Data & Research December 3, 2015

Compound Interest Can Save Millennial Retirements

Research from Prudential reminds young workers of the impressive power of compound interest in building retirement wealth—and that no risk means no reward. 
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It’s a question many people ask themselves during a working career: What would it take for a middle class person to save a million dollars?

Prudential suggests one answer in a recently released whitepaper, “Why young investors should start saving early and invest in equities.” As the title indicates, the key for an average-wage earner to one day join the millionaires club is investing in a tax advantaged retirement plan early, consistently, and with a sufficient level of contributions and risk-taking.  

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It’s an increasingly relevant question, Prudential explains, because workers entering the labor force today should expect to need just about $1 million to fund their retirement years. Health care costs alone will approach $300,000 per couple, and that’s just at the median.

Prudential’s research finds Millennials, all in all, have made a decent start of saving for retirement. Just as many or more people in the generation are already saving than was the case with previous generations, for example. Less encouraging is that Millennials face a fundamentally different investing environment than their parents or grandparents, one characterized by weaker global growth and less opportunity to find dependable sources of investing income.

“Some young investors believe if they begin saving as much as they can they’ll have plenty of money when it comes time to retire,” Prudential continues. “That’s a good start, but many of today’s youngest investors are at risk of not having enough assets at retirement because they are not starting early enough or are too conservative with their investments.”

NEXT: Some aren’t planning to ever retire

Matching other industry research, Prudential finds there are many Millennials (about 40% of those in the work force) who either aren’t able to or choose not to save for retirement. The research points to student loans as one major hindrance across the generation, which has also been hit with reduced incomes due to lackluster employment and economic conditions post crisis.

Another issue is that many Millennials who have started saving “may not be making the most advantageous investment choices.” Prudential explains younger investors “might learn a thing or two from retirees who, not surprisingly, advise to start saving early and put away more. Nearly 20% of retirees surveyed also wished they had invested more aggressively.”

It’s also probably safe to assume Millennials have a skewed perception of risk based on the financial crisis of 2008, driving a lackluster understanding of the positive long-term track record of stock investments. The research points to a separate Accenture study which found that “43% of Millennial respondents described themselves as ‘conservative’ investors, compared with just 31% of Baby Boomer respondents.”

Prudential concludes that, if younger investors hope to reach their retirement savings goals, most of them “will have to begin tilting their portfolios more heavily toward equities. Millennials invested through their employer-sponsored retirement plans may be headed in the right direction. These investors have about 75% equity exposure in their workplace retirement plans, but some experts say this is still too low.”

Diversions December 3, 2015

Cellphones Even Used to Make Occasional Phone Calls

Public cellphone use is for passing the time, or catching up on social media, or just because it is handy.
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People use their cell- and smartphones in a host of ways in public, according to a new report from Pew Research Center. When in public, phone owners say they most frequently use their devices for basic social or information-oriented tasks. Many also use phones to pass the time, catch up on other tasks or get information about the people they are planning to see.

Despite what some people imagine, most rare was using one’s phone specifically to avoid interacting with people nearby. Most cellphone users say that they rarely or never use their phone to avoid interacting with others; about one in four (23%) do this at least occasionally.

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As a rule, smartphone users are more likely to do these things frequently than other cellphone owners; younger adults are more likely to do these things frequently than older adults.

Most cellphone owners (65%) say that when they are in public places, they use their cellphone at least occasionally to look up information about where they are going or how to get there. Some 33% of all cellphone owners do this frequently, making it one of the most common activities queried. Among smartphone owners, 82% look up this type of information at least occasionally when in public.

Most cellphone owners (70%) also say they at least occasionally use their phones while in public spaces to coordinate getting together with others, with 29% doing so frequently. Two-thirds (67%) of cellphone owners say that when they are out in public spaces, they use their phone to catch up with family and friends at least occasionally, with 29% doing so frequently. Women are more likely than men to say they frequently use their phone to use a phone for this reason.

Sometimes using a cellphone in public is just something to do: about half of cellphone owners say there’s no particular reason for using a phone in public. This is overwhelmingly the reason for younger cell phone owners— ages 18 to 29—who do so (76%), compared with those ages 30 to 49 (63%) or people ages 50 to 64 (34%). People over the age of 65 are far less likely to turn to a phone just because it’s there (16%).

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