargo. Ready thinks some Millennials are also scared because they saw what happened to their parents’ 401(k)s in the 2008-‘09 financial crisis.

One reason the Millennial women are gloomier: the gender pay gap. In the Wells Fargo survey, the women reported median personal income of $28,800 and the men earned $39,100. Little surprise that more women (54 percent to 43 percent) said they’re living paycheck-to-paycheck.

Some Millennials may not understand, however, that accruing $1 million may be within the realm of possibility if they start saving regularly. “One million dollars seems like a big number that’s difficult to achieve,” said Ready. “It’s very doable and manageable, but you have to start early.”

Wells Fargo offers this example: A Millennial with a $32,000 starting salary at age 25 who saves 5 percent that year and increases the amount by two percentage points each year up to 13 percent could be sitting on $1 million by age 65. (Caveat: Wells assumes a 2 percent annual raise and an average annual investment return of 7 percent — not impossible, but no cinch either.)

The real question is: Will $1 million be enough for a comfortable retirement? Robert Powell, the sharp retirement writer for USA Today and MarketWatch.com, doubts it, and I agree. (Keep in mind that today’s $1 million would be worth around $400,000 to $500,000 when Millennials retire.)

Powell recently wrote in USA Today that older Millennials will need about $1.8 million to maintain their standard of living in retirement. And, he said, younger Millennials will need “upwards of $2.5 million.”

Of course, this presumes the Millennials are saving and investing for retirement. Based on the Wells Fargo survey, that’s a bogus presumption for many.

A full 41 percent of the Millennials that Wells Fargo surveyed have not yet started saving for retirement. I think it’s fair to assume the percentage of non-savers would be even higher if you roped in unemployed Millennials.

There’s a variety of reasons. Some have just started working or have irregular incomes, so emergency funds are more critical than retirement funds at the moment.

The albatross around their necks of student loan debt and credit card debt is another biggie. Wells Fargo found that 34 percent owe student loans (median debt load: $19,978); 75 percent say it’s “unmanageable.”

And in the new State of the Girl survey of Millennial women from CreditCards.com and the 1,000 Dreams Fund (I didn’t come up with the survey’s dreadful title), 94 percent of the women with student loans said they were worried about paying them back. “It would not surprise me if saving for retirement is not a current priority,” said Sienna Kossman, an analyst with CreditCards.com. “Many Millennials are really worried about affording basic, day-to-day expenses.”

Another obstacle: Many Millennials lack access to 401(k)-type retirement plans. They work part-time, are self-employed or have jobs at small businesses that don’t offer them. Only 52 percent of the Millennials Wells Fargo surveyed have such plans. “Access is a big issue,” said Ready.

On the bright side, according to a new analysis Fidelity released of its customers, Millennials who’ve been fortunate enough to fund 401(k)s for years have impressive results. The average balance for ones contributing  for 10 years just reached a record $92,900, up nearly 10 percent from a year ago.

But many Millennials who have 401(k)s aren’t using them wisely.

The recent Mobile Millennials survey from Retirement Clearinghouse found that, when changing jobs, 34 percent of Millennials cashed out of their 401(k)s at least once. “A 401(k) should be your last resort to borrow for any reason,” Ready advised.

And in the Wells Fargo survey, 44 percent who’ve started saving are only putting away 1 to 5 percent of income. “We think a target of 10 percent or more is critically important,” said Ready.

What about IRAs? In a recent survey from TIAA, 35 percent of Millennials said “they didn’t know enough about IRAs” to consider them; 21 percent of Gen X'ers said that.

"When you consider that individuals under 50 can only save up to $18,000 annually in their 401(k), it becomes even more clear that individuals — young and old — should meet with a financial adviser to fully understand their financial planning options and ensure a comfortable retirement," said Dan Keady, a senior director at TIAA.

Now here’s the big shocker from the Wells Fargo survey: Millennials want to retire at 59, on average.

“That surprised me, on the one hand,” said Ready. “On the other hand, this is generation that cares a lot about work-life balance. They say: ‘I want to have a good career in the area I want and I want to retire early.”

I hope they can.

But I know what my fellow parents of Millennials are thinking: The kids will be living longer than we will…who knows what Social Security will be able to pay them in benefits (assuming there’s still a Social Security system)…most won’t have employer pensions.

All true. But youthful optimism is part of being young.

My advice: Pass on to your kids the tips Northwestern Mutual’s Rebekah Barsch offered in this Next Avenue article, “5 Ways to Give Your Millennial Kids Financial Wisdom.”

And tell them what Ready has said to his three Millennial children: “Don’t give away the gift of time. Start saving now.”

Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More