Retirement Planning: How Millennials Differ From Boomers

baby boomer father and millennial son barbecuing in backyard
dusanpetkovic / Getty Images/iStockphoto

When it comes to retirement planning, millennials are far ahead of baby boomers, according to Levon L. Galstyan, a CPA with Oak View Law Group. “The younger generation is already saving money in their late twenties, outpacing their parents by about a decade,” he said.

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Why? It could be due to the different approaches these two generations take to retirement planning. Here’s a closer look at how millennials differ from boomers when it comes to retirement planning.

Millennials Fend for Themselves

Traditional pensions, also known as defined benefit plans, were much more common decades ago. These plans depend on the employer to set aside retirement funds for employees, who receive a large chunk of money once they retire. In 1981, approximately 84% of full-time workers in large corporations participated in a pension plan.

“As a result, most baby boomers felt their retirement was being taken care of for them,” Galstyan said.

As of 2020, the pension participation rate dropped to about 28%. Today’s typical employer-sponsored retirement plans, including 401(k)s or IRAs, instead require employees to pay into them. Sometimes, the employer will match a portion of those contributions. In other words, it’s up to workers to fund their own retirement, prompting younger generations to save more and start earlier.

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Millennials Have Different Priorities

In 2020, millennials owned just 4% of real estate value in the U.S. At their age, baby boomers owned 32%. There are many reasons for this gap in homeownership.

For one, millennials face a much tougher financial landscape. The aftermath of the Great Recession and record student loan debt have made it more difficult to afford a home. First-time millennial homebuyers have to pay 39% more than boomers did 40 years ago.

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Galstyan explained that millennials are also more mobile than boomers, so buying a home is less of a priority for them. While boomers value stability, millennials are more focused on flexibility and new experiences, according to analysis by Charles Schwab.

“Millennials think of retirement less as a target savings number and date and more like a state of mind or target lifestyle,” stated Jonathan Craig, Managing Director, Head of Investor Services & Marketing at Charles Schwab. 

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The Schwab study found that three-quarters of boomers are expected to enjoy stability in retirement through homeownership. On the other hand, 61% of millennials will prioritize travel, with less than half (48%) predicted to own a home in retirement. Instead, their money is more likely to be invested in 401(k) plans.

Millennials Are More Worried About Retirement

As we mentioned earlier, millennials typically start saving for retirement in their mid-20s, which is about a decade earlier than the average baby boomer. Unfortunately, the retirement savings habits of millennials are largely driven by fear of not having enough to live on in their golden years.

About 72% of millennials are significantly pessimistic about achieving financial security in retirement, compared with 43% of Boomers, according to the National Institute on Retirement Security. That anxiety around retirement is well founded, too.

Even though they’re saving earlier, it still may not be enough to put millennials on track for a secure retirement. Recent economic turmoil, including the financial fallout from the COVID-19 pandemic and record inflation, is working against those efforts.

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About the Author

Casey Bond is seasoned editor and writer who has covered personal finance for more than a decade. Currently, she is a reporter for HuffPost covering money, home and living. Previously, she held editorial management roles at Student Loan Hero and GOBankingRates. Casey’s work has also appeared on Yahoo!, Business Insider, MSN, The Motley Fool, U.S. News & World Report, Forbes, TheStreet and more.
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