Abstract
The Millennial generation in the U.S. faces greater expected retirement needs, yet it has come of age in a period of declining household savings. A combination of reduced defined benefit availability, threats to Social Security and Medicare, increasing public debt, rising taxes, reduced expectations of economic growth and asset yields, and increasing longevity suggest that Millennials need to save more than prior generations. Evidence from nationally representative surveys suggests that 20‐somethings are saving less now than in the recent past, and may have fallen even further behind during the Great Recession after loading up on housing debt. There is also ample evidence that individual investors in general do not have the knowledge or patience to make effective investment decisions within discretionary retirement accounts. Perhaps of even more concern is the widening disparity in saving among the Millennials due to greater individual responsibility for funding retirement income coupled with low financial literacy and an increasingly complex financial marketplace. To increase savings rates, we suggest an emphasis on improving financial knowledge and marketing that highlights the consequences of low retirement savings to help young people visualize the trade-off from the choices they make today. In addition to generating increased awareness of the benefits from saving, the entire system of retirement saving in the U.S. needs to be simplified in order to improve participation rates, tax efficiency and investor performance. We propose improved disclosure that allows investors to see how their savings translates into an annuity stream at retirement, simplified investment options that allow the average investor to make better choices and more realistic employer participation rates that will lead to a more progressive, portable retirement savings system that is more likely to provide an adequate retirement income for a greater proportion of today's young investors.
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