When it comes to retirement planning, millennials are far ahead of baby boomers, according to Levon L. Galstyan, CPA at Oak View Law Group. “The younger generation is already saving money in their late twenties, outpacing their parents by about a decade,” he said.
See: 6 types of retirement income that are not taxable
Important: 5 things you need to do when your savings hit $50,000
Why? This could be due to the different approaches these two generations take to retirement planning. Here’s a look at how millennials and baby boomers differ when it comes to retirement planning.
Millennials fend for themselves
Traditional pensions, also known as defined benefit plans, were much more common a few decades ago. These plans depend on the employer to set aside retirement funds for employees, who receive a large sum of money once they retire. In 1981, about 84% of full-time workers in large companies participated in a pension plan.
“As a result, most baby boomers felt their retirement was taken care of for them,” Galstyan said.
In 2020, the pension take-up rate fell to around 28%. Today’s typical employer-sponsored retirement plans, including 401(k)s or IRAs, require employees to contribute instead. Sometimes the employer will match a portion of these contributions. In other words, it is up to workers to fund their own retirement, encouraging younger generations to save more and start earlier.
Millennials have different priorities
In 2020, millennials owned just 4% of the real estate value in the United States. At their age, baby boomers owned 32%. There are several reasons for this homeownership gap.
For one thing, millennials face a much tougher financial landscape. The aftermath of the Great Recession and record student loan debt have made it more difficult to buy a home. Millennial first-time homebuyers are paying 39% more than baby boomers did 40 years ago.
Take our survey: Are you struggling to pay your utility bills?
Galstyan explained that millennials are also more mobile than baby boomers, so buying a home is less of a priority for them. While baby boomers value stability, millennials focus more on flexibility and new experiences, according to Charles Schwab’s analysis.
“Millennials view retirement less as a target number and savings date and more as a target mindset or lifestyle,” said Jonathan Craig, Managing Director, Head of Investor Services and Marketing at Charles Schwab.
The Schwab study found that three-quarters of baby boomers are expected to enjoy retirement stability through home ownership. On the other hand, 61% of millennials will prioritize travel, and less than half (48%) are expected 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-twenties, about a decade earlier than the average baby boomer. Unfortunately, millennials’ retirement saving habits are largely driven by fear of not having enough to live through their golden years.
According to the National Institute on Retirement Security, about 72% of millennials are significantly pessimistic about financial security in retirement, compared to 43% of baby boomers. This retirement anxiety is also well-founded.
Even saving earlier 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, run counter to these efforts.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: Retirement Planning: How Millennials Differ From Baby Boomers
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.