Workforce representation will soon get younger
As baby boomers retire at a rapid rate – the common statistic is that 10,000 of them are retiring per day – more and more of the workforce will inevitably be made up of millennials and members of the workforce. Generation Z. As a result of this continuing demographic shift, the retirement industry professionals are already seeing a shift in benefit options and counseling approaches in workplace plans.
Studies by Pew Research show that more than 3 million baby boomers retired last year. In the third quarter of 2020, about 28.6 million baby boomers – those born between 1946 and 1964 – reported that they were not in the workforce because of their retirement. At the same time, data suggests millennials could represent up to 75% of the global workforce over the decade, despite the disproportionate setbacks suffered by young workers during the coronavirus pandemic.
“As more baby boomers retire, a greater percentage of plan members become Millennials, or even Gen Zs, when they start entering the workforce,” says Jeff Mattonelli , Gen Z and Millennial financial advisor at Van Leeuwen and Co. in Trenton, New Jersey. “With a younger population representing the highest percentage of the workforce, employers need to think about these plans a little differently.”
As Mattonelli explains, Millennials, the oldest of whom are now around 40, have faced financial challenges for most of their careers. Many entered the workforce during the 2008 recession, only to survive another massive and unexpected economic recession just over a decade later, this time caused by a pandemic. For many, retirement planning has always played a secondary role after settling student debt and resolving short-term financial priorities.
Megan Gerhardt, a professor of management at the Farmer School of Business at the University of Miami in Oxford, Ohio, who studies how different generations shape workplace culture, says retirement-focused advisors should ask themselves questions on how they can remain relevant to Millennials and Gen. Z. She recommends that planning consultants sit down with millennials and millennials to plan a roadmap for their future.
“What are their priorities now, or have they made savings plans or actions?” she asks. “Are they thinking about retirement now or are they focused on paying off debt, saving in a fund for rainy days, or earning enough to pay bills and other costs? Or maybe it’s a combination of everything. Come closer and ask them. Don’t assume that they define or think about the retirement timeline the same way older generations do. “
“A retirement plan offered by an employer may be their first experience of investing or saving for a long-term goal,” says Mattonelli. “It is really important that there is sufficient education that is delivered in a simple and concise manner. Education should clearly define the benefits of participating in a plan like this. “
For example, explaining the benefits of compound interest over a long period of time can be extremely powerful. The same goes for a demonstration of how adding a simple $ 100 contribution from each paycheck can build significant wealth over time. Offering a list of pros and cons for workplace plans and educating workers about pre-tax contributions, withdrawal limits and matching rates enhances their knowledge and potential interest in participating, adds Mr. Mattonelli.
Mattonelli also strongly recommends that employers add a matching contribution if they are financially capable and have not already done so.
“Employers who offer a match tend to see a much higher participation rate,” he says. “Employees want to benefit from any correspondence their employer makes, so offering these features and showcasing them is an important way to encourage these young participants.”
Outside of traditional retirement benefits, counselors can encourage employers to consider a student debt repayment or student debt refinancing program. Given the potential changes in the regulatory landscape, employers may also want to explore the possibility of creating a 401 (k) match related to student loan repayment. Millennials and Gen Z are among those with the highest personal student debt, and they often identify reducing that debt as a key priority when they enter the workforce, Mattonelli says.
“It’s a great way to increase engagement and it also allows these members and employees not to have to choose between paying down debt or participating in saving for their retirement,” he adds.
Finally, Mattonelli encourages employers and advisors to reflect on technological developments and determine whether offering mobile apps or digital engagement platforms would increase participation.
“Giving participants the ability to register through a mobile app and be able to view account information and other financial wellness tools associated with the plan is important and will encourage participation from a younger employee base.” “, did he declare. “Incorporating these features into the plan will be another key area for employers and plan sponsors to gain greater participation from their young employees.”