How Millennials Saving for Retirement Can Take Control

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The 83.2 million millennials are widely considered to be the most educated and diverse group in U.S. history. However, millennials saving for retirement are not following the old school path of baby boomers. And maybe they shouldn’t be when you consider The Retirement Crisis baby boomers are experiencing.

This is the 3rd in a 3 part series about our retirement crisis. The other two parts are:

Part I – The Retirement Crisis

Part II – Baby Boomers: Going Back to Work or Time for Yourself?

Millenial Work Ethic

The Bank of America, Better Money Habits Millennial Report is rich with information about how millennials budget and spend money. Millennials saving for retirement is summed up this way:

In the long run, job-hopping may be limiting the amount that millennials are saving for the future. Thirty percent of millennials say they haven’t stayed at a job long enough to set up a retirement plan.

Millennials are going about their work life differently. They know corporate work no longer offers job security. And certainly the traditional pension is not an option. Rather than a lifetime job, this generation approaches work on a project-by-project basis. Many millennials expect to have eight or more jobs during their careers. Even if a pension were offered, they won’t be staying around long enough to become vested in any meaningful way. Instead, some Millennials are making 401k accounts work for them.

Millennial Saving for Retirement Abandon Past 401ks 

Another study (Transamerica Institute) found that a full 80% of employees join company funded 401k plans. Millennials are the first generation to rely primarily on 401ks. That leaves retirement saving to workers. Not employers.

A 2014 Pew Research Center survey found that 51% of millennials believe they won’t get any benefits from Social Security. And 39% believe they’ll get only reduced benefits. Those are huge numbers.

In fact, many millennials have no faith in the old school three-legged retirement system – a pension, Social Security, and their 401k or IRA. Millennial’s saving for retirement believe the only leg to stand on will be their own savings.

So why are they leaving money behind?

Clearly, millennials don’t plan to stay with current employers very long. According to a Gallup Poll, a full 6 of 10 millennials are always open to new job prospects. Indeed, 21% of millennials say they’ve changed jobs this past year. That is more than three times higher than others who responded to the same survey.

What are Orphan 401ks?

A 401k remaining at a former employer is known as an orphan. A fitting name since it’s sitting there all by itself. If millennials hold eight or more jobs during their work years, there will be hundreds of millions of orphan 401k accounts. The U.S. Department of Labor estimates that each year tens of thousands of workers fail to claim $850 million in 401k retirement money when they change jobs. Orphan accounts for 18 to 34 year olds are already estimated at $120 billion.

Orphaned accounts are a bad thing. Lots of unpredictable things can happen to money left behind.

When it’s a fairly small amount, the true owner is likely to lose track of the account or forget about it. At the least, the owner isn’t likely to be actively managing it.

Nor is it wise leaving an old employer in charge of your money. Businesses merge, change names, and go out of business. Businesses change retirement systems and the investment criteria. Any one of these is a way for the business to lose track of orphan accounts or park these in an inactive cash fund.

Millennials saving for retirement can do much better…

Solo 401ks and Checkbook IRAs for Millennials and Gen Xers

The Solo 401k wasn’t created specifically for the millennials but it sure fits like a glove. First, the Solo 401k is how you secure orphan accounts. You can rollover any previous employer 401k into a Solo 401k plan. Also, many millennials are entrepreneurs. Many will start their own businesses somewhere along the road of project-driven careers and multiple jobs. Right now, tens of thousands work weekends for Uber or elsewhere. They have college debts to pay, a house to save for, and retirement to think of. That self-employment meets the most basic requirement for opening a Solo 401k retirement account.

You don’t have to be self-employed full time to hold a Solo 401k. But a Solo 401k is the perfect way to rollover, track, and manage old accounts. A gained benefit is you can rollover any orphaned account to act as both the employee and the employer. That allows saving a higher amount than in employer-sponsored accounts.

Tips for Millennials Saving for Retirement

Here’s a great tip for if you’ve been considering a Roth 401k. If you’re in a low-income year (such as starting a business), it can be a great time to rollover an old 401k into a Solo Roth 401k. A Roth rollover requires you to pay a one-time tax bill on the account. Taxes will be less in a low-income year. Going forward, funds in the Solo Roth 401k grow tax-free. The goal is saving you from larger tax payments during retirement.

Millennial’s saving for retirement have other options for being in control….

If you’re not self-employed, you still need to unite and manage those orphan accounts. The IRA LLC is how you do this (also known as a checkbook IRA). Your choice is either a traditional IRA or a Roth IRA. Both are great solutions for taking back control of your retirement funds if you aren’t eligible for the Solo 401k.

Setting up a Solo 401k or IRA LLC is easy.

No one cares about your money more than you do – nor should they!

Have questions about a Solo 401k or IRA? Solo 401K experts at Nabers Group will help you get your retirement funds into your control, where they belong.

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