Retirement Planning

Embracing a Millennial Retirement Mindset

Jun 25, 2023

When it comes to Millennials’ retirement saving efforts, they have their work cut out for them.

Born between 1981 and 1996, roughly 72 million people comprise the Millennial generation, which is currently the largest of the five generations in the workforce.1 Putting it into a sociohistorical context, this means that most Millennials watched the events of 9/11 unfold, were among social media’s first adopters and entered the workforce around the time of the Great Recession.

 

The financial crisis isn’t the only economic hardship this group has had to face. They amassed more student debt than previous generations and are now navigating the effects of inflation and market volatility. Now as Millennials are starting to turn 40, it’s easy to see why many Millennials feel the pressure related to retirement planning. 

 

This unique position means that Millennials may require additional support and guidance when it comes to saving for retirement—no matter where they are on their journeys.

 

Sustainable Investing—Where Purpose Meets Performance

A strategy that’s gained considerable traction, sustainable investing seeks financial returns from investments and companies that generate positive environmental and social impact.4 What constitutes positive impact? There are multiple approaches to consider taking when seeking to maximize positive impact to retirement savings – consider the following: 

 

  • Select investments from managers that are taking an intentional approach to sustainable investing by incorporating environmental, social and governance (ESG) criteria or targeting themes like climate change, gender equality or affordable housing. 
  • Select managers who are influencing portfolio companies through active ownership like proxy voting or resolution filing. 
  • Select managers from diverse backgrounds to drive inclusion. 

 

Positive impact to retirement savings is only part of the equation—the other element is performance of sustainable investments. While past performance does not guarantee future results, investments incorporating ESG criteria can perform, and in some cases, have performed in line with or better than conventional benchmarks for comparable investment options. 5

 

Consider the MSCI KLD 400 Social Index. It consists of 400 large-, mid- and small-cap U.S. companies that meet the highest ESG criteria standards. With 10.6% in annualized returns since 1990, it has performed slightly better than the S&P 500’s 10.2% during the same time frame.6

The biggest myth—and until recently, the biggest obstacle to the pursuit of sustainable investing—has been that to invest sustainably, one must sacrifice returns.
Audrey Choi
Chief Marketing Officer and Chief Sustainability Officer, Morgan Stanley 
READ SPOTLIGHT

Alignment to the Millennial Mindset

If there was a retirement planning strategy seemingly tailor-made for this generation, perhaps it’s the one invested in making a positive impact on environmental and social issues. 

 

The sociohistorical context in which millennials grew up shaped many of their worldviews—from 24-hour news cycles to social media literally at their fingertips. This generation, which is also one of the most ethnically diverse, tends to actively champion topics like climate change, diversity, equity and inclusion.

 

Perhaps the best proof of alignment is Millennials’ sentiments around incorporating sustainable investments into their 401(k) plan accounts. 

What You Can Do

There are a variety of ways to help Millennials prepare for retirement. With 93% of employees identifying retirement planning resources as a priority in their employment decisions, these can be powerful recruiting and retention tools for employers.9 

  1. 1
    Consider adding sustainable investing options to your retirement plan menu

    Your Morgan Stanley Financial Advisor can help create a roadmap for your organization. 

     

    Leverage Morgan Stanley Impact Quotient® impact reporting to assess the alignment of your plan with your plan’s environmental and social goals. 

  2. 2
    Spread the word

    Let eligible employees know they have access to sustainable investment options available to them in your retirement plan’s investment lineup, whether these options are a recent addition to your plan menu or already offered as an investment option. Typically, new plan participants invest in the qualified default investment alternative (“QDIA”) under a plan, so if a sustainable investment options is not selected as the plan’s QDIA, such new plan participants may miss these other investment options. 

     

    Educate your workforce. This can help reduce barriers to plan participation, such as concerns over investment performance or overall understanding of the topic. 

  3. 3
    Consider retirement plan features like automatic enrollment and auto escalation

    Auto enrollment is exactly what it sounds like. Auto escalation routinely increases participants’ contribution amount over a set time. Both are effective at increasing plan participation. 

     

    As always, Morgan Stanley at Work is here to help you with your plan investment decisions. Simply contact your Financial Advisor to take the next step.  

Related Stories

Read More about the thought Leadership and insights to the role of Morgan Stanley

1.U.S. Population by Generation, Statista 2021.

2.GSAM Insights: Retirement Survey & Insights Report, October, 2022

3.22nd Annual Transamerica Retirement Survey of Workers, October 2022

4.Harvard Business Review: What is Sustainable Investing?

5.Morgan Stanley Institute for Sustainable Investing, “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds.” 2019, with 2020 data updates

6.Bloomberg, MSCI, Morgan Stanley Wealth Management. Annualized returns from 5/1/1990 – 9/1/2022. Past performance is no guarantee of future result.

7.Morgan Stanley Institute for Sustainable Investing, “Sustainable Signals: Individual Investor Interest Driven by Impact, Conviction and Choice.” 2021.

8.InvestmentNews, Strong Millennial demand pushing for increased ESG options in 401(k)s. 

9.Morgan Stanley State of the Workplace II, 2022.

Disclosures

This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

When Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fiduciary” under ERISA and/or the Code. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit www.morganstanley.com/disclosures/dol. Tax laws are complex and subject to change. Morgan Stanley does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account. 

The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. Diversification does not guarantee a profit or protect against loss in a declining financial market.

Morgan Stanley Smith Barney LLC is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley Smith Barney LLC (“Morgan Stanley”) of any information contained within the website. Morgan Stanley is not responsible for the information contained on the third party website or the use of or inability to use such site. Nor do we guarantee their accuracy or completeness.

© 2023 Morgan Stanley Smith Barney LLC. Member SIPC.

CRC#5641660 (04/2023) 

View Disclosures Hide Disclosures