Millennials, according to Pew Research, number 71 million. The American population in 2017 was 325.7 million, of which millennials make up 22 percent. Currently, millennials make up more than a third of the workforce, and 66 percent of them have nothing saved for retirement. So what is their retirement plan? According to an article from CNBC, “68% of young people expect an inheritance, yet only 40% of their parents will leave one”, almost 70 percent of these 71 million millennials are expecting to receive an inheritance from their parents. Unfortunately, the flaw in their plan is that only 40 percent of their parents plan to leave one. These statistics are not comforting numbers where the younger generation in concerned. Where might the problem lay? CNBC’s article, “68% of Young People Expect an Inheritance, yet Only 40% of Their Parents Will Leave One”, points out a couple areas.
First, many millennials are relying on a “windfall” to fund their retirements. Retirements that they plan to take early. Most plan to quit working when they turn 59. This is six years earlier than the age of 65, which Baby Boomers expect to retire at. Yet, this windfall likely will not happen. Natixis found that 44 percent of Boomers do not have a will nor do they expect to have any money to leave their kids. Moreover, 24 percent of them are planning on their children (millennials) contributing funding to their retirement. This expense is surely something millennials have not factored into their savings. There seems to be a lack of communication from both parents and children about retirement planning.
Secondly, the millennials’ view of their financial futures is very optimistic. While 41 percent of them don’t believe that there will be government benefits available when they retire, another survey shows that 76 percent of them say that they are planning on Social Security and other benefits being an important source of revenue in their retirements. Additionally, millennials have said that their five-year plan includes purchasing real estate, but in actuality, it will probably take twice as long for them to do so, according to research from Apartment List. Millennials are also failing to calculate certain relevant financial elements into their retirement savings plans, one of these being inflation. Natixis additionally reported that only 20 percent of them have factored it in. This means that the rate at which millennials will likely use up their retirement savings will accelerate because, as Natixis notes, something costing $100 today could be $181 when they retire.
The lack of communication between boomer parents and millennial children coupled with a potentially too optimistic outlook on retirement savings, has the potential to be very detrimental to millennial retirement. Millennials should be cautious of depending upon their parents for an inheritance and make sure they have a discussion with them, and parents should not be planning on their children funding part of their retirement without a conversation either. It is more important now than ever that not only boomers pursue planning their estate and establishing a will and trust, but that they encourage millennials to do the same and to start realistically planning for retirement since in many cases their plans are dependent upon one another.
At Family Estate Planning Law Group, part of our client care program is to hold a family meeting where things like inheritance, retirement planning, and eventual estate execution can be discussed and questions can be answered.
For more information on this and more estate planning topics, explore our website today and schedule your consultation! It is time for millennials to plan realistically and make sure theirs and their parents’ estate goals are aligned.
Reference: CNBC (June 6, 2017) “68% of Young People Expect an Inheritance, yet Only 40% of Their Parents Will Leave One”