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Retirement Planning > Saving for Retirement

Secure 2.0, ESG Options Make Workers Want to Save More: Natixis

By Michael S. Fischer

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What You Need to Know

  • American workers are feeling the weight of responsibility for retirement funding.
  • Survey respondents said features like emergency savings and student loan payment matching would encourage them to save for retirement.
  • Big majorities of Gen Xers and millennials said they'd save more at work if they were offered ESG investments.

Millennial American workers have a leg up on baby boomers when it comes to saving for a financially secure retirement, according to a report released Tuesday by Natixis Investment Managers.

Millennials started saving for retirement 11 years earlier than baby boomers, and are contributing 16% of their salaries, on average, toward their retirement goals.

For their part, 58% of baby boomers report that their biggest regret is not having started to save earlier. They are not helped by financial headwinds that could derail their progress.

“American workers are feeling the weight of responsibility for retirement funding, and younger generations, in particular, are pushing for changes that will better meet their distinct needs and preferences,” Liana Magner, head of retirement and institutional in the U.S. for Natixis.

Accomplishing this will require the combined efforts of employers, individuals and policymakers, Magner said. Recent policy changes are a step in the right direction.

CoreData Research conducted a survey in January and February among 736 U.S. millennial, Gen X and baby boomer workers with access to a company-sponsored defined contribution (DC) retirement savings plan, such as a 401(k), 403(b), 457, SIMPLE IRA or SEP.

Barriers to Saving

Forty-four percent of respondents across all generations said inflation was their main barrier. For millennials, competing financial goals rank close behind as a hindrance.

A quarter of defined contribution plan participants, including 38% of millennials, said they took an early withdrawal from their plan in the past 12 months. Millennials reported that the main reasons they tapped their savings were to cover health care costs, home repairs and debt repayment.

Eighty-three percent of millennials and 78% of Gen Xers think Social Security benefits will be drastically reduced by the time they retire.

Just 46% of millennials — but 90% of baby boomers — are factoring Social Security into their retirement income planning. More so than any other generation, they are looking beyond the traditional pension/Social Security/DC plan sources of retirement income to fund their retirement, and intend to use all available sources:

  • Equity in their homes: 29%
  • Inheritance: 24%
  • Rental income: 19%
  • Sale of a business: 19%
  • Support from their children: 19%

Over the past two years, it has gotten harder for people to generate the personal savings that will ground their retirement income plans, Dave Goodsell, executive director of the Natixis Center for Investor Insight, said in the statement. “It’s gotten to the point where one in five millennials, the generation that started out living in their parents’ basement, now think they might end up in their kids’ garage.”

Secure 2.0 Boosts Optimism

The Natixis survey suggests that provisions put in place by the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act will be a step in the right direction once they go into effect. These include automatic enrollment in company-sponsored DC plans with qualified default investment alternatives, recognition of student loan repayments to qualify for employer matches, linked emergency savings accounts and higher catch-up contribution limits for older workers.

Forty-two percent of workers in the survey who do not currently contribute, including 63% of millennials, said they will begin to participate in their company plan when student loan payment matching benefits take effect.

Fifty-four percent of non-participants, including 77% of millennials, intend to participate if linked emergency savings features become available.

Thirty-one percent of millennials who currently participate reported that they were automatically enrolled, and 40% still hold the default investments initially selected for them.

Labor’s ESG Rule

A controversial Labor Department rule — Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, adds another incentive to the mix: consideration of participant preferences when they construct a menu of investment options.

In short, the rule, finalized in November, allows retirement plans to consider environmental, social and governance factors when choosing investments. In March, President Joe Biden vetoed a bill that would have struck down the ESG rule.

DC plan participants in the Natixis survey have keen interest in ESG issues and sustainable investments. Eighty-three percent said companies that focus on sustainable business practices present significant opportunities for growth.

Eighty-eight percent of millennials, 72% of Gen Xers and 49% of baby boomers said they would be likelier to participate in their company DC plan or increase their contributions if they were offered investments in companies with good ESG practices.

Seeking Advice

Forty-seven percent of millennials and 39% of respondents overall said recent volatility has convinced them of the need for professional investment advice. Forty-one percent of all respondents said access to professional investment advice would be a top incentive for them to contribute more to their retirement plan.

At present, 32% of millennials get their investment advice from social media, and 46% scour the internet for insight.

The majority of those surveyed, particularly millennials, expressed openness to policy changes that would demand more from employers, financial services providers, individuals and the government alike:

  • The government should provide universal access to a retirement savings plan.
  • Employers should be required to offer retirement plans.
  • Employer matching contributions should be mandatory.
  • Individuals should be required to make contributions toward their retirement savings.

(Image: Adobe Stock)

Michael S. Fischer

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