Market downturn may prompt millennials to withdraw funds from retirement plans

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Pension plan members are frustrated with the current market volatility and fear a major market meltdown, according to a new study.

Escalent’s Cogent Syndicated DC Participant Planscape report shows that in the event of a market downturn – in which major stock indices are down 10% or more – 61% of Millennials are likely to liquidate their pension plan assets, pay taxes for withdrawing and any applicable penalty, versus 35% of Gen Xers and 26% of Baby Boomers.

Millennials spooked by market volatility and fears of higher inflation compared to other generations in the survey: Gen X, 2n/a Baby boomer wave, 1st Wave Baby Boomer and the Silent Generation (born 1928-1945). With more time to save and invest for retirement, anxiety and fear among millennials may leave plan members vulnerable to concerns affecting their ability to save for retirement, the report says.

Research shows that 73% of active participants in defined contribution plans are Millennials and Gen Xers, up from 50% in 2020 and 54% in 2021.

Millennials and Gen X participants “are willing to be more responsive than their older peers, underscoring the need for providers to offer guidance and reassurance,” the report says.

Sonia Davis, chief product officer at Escalent, says in a press release that plan sponsors need to respond with enhanced financial wellness and planning resources for plan members.

“These findings underscore the critical need for increased education and investment advice, especially as anxiety related to market volatility and inflation persists,” she says. “Retirement plan providers and investment managers play a critical role in quantifying retirement savings goals, connecting members with resources to build trust, and ultimately encouraging them to stay committed for the long term to their personal financial betterment.”

Of all survey respondents, 27% — the most common — say concerns about market volatility are the reason for their reduced pension contributions. Less income is the prompt for 21%, followed by the need to pay off debts or bills (19%) and the need for money for daily expenses (18%).

In the event of a 10% market decline, among all generations of pension investors, 62% would be extremely likely to speak to their financial advisor, 54% to contact their pension representative and 53 % lower their risk tolerance by adopting aggressive strategies. to moderate, according to the report.

The report suggests that plan sponsors may be able to mitigate heightened retirement anxiety – driven by market volatility and recession fears – with financial tools for members, who can provide advice and a measure of comfort.

“This [is] an opportunity for companies to step in quickly and provide guidance and reassurance to plan members,” the report said. “Financial wellness programs have been shown to be key in building more confidence and retirement readiness, with users citing significantly higher rates of confidence in meeting their retirement savings goals.”

The report finds that users of financial wellness programs are more confident in their ability to reach their retirement savings goals, as 35% of users are “extremely confident”, compared to 17% of non-users .

Millennials and Gen X are the most confident, as “tiers are most pronounced among Millennials (42% users vs. 15% non-users) and Gen X (30% users vs. 15 % non-users),” the report finds.

The research was conducted by Cogent Syndicated, a division of Escalent, from May 10 to June 1. The online survey collected responses from 4,011 defined contribution plan participants, aged 18 or older, contributing at least 1% to a current pension plan and/or holding $5,000 or more in at least an old regime.

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