What Will Retirement Look Like for Millennials?

A new report from the Brookings Institution examines the prospects for retirement saving by millennials in 2050, when members of that generation will range in age from 54 to 69.

The report finds that millennials will head into retirement with several advantages over earlier generations, but also some disadvantages.

Start with the advantages. Millennials are the most educated generation in history, according to Brookings. In addition, owing to the pension system’s evolution toward defined contribution plans, they may remain in the workforce longer than any previous generation, giving them additional years to save.

On the other side of the ledger, millennials started work in the wake of the financial crisis and recession and during the slow but steady recovery. Many more than in previous generations are employed in contingent workforce jobs that have less robust retirement benefits than traditional jobs.

As well, they have lower net worth and higher student debt burdens than their parents and grandparents at the same age. They are marrying, buying homes and starting families later. They will likely live longer, and at the same time, have to manage and navigate their own retirement plans to a greater extent than previous generations.

Millennials can also look forward to increased burdens from any resolution of the government’s long-term fiscal shortfalls in general, and the financial imbalances in Social Security and Medicare in particular. They face an economic future with projections of lower rates of return and economic growth than in the past.

This means millennials will have a harder time that previous generations accumulating sufficient funds for retirement.

The report also looks at the effects of changing demographics over the next three decades. By 2050, according to the research, the U.S. will be a “majority-minority” country, where minority is defined as any race other than non-Hispanic white. All races and ethnicities other than white are expected to grow as a share of the population.

The Brookings authors found that minority status is negatively associated with net worth, controlling for other household characteristics. The difference in wealth between blacks and whites is growing over time, controlling for other factors.

What are the implications for millennials? According to the report, economic and social conditions that racial and ethnic minorities experience by 2050 will likely be different from those experienced by previous generations. These include family and marital status, education, neighborhoods, discrimination and job markets. These differences could work either to raise or reduce wealth gaps between whites and minorities, it said.

The report found that minorities have faced different economic and social realities in recent years than minorities did 30 years ago, but wealth differences between them and whites, controlling for observable characteristics, have grown rather than fallen over time. If this trend continues, it said, wealth inequality will continue to increase, making it that much harder for minorities to save adequately for retirement.

Closing the income gap will be hard, according to Brookings. And even if income differences between groups were eventually reduced or eliminated, that by itself would not be enough to ensure adequate saving for minority households. The retirement saving gap between minorities and whites would persist.

The report concludes on a hopeful note. “Ensuring the adequacy of saving presents enormous challenges and risks for individuals, government and businesses. However, it also generates unique opportunities for creative public policies and innovative private markets to greatly improve people’s lives.”