Flexible retirement savings options atractive to and used by younger workers?

Martha Irvine writes for AP: “In search of flexibility, young Americans invest in their own retirements”

They’re doing what financial experts say every young person should be doing, even in small amounts. They are twentysomethings, saving for that far-off, almost unimaginable time known as retirement — but not the way their parents did.

At age 22, Ben Ganje is buying a second condo in Minneapolis as an investment in his long-term financial future. And Kelly McCarthy, a 26-year-old in Canton, Mich., is putting her extra cash into an IRA.

Like other young Americans preparing for retirement and not just digging themselves out of debt, Ganje and McCarthy don’t expect Social Security to be around when they stop working. . . .

Many young people also have little interest in working for the same company all their careers, making traditional pensions — in which the dollar amount increases most just before retirement — much less attractive. . . .

Experts say younger workers’ desire for flexibility is prompting many employers to rethink their retirement packages. Some . . . have recently begun offering 401(k) plans — an option already popular at many companies. And increasingly, other companies have opted for newer types of portable pensions that employees can take from job to job.

“It’s not to say that people won’t have pension plans. It’s that they’ll have different types of pensions,” said Jim Jaffe, spokesman for the Employee Benefit Research Institute, a Washington nonprofit.

As I write this blawg, I look up and link the websites for many of the organizations whose studies and experts are quoted. It’s amazing how many employment, healthcare, and benefits thinktanks and special interest groups there are!

It’s very cool that the employees written about are thinking ahead to retirement, but how many of their peers are doing likewise?

Many others in their 20s, and even 30s, are just scraping by and are often in serious debt because of student loans and credit cards.

“Most of my friends have gone the route of moving back with their folks or going to law school. So that seems to be the two ways of getting out of having to face reality right now,” said Christopher Jones, 24, a recent UCLA grad who’s now a musician, playing with his rock band at clubs in Los Angeles.

Like many people his age, he has no money for rainy-day savings, let alone the long term.

“At this point, my attitude of life is ‘carpe diem’ — if I have some money, take a trip, something like that,” Jones said. “I understand that being a young person and saving money is the right thing to do. But finding happiness is more important to me than having a little money down the line.”
Indeed, thinking about saving for retirement is the last thing many twentysomethings have on their minds. That was the case for Jason Anthony, co-author of the books “Debt-Free By 30″ and “Financially Fearless By 40.”

“I was a financial disaster,” said Anthony, who graduated from Columbia University with student loans and continued to get deep into debt through much of his 20s.

Now 34, debt-free and a savvy investor, he likes to hit twentysomethings with statistics like these: if a 25-year-old deposited $20 a week into a retirement account until age 34, that money would, thanks to compound interest, be worth more at age 65 than $20 deposited weekly at the same rate from age 35 all the way to 65. “Compound interest — it’s the key to financial happiness,” said Anthony, who said he’s still playing catch-up with his own retirement account.

“If only I had put 20 bucks a week away when I was in my 20s,” he said. “If only.”

That kind of example of the benefit of starting young needs to be publicized far and wide.

Here’s the “other side of the story” (Craig Gunsauley in Employee Benefit News): “401(k) plan participation, deferral rates drop.”

Although a resurgent stock market is helping to boost 401(k) account balances, many young investors are missing out on these returns as participation rates among employees under age 35 have dropped dramatically in recent years.

Plan participation has fallen from an estimated all-time high of 80% at the height of the stock market boom in 1999 to 70% in 2002, while average deferral rates have dropped to 7% during the same period, finds a new report from the National Defined Contribution Council prepared by Spectrem Group. . . .

Most of the 401(k) plan dropouts are younger employees and new-hires, observes David Wray, president of the Profit Sharing/401(k) Council of America (PSCA) in Chicago. Wray says that 1999 was the high point for 401(k) plan participation, as these retirement savings plans were identified with the booming Internet-driven stock market. . . .

The majority of plan participants understands the importance of retirement savings, but aren’t taking the right action to help ensure retirement income security. Participants should follow a consistent investment strategy, calculate retirement savings goals, develop asset allocation models that meet their needs and risk tolerance levels, and actively manage accounts, Collinson explains.

“People are not taking full advantage of what they could be saving on a pre-tax, payroll deduction basis,” she says. “Eighty percent of participants have less than $50,000 in their accounts.” . . .

While 55% of participants agree either strongly or somewhat that they could work until age 65 and still not save enough for their retirement needs, some 90% of employers feel their workers will not have saved enough by age 65.

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