The Bleak Retirement Outlook for Boomers' Kids

The uncertain retirement prospects for boomers get a lot of attention, but how is retirement looking for their grown children, the millennials? Not so great, according to a report from the National Institute on Retirement Security (NIRS), a nonprofit research group.

Consider these depressing figures about millennials — those who are now between age 27 and 37 (also known as Gen Y) — from the NIRS report, Millennials and Retirement: Already Falling Short:

• 66 percent of working millennials have nothing saved for retirement — no money in a 401(k) or in an Individual Retirement Account; worse, 83 percent of working millennial Latinos have nothing saved for retirement
• Only 5 percent of working millennials are saving adequately for retirement, based on the common recommendation of financial experts that this generation should be saving at least 15 percent of income for retirement
• Only 34 percent of millennials participate in their employer’s retirement plan (although 66 percent work for an employer offering one)

Similarly, in a report from the Center for Retirement Research at Boston College, Will Millennials Be Ready for Retirement?, authors Alicia H. Munnell and Wenliang Hou wrote that “many of today’s workers will have inadequate income when they reach retirement, but the prospects for millennials seem more challenging than for the generations ahead of them.”

One reason, the Boston College researchers noted, “Gen Y will face much longer periods of retirement due to rising life expectancy.” Two others: many millennials owe whopping amounts of student debt, inhibiting their ability to save, and they have relatively low earnings compared to when Gen Xers and boomers were their age.

There was one hopeful statistic from the NIRS report, though: More than nine in 10 millennials participate in employer-sponsored retirement plans when they are eligible to participate. “Millennials’ high take-up rate is a wonderful sign for this generation,” said Jennifer Erin Brown, the NIRS manager of research and author of the study.

The big problem, however, is the chasm between the large percentage of millennials working for employers with retirement plans and the small percentage who are contributing to them.

The reason so many don’t save for retirement: they haven’t been at their employers long enough, or don’t work enough hours, to be allowed to put money into the plans.

Roughly a quarter of millennials work part-time and a fifth participate in the gig economy. A 1974 law lets employers prevent employees from contributing to plans if they work less than 1,000 hours during the year.

Over half of millennials have worked at their current employer for less than a year. But often, you must put in a year before becoming eligible to contribute to a 401(k) or similar retirement plan.

“Millennials need assistance for saving for retirement and we suggest policymakers strengthen the retirement system to protect them,” said Brown. “Expand retirement plan eligibility for part-time workers and let workers contribute immediately when they are hired. That would really increase plan participation.”

NIRS would also like to see more employers offer millennials “auto-enrollment.” That means letting them enroll in retirement plans automatically with the option to decline, rather than requiring them to choose to participate. A Vanguard study found that 56 percent of millennials participate in retirement plans when enrollment is voluntary but 92 percent do when there’s auto-enrollment.

Something else that could improve the retirement security of millennials: shoring up Social Security. Its trust fund is estimated to be unable to fully fund retirement benefits starting in 2034 — that’s just nine years before the oldest Gen Y members will be allowed to start claiming them.

“Strengthening and fixing Social Security would be very important to millennials,” said Diane Oakley, executive director of NIRS.

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