It's not surprising that the youngest generation of workers has saved the least toward retirement. But what is startling-and worrisome-is the fact that the savings rate for this group has fallen significantly in the past decade.

According to EBRI's 2011 Retirement Confidence Survey, 58% of employees ages 25-34 say they have started saving for retirement. That sounds good, until you hear that in 2001, the number was 65%.

Add to this the sobering prediction that a member of the Millennial or Gen Y generation will require at least twice the amount of money to retire that a worker at or near retirement needs today. In a survey of registered investment advisers by Scottrade Advisory Services last year, 77% of those polled said Millennials should aim to save at least $2 million, and more than 40% believe they should be targeting more than $3 million in retirement funds.

"While there are no definitive answers on how much money various generations will need to save for retirement, it is clear that the majority of RIAs feel the $1 million goal is not enough for most families," said Craig Hogan, Scottrade director of customer intelligence, customer relationship management and reporting. "According to the majority of RIAs, younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible. This can be attributed to a variety of factors, including the uncertain future of Social Security."

"For many Americans, especially younger generations, retirement can seem like a long way away," Hogan said. "By setting realistic goals early, they can work towards enjoying their retirement instead of working during it."


Turning the tide

How can employers get their Gen Y employees - those born between 1977 and 1997 - to set realistic goals and start putting money into their 401(k)s and 403(b)s to meet them?

Well, focusing on the beauty of compound interest won't do it. You can't throw numbers at Millennials. It just doesn't work when you're trying to convince them to save for retirement. The focus has to be on the here and now.

Instead, David C. Tyrie, managing director of retirement services, Bank of America Merrill Lynch, suggests HR/benefits staffs and their advisers need to empathize with the challenges younger workers face - including mounting college and credit card debt and almost no training in personal finance - while urging them to prepare for the future.

Consider this, he told attendees at the 24th Annual Benefits Forum and Expo and 6th Annual Employee Benefit Adviser Summit in Dallas in September: The average college senior who graduated in 2009 had $24,000 in student loans and $4,100 in credit card debt. One in five had over $7,000 in credit card debt. And they're expected to save for retirement?

Retirement education for Gen Y may have to get back to basics. "Personal finance is not taught at the high school level, and only a handful of colleges have a personal finance course," Tyrie said.


Positive messages

A positive message will resonate with this group. "They don't have the linear view or a diminishing view of retirement; they have a more optimistic view. They don't think of how they'll retire, but how they'll reinvent themselves," Tyrie noted.

Also, because they came to adulthood during a time of deep recession, they're less adverse to risk. Standard and Poor's 500 annual returns in 2008 were 37%; in 2010, it was 15.1%. Now, the markets are getting stronger, and young employees are poised to start making investments for the first time.

What's more, the tools already exist for them to be good investors - they just have to use them.

"You would never find a Gen Y person exercising because they want to keep the weight off so they don't have to get an expensive knee replacement surgery later," Tyrie said. Instead, they exercise because it's a 'good' thing to do and it keeps up an appearance. The same is true for financial fitness. "Physical fitness resonates with financial fitness. Work out a little bit at a time while saving a little bit at a time; it's just translating it to the financial side."

Tyrie noted that only 23% of Gen Yers say they have figured out how much they need to save for retirement, and most keep earnings in cash terms, which could prove disastrous with inflation.

"Gen Y and Gen X are sitting there in cash, and they're going to get killed by inflation if they just sit there," he said. With inflation, purchasing power will decrease by 50% over 30 years. "They'll invest too conservatively, and they'll get killed by this."

And the problem also lies with those who do have IRAs and a 401(k). Sixty percent of young investors cash out their IRAs when they change jobs.

"What we found is that when they change jobs, they take the money; they cash it out, which is a crying shame. Even the folks who contribute 60% cash out," he said.

"They don't feel like they have the capacity to take risks, they have the propensity to do it, but they can't afford the error. Since they don't have much discretionary income, their asset allocation doesn't align with age. Technically they should be able to take more risk because they are younger," he added.

On top of a recent recession that left many young people without jobs and not taking risks, Social Security is not guaranteed. In 1950, there were 16.5 workers paying into the system for every one worker taking out. Last year, there were 3.3 workers paying for every one person taking out. It's estimated that in 2025, there will be 2.3 workers for every one person taking out.

"It's a perfect storm for them. They're paying for Social Security, but they know it's not going to be there. Pension plans are going away, and inflation is increasing the cost of health care," Tyrie said.

He noted that if a 25-year-old starts putting away $5,000 a year in a system that was traditionally a three-pronged financial stability stool (individual, employer and government), she'll get out a quarter of a million dollars by the time she retires.

For practical tips to encourage employees to save, he suggested:

1. Emphasize the fact that they have competing priorities. "If you don't do that, you'll lose them from the word 'go."

2. Create an overall program of physical fitness and financial fitness. "They're not saving for a hip replacement, but that it's a good healthy habit to start."

3. Start a financial literacy program.

4. Help them understand the tradeoffs.

5. Include their spouse or partner. "They're more likely to stick to the program and it's a healthy thing to do from a morale standpoint. If you don't connect this generation, wealth will be lost, he concludes."

EBA Senior Editor Lynn Gresham contributed to this article.

Retirement messages for all ages

With four generations now in the workforce, customizing communications on retirement planning is extremely important. However, Diane Gallagher, vice president and department head for participant communications and education for JPMorgan Retirement Plan Services, cautions benefits professionals against creating materials based only at age. She points out that there are no rules around age and lifestyle; a 40-year-old employee could be a grandparent or a new parent. "The best role a communicator can play is to help build plan features that transcend age and lifestyle, and then use audience characteristics to shape the message," she says.

Here's her advice for communicating retirement benefits to all generations in today's workplace, which was published in the International Association of Business Communicators' CW Bulletin.

* Keep it simple. Write copy at an eighth-grade reading level. Don't make people work hard to figure this out.

* Keep it personal. Use personal data whenever possible to help drive home examples about nest eggs, participation rates and impact on paychecks.

* Tie the money to the emotion. Don't make saving for retirement about some far-off time in a rocking chair. Use examples that celebrate the potential of retirement as a new period in an individual's life.

* Do the right thing. Help direct people to ways to most effectively use the plan.

* Cultivate a long-term relationship. One-time communications won't compel your employees to take action. As with any solid communication plan, several messages in various media over a period of time will have the strongest impact. In a 24/7 world, the availability and accessibility of multiple channels-including person-to-person interactions-are essential.

"It's not just about the best communication plan; it's also about recommending the most effective retirement program."

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