I remember as a kid hearing my mom and dad sing Paul McCartney’s classic Beatles tune, “When I’m 64.” At the time, age 64 seemed infinitely far away – I would certainly never be that old (as I’m sure McCartney felt when he wrote the song). Unfortunately, how I felt then is how most millennials feel now about retirement: It’s so far away, they don’t need to think about putting money toward their golden years anytime soon.
Sadly, some millennials aren’t saving at all, let alone enough, to provide for a comfortable retirement, especially as pandemic-related financial emergencies have led them to dip into their 401k accounts. As a result, they may need to retire much later than their parents did when the stock market reverts to historical averages from the bonanza we’ve seen lately.
When I joined the workforce 35 years ago, most employees received a pension from their employers, providing them a steady income of 60% of their salary upon retirement – no savings required. The onset of the 401k in 1978, however, started a revolution that shifted the risk and burden of saving for retirement from the employer to the individual employee. Now, of course, it’s pretty much the only game in town.
Then, as now, the concept was simple: Save a little now; it will be worth a lot later. But millennials need some guidance, some coaching from a non-preachy, older, wiser voice – call it the “cool dork.”
Where’s the Fun in Saving for Retirement?
Other financial services segments have effectively projected a young and fun image to attract millennial customers. Robinhood and Moomoo make buying stock easy and fun. Policy Genius and Haven Life promote a simple and straightforward experience for signing up for life insurance. Intuit’s Minted money savings app reflects the millennial mindset with its highly customizable and flexible approach. Property & casualty providers like Progressive and Liberty Mutual project the “fun and funny” factor to appeal to this age group.
When it comes to this edgy, fun persona, the retirement services industry is missing in action. The opportunity is there for the taking – and some opportunistic brand will seize it at some point, I’m sure.
Part of the problem is the business model for retirement plans. The customer is the employer/sponsor, not the employees, who aren’t directly involved in choosing a provider. While this is a B2B play, the first mover will also need to figure out how to drive consumer engagement. Winning millennials’ hearts, minds and pocketbooks requires an approach built around engagement, education and timely suggestions for contextually relevant products and services.
Barriers to Saving
Saving for retirement is also not top of mind for most people. An instant-gratification mindset, procrastination and inertia, a lack of financial knowledge in the face of too many choices, and aversion to a user experience that feels like “because I said so” are among the key obstacles.
When it comes to millennials, these barriers are even more pronounced. Coming of age during the financial crisis of 2008-2009 instilled a deep mistrust of financial institutions, and the fear of stock markets has also led this cohort to “play it safe.” Many millennials also face high student-loan debts and may not have sufficient disposable income to save for long-term retirement goals.
Given the adverse conditions that have shaped millennials’ choices, expectations and behavior, retirement providers will need to reach out more effectively to engage with and educate this cohort to help them plan for their future well-being and that of their dependents.
Get to Know Millennials
The key to increasing millennial participation begins with understanding what exactly drives this demographic. To do this, providers should:
- Embrace “human-centered” design thinking. Millennials’ needs and attitudes toward long-term financial goals are different from those of prior generations. To build the right digital experience for this group, retirement service providers first need to understand them at a deeply human level. Human-centered design thinking incorporates social science disciplines to uncover what motivates people, which leads to an experience that makes people feel understood and thus more likely to take action.
- Build analytical capabilities for holistic customer profiling and micro-segmentation. Leverage the large quantities of data, both internal and external, about millennials’ financial, social and behavioral tendencies and activities. Use analytics tools to deeply micro-segment these customers and derive meaningful insights for better engagement. For example, millennials who wear a smartwatch and average 10,000 steps per day will live longer from an actuarial standpoint and may require more assets to retire.
Enable engagements that resonate
Millennials crave seamless transactions, multi-channel access and personalized experiences featuring a hip vibe. Here are a few examples of tech-driven engagements that will draw millennials in:
- Robo-advisors and virtual assistants. While recent studies indicate that 46% of millennials prefer a digital retirement coach such as a robo-advisor or chatbot, fewer than 11% of providers currently offer one. Using cognitive computing technologies, such as artificial intelligence (AI) and machine learning (ML), providers can create a Q&A capability and provide machine-to-human advice.
- Smart-home devices. Designed correctly, the conversational AI capabilities offered by platforms such as Google Home or Alexa will appeal to millennials, enhancing self-service and in-the moment assistance for transactions.
- Continuous prediction and intelligent mapping. By leveraging analytics, providers can continuously predict the likelihood of employee actions, such as a high propensity for participating in the retirement plan or changing jobs (presenting the opportunity for a 401k rollover). They can then prioritize these employees for engagement via an intelligent mapping algorithm with high-touch channels such as retirement consultants for personalized guidance.
- AI and analytics-driven targeted campaigns. Rather than taking a one-size fits all approach, use predictive analytics against behavioral data to offer personalized campaign messages that drive participation in retirement plans. Though still early days, AI-driven solutions can help leapfrog businesses to new levels of campaign optimization and millennial engagement.
Getting through to millennials about the need to save for retirement and gaining their trust is not as easy as putting a virtual Foosball game on your website to create buzz and drive enrollment rates. But there is a real opportunity for retirement providers to incorporate the “cool” factor in their engagement with millennials while still being true to their “dorky” principles.
By gaining their attention and trust, retirement service providers can encourage a two-fold win: increased savings rates and a rise in their own assets under management.
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