Quick look: There are 56 million millennials in the U.S. workforce, the oldest of which are now in their 40s. Expected Social Security cuts and continual inflation means the time is now for this segment to prioritize preparing for their retirement. Here are four ways employers can assist with helping their millennial employees get ready.
Millennials – or those born between 1981 and 1996 – make up a large portion of the U.S. workforce, and with the oldest millennials now in their 40s, it’s the right time for their employers to focus on how to help them prepare for retirement. Here’s what retirement will likely be like for millennials, as well as four ways employers can help them get ready.
What will retirement look like for millennials?
There are an incredible 56 million millennials in the U.S. workforce. That means many employees are or will soon be focusing more closely on their retirement plans.
Unfortunately, millennials are projected to have more challenges with retirement finances than previous generations. According to HealthView Services, millennials should expect an approximate 20% cut to their projected Social Security benefits. It’s also been predicted that unless changes are made, Social Security will only be capable of paying out 80% of scheduled benefits by 2035, and 74% by 2096. Congress could potentially raise the full retirement age to 69, increase payroll taxes, and more to maintain Social Security payouts. However, these changes would still affect recipients through higher taxes or fewer years of payments received.
On top of the predicted cut in Social Security income, some millennials may also underestimate how much money they need to retire. A recent survey revealed that despite experts agreeing that approximately $1.8 million is required to retire, the average millennial believes $300,000 or less is enough.
4 ways to help millennials prepare
The road to retirement may be a bit bumpier for millennials than past generations, but with proper planning, they can still comfortably settle into their golden years.
For a successful retirement, many experts recommend having enough savings and money from other sources to generate at least 80% of your pre-retirement income. And while it’s impossible to know what exact salary you’ll be earning at the end of your career, a general rule is that you’ll reach that 80% goal if you save 15% of your pre-tax income until you retire.
So, what can small- and medium-sized business (SMB) employers do to help their millennial employees hit these targets? The following four tactics are all things that companies can provide to contribute to millennials’ retirement preparation. And better yet, they’re all available from a professional employer organization (PEO).
1. Offer a 401(k) plan
Many millennials have begun preparing for retirement faster than other generations. Those who save started doing so an average of nine years earlier than their Baby Boomer counterparts did. However, there is still much room for improvement, especially considering that 21% of millennial employees don’t have access to an employer-sponsored retirement account and many are unaware of what their financial futures may hold. Bank of America’s 2023 Workplace Benefits Report found that:
- Older millennials are less likely to rate their financial wellness as good or excellent
- 80% of them report feeling stressed about their financial situations
- 49% of millennials report a lack of understanding of their projected Social Security benefits
2. Host financial wellness trainings
While Investopedia found that over 60% of millennials say they feel confident to very confident about their overall financial knowledge, three-quarters of them report they are at least somewhat stressed about managing their finances, and nearly half of them claim they live paycheck to paycheck (up 6% from the previous year).
This is where employer-provided financial wellness trainings can come in handy. Beginning on day one, employers can educate new hires on their payroll, benefits, savings, and educational options. Many 401(k) providers also offer financial training on investing basics, retirement savings, planning for college savings, preparing to care for an aging parent, and more.
3. Provide a student loan repayment program
One in five Americans has student loans. Furthermore, people between the ages of 25 and 34 are most likely to hold student loan debt, and millennials owe an average of $40,000. And considering the federal government’s moratorium on student loan repayment is set to end on August 31, 2022, the time is now for SMB employers to consider offering a student loan repayment program to their workforce.
On top of freeing up more cash for retirement savings, a repayment program can help this generation reach even more goals. For instance, a recent CNBC survey found that 81% of people with student loan debt have had to push back life milestones like buying a house or investing in the stock market.
4. Offer affordable medical benefits
It may come as a surprise, but millennials are more likely to experience unexpected medical bills than Gen X and Baby Boomers. A HealthCareInsider.com poll shows that 35% of millennials received an unanticipated medical bill in the last 12 months, compared to just 27% of Gen X and 24% of Baby Boomers. Additionally, over half of the millennials report that their bill was over $2,000, and six in 10 say they have less than $3,000 in the bank to pay for these bills.
Employers can provide some relief by offering medical, dental, and vision insurance plans with competitive premiums and copays, as well as health savings account (HSA) and flexible savings account (FSA) options. While healthcare prices have increased since the COVID-19 pandemic, SMBs can receive better rates by partnering with a PEO that can leverage its economy of scale.
PEOs: Your source for retirement support
Chances are, you want to do everything you can to ensure your millennial employees can retire on time and with ample savings. However, today’s employers face an increasing number of challenges, from the tight labor market to navigating a dispersed workforce.
A PEO can simplify retirement planning for millennials by providing a full range of benefits administration and management services that assist leaders in helping their employees prepare for their golden years. For example, ExtensisHR can provide:
- 401(k) plans with financial wellness trainings on a variety of topics
- Competitively priced medical, dental, and vision insurance with FSA and HSA options
- Student loan repayment programs
- And more
Millennials are slowly but surely inching toward retirement, and the best time for them to prepare is now. Contact the benefits experts at ExtensisHR today to begin tailoring your benefits packages to this demographic.