When some people think about retirement, it’s a vague stage of life they plan to reach at some point.
Others have a specific target age in mind and a distinct blueprint to achieve it.
Then there are those so daunted by the prospect that they’ve blocked it from their minds or believe they will be working until they have a foot in the grave.
Yet when it comes to millennials, the age group most commonly associated with crushing amounts of student loan debt, many are planning to retire early.
That’s according to a new global study by HSBC that shows millennials, those born 1980-1997, are expecting to retire by 59, a few years earlier than previous generations. HSBC is an international banking and financial services company headquartered in London.
Millennials plan to retire early by making it a greater priority, planning with advisers and focusing on saving more for retirement, even though millennials will need to save more money because pensions are becoming extinct and life expectancies are increasing.
“I have many clients who are millennials. … As a group I have observed that when I compare them to my clients of older generations, they seem to have a better, general idea of how they want their lives to turn out,” said Judith Harris, an estate planning and tax attorney and equity member at Norris McLaughlin & Marcus, a law firm with an office in Allentown.
Financial planners and other advisers say millennials are squarely focused on forging a path to early retirement and eager to talk about what lies ahead. They are good clients to work with because they have a goal in sight, Harris said.
“They come in pretty well-prepared about this whole retirement issue,” she said.
Generally, millennials have strong planning skills, are adept at research and are more willing to take risks than some prior generations.
They are less likely to work for the same employer or even have the same career their entire working lives.
Their technological know-how translates to workplace flexibility and the ability to work anywhere, with a greater willingness to start their own companies.
Also, the economic uncertainties of the 2008 Great Recession and the massive amount of student debt they’ve been saddled with has, in some respect, forced them to plan wisely for retirement.
DAUNTING BUT DOABLE
The demise of pensions, coupled with a longer life span, thanks to advancements in technology and health care, means millennials have less financial security and must face the reality that they will be living longer and could be in retirement for several decades, which means they would need to set aside a lot more money.
But even though early retirement is a daunting prospect, it’s doable with proper planning, preparation and effort.
“We expect to live longer, so we have to save more money,” said Justin Miller, 29, chief investment officer for Milestone Financial Associates LLC in Macungie.
In her experiences in working with millennials, Harris said they often show the ability to consider leaving one job or position for another or even creating their own.
“Many of them are willing to take on additional risk to start their own business,” Harris said. “Generally, I’m finding that they seem to prioritize greater fluidity in their professional lives than their predecessors.”
Baby boomers often worked for one employer for their entire career and had a pension, Miller said.
“Forget all those guaranteed pensions; people are [often] not working for the same employer for more than five years,” he said.
This is particularly true for millennials, he noted.
LEARNING FROM EXPERIENCE
Because millennials have seen the impact of the 2008 economic downturn, some think that can influence their decision to invest wisely and plan for the future.
“What really makes a whole lot of sense, when you think about millennials, they were the ones who grew up during a time of a lot of economic uncertainty,” said Jeanie Sharp, Pennsylvania and Delaware regional manager for Robert Half, a staffing agency with an office in Hanover Township, Northampton County. “It makes sense that those people would be a little more apt to do some planning. They are probably making a lot more educated decisions.”
Also, their parents and grandparents are influencing them to invest early, Sharp added.
Millennials crave workplace and financial security, Sharp said.
“I know a lot of millennials, who, when we are hiring, are focused on retirement packages,” she said. “It seems to me to be a bigger priority on the wish list.”
Observationally, Harris said she’s noticed most of her millennial clients are maximizing the retirement account amounts they can contribute with employers.
By helping them focus on saving outside their retirement plan, budgeting and sometimes, depending on their situation, refinancing their education debt, millennials are able to see early retirement as a possibility, she said.
TEAM OF EXPERTS
However, one thing millennials haven’t thought about is catastrophic illness or disability, which is not unusual for people at that point in their lives, Harris said.
“Since millennials like to work in teams, a team approach to this planning is much easier,” she said.
The team should include a good financial planner, Certified Public Accountant and estate planner, Harris said.
LONGER LIFE EXPECTANCY
For millennials, a longer life expectancy will affect their retirement.
When regular ongoing Social Security benefits began in 1940, people were receiving funds from it at 65 and the life expectancy was about 70.
“The earliest you can take Social Security is 62, but obviously people are living a lot longer,” Miller said. “That could be another challenge. When millennials retire at 59, their life expectancy could be a lot longer.
“You have to really save a lot, and you have to start soon.”
Student loan debt also is a challenge.
“The average millennial has a lot of student loan debt,” Miller said. “It’s taking them longer to get student debt paid down.
“They are having to start saving later. Those are threats to why millennials might not be able to retire early.”
HAVE MARKETS PEAKED?
Miller said the good news is that the economy is doing well, unemployment is low and many millennials are working.
“One of the concerns is that the bond market and stock market are at all-time highs, interest rates are really low,” Miller said. “Chances are, over the next 10 to 15 years, the return you get on your investments will be lower than they were in the past.
“If you are getting less return on your money, that means you also have to start saving more.”