Millennials are sabotaging their own retirement plans by making poor investment choices, according to the survey.
Schroders survey of 2,000 workers, 27-42-year-olds invested a third of their retirement savings in cash last year, which experts think is overly conservative. The results are alarming for that generation’s workers, who believe they’ll require $1.3 million for a pleasant retirement, a goal most don’t expect to reach.
Due to a Lack of Market Expertise
More than three-fifths of millennials indicated they were not investing in the stock market because they were worried about losing too much money.
The value of the S&P 500 index fell 19.4% in 2022. According to Fidelity, the average 401(k) balance also plummeted in the fourth quarter of 2022, falling to $104,000 from $130,700 in the corresponding quarter of 2021. Average IRA balances dropped from $135,600 to $104,000, a loss of 23.3%.
A little more than a quarter of millennial workers indicated they shifted to a more conservative asset allocation that year, highlighting the anxiety the stock market volatility caused for some. Almost half of the employed millennials reported feeling worried about their retirement plan’s performance last year.
According to the survey, illiteracy was another factor in the allocation error. Almost 40% of Gen Yers indicated they had no idea where their retirement funds were invested.
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Where do we Get the Best Distribution?
Millennial employees’ asset distribution looks like this, outside of the cash allocation at 33%:
- In stocks, 31%
- Fixed-income 16 %
- 14% in stock-and-bond hybrids known as “target-date funds”
- 6% in a variety of unidentified investments
Gaiser CFPA, the financial advisor of Blackridge Asset Management, disagrees strongly, stating that an allocation of 65% to 100% to stocks is appropriate for someone of this age.
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