Millennials, those born between 1981 and 1996 (aged 26-41), came of age during a tumultuous time in our history: 9/11, the wars in Iraq and Afghanistan, the Great Financial Crisis and, more recently, civil unrest and COVID-19[UNLIKEtherelativecalmofthe1980sand1990swhenmanybabyboomersenteredthelabormarketthepast20yearshavebeenchaotic[FEMININEContrairementaucalmerelatifdesannées1980et1990lorsquedenombreuxbaby-boomerssontentréssurlemarchédutravailles20dernièresannéesontétéchaotiques
Millennials have come to realize that the future is uncertain.
Financial markets followed a similar trend. Stock and bond prices rose with relative ease in the two decades leading up to the turn of the 21st century, providing baby boomers with a downhill avenue to invest and watch their retirement balance grow uninterrupted for nearly 20 years. The two decades of the new century were quite different, with two bear markets that approached or surpassed a 50% drawdown, plus another that nearly reached 35%. As in life, millennials have learned that there are no guarantees in the financial markets either.
Perhaps it’s because of these traumatic events that disrupted early career plans that millennials view the workplace (and their future) differently than previous generations. Millennials know what they want and aren’t afraid to ask for it.
They want a work-life balance. They want their work to have meaning. They want flexible hours. They want cool workspaces. They want to bring their pets to work. They embrace technology and use it to do their jobs better and more efficiently.
As millennials try to live by their values, they still struggle with student loan repayments, housing/rental costs, and other general living expenses. As a result, this group has been slow to start saving for retirement, but they still have a chance of achieving their goals if they think long term and take advantage of the retirement options available to them.
Millennials see retirement as a “state of mind”. Rather than a specific dollar amount, millennials view retirement as a place that provides flexibility in their lives and allows them to seek out the new experiences this generation craves.
To achieve this “mindset,” millennials should consider taking the following steps to achieve their goals.
— Create an emergency savings fund of at least six months of living expenses, so that you have cash if you lose your job. Review expenses and create a monthly budget that includes small savings set aside for a rainy day.
— Maximize retirement account savings. Retirement accounts like 401(k)s and IRAs are a great way to increase your savings. Plus, favorable tax status and potential business matching are two more reasons to make retirement savings a priority.
— Pay off debt, especially high-cost credit card debt. Student loan repayment should also be a priority.
— The extra money should be used to buy a home and/or move into other conservative investments that can grow over time. Get-rich-quick should be avoided.
— Think long-term and review your retirement plans regularly. Remember that retirement is decades away, so a plan should be tailored to a long-term investment approach.
The future is uncertain, but a long-term plan of saving money for emergency needs, reducing debt, and investing in tax-efficient retirement strategies is a great way forward for millennials. This road could lead to a “mindset” that lends itself to a flexible lifestyle and a life filled with rich experiences.
Raymond J. McCaffrey, CFA, portfolio manager for Cypress Capital Management, a subsidiary of WSFS Financial Corporation. McCaffrey has over 30 years of investment experience managing institutional accounts, mutual funds and high net worth accounts. He graduated, cum laude, from Villanova University with a BS in economics. He earned an MBA with a concentration in finance from Carnegie Mellon University Tepper School of Business.