Myth-Busting Millennials vs. Baby Boomers: Where You Stand and What You Can Learn

When it comes to personal finances, the wealth gap between Millennials and Boomers is wide — and growing. A study based on Federal Reserve data shows that the average Boomer’s net worth is 12 times greater than the average Millennial’s.

Naturally, adults ages 25-40 (Millennials) will have less wealth than those ages 57–75 (Boomers). But there are other factors at play, too. A report by think tank New America found that Millennials earn 20% less than Boomers did at the same age. According to Pew research, the median net worth of Millennial households was just $12,500, compared with $20,700 for households headed by Boomers when they were the same age. 

In large part, Boomers have benefited from soaring real estate values, a rising stock market and strong job market, while stifling student loan debt and more limited job prospects make buying a home or building a portfolio a pipe dream for many Millennials. Factor in a greater responsibility to fund their own retirement, and a tendency to invest too conservatively, and the challenge is clear.

But the good news is that Millennials are defying stereotypes and bucking trends. Maybe it was coming of age during the Crash of 2008, or the global pandemic during their prime earning years? Whatever the reason, more Millennial investors are taking a stand by focusing on financial planning, setting long-term goals and having a strategy to get there, according to our sixth annual Advisor Authority Study of more than 2,500 individual investors, advisers and financial professionals.

We compared Millennials and Boomers on five important investing trends from our latest Advisor Authority — so you can see where you stand and what you can learn.

1. Millennials are more likely than Boomers to have a strategy to protect assets

2020 was volatile. The S&P 500 hit an all-time high in February 2020, the peak of the longest-ever bull market. But by March of last year, the index fell more than 20% into bear market territory brought on by the COVID-19 pandemic. By last September the S&P had rebounded 60% to a new all-time high, and then set another record high in April of this year.   

Faced with whipsaw markets, and the fear that what goes up could go down, both Millennials and Boomers said that protecting assets was their No. 1 financial concern, with losses in their portfolio related to the pandemic a close second. Yet Millennials were more likely than Boomers to have a strategy to protect their assets against market risk. In fact, nearly three-fourths of Millennials (71%) had a plan in place to manage risk compared to fewer than two-thirds of Boomers (63%).

2. Millennials have a more sophisticated take on risk management

A well-diversified portfolio is the foundation of risk management. This includes having the right mix of stocks and bonds to match your risk profile and time horizon, including the right balance of large-cap, mid-cap and small-cap stocks, and the right combination of domestic and international investments.

But we learned that Millennials were half as likely as Boomers (36% vs. 66%) to rely primarily on traditional diversification for risk management. Instead, younger investors turned to a wider range of solutions. Millennials were far more likely than Boomers to say Registered Index Linked Annuities (RILAs) were a top solution (36% vs. 4%), more than twice as likely to use liquid alternatives (36% vs. 17%), and exponentially more likely to use Smart Beta ETFs (30% vs. 1%).

Millennials were also twice as likely as Boomers to choose an annuity over the next 12 months to protect against market risk as part of their holistic financial plans (72% vs. 36%). Annuities can be an effective option, once you have maximized contributions to your 401(k) and IRA. Annuities can provide a combination of more tax-deferred growth and upside potential to help you accumulate more, along with downside protection to preserve your portfolio, and they’re the only product that can offer guaranteed income for life. There are a range of different annuities to fit different investor needs and risk profiles.

3. Millennials are just as likely as Boomers to have a strategy to generate retirement income

Boomers (ages 57-75) are already retiring at a rate of 10,000 per day, while most Millennials (ages 25-40) still have two to four decades before retirement begins. And yet, Millennials were more likely than Boomers to say that generating reliable income during retirement is a top financial concern (21% vs. 14%).

Millennials were almost as likely as Boomers to have a strategy in place to generate guaranteed income in retirement (78% vs. 82%). Meanwhile, Millennials were just as likely as Boomers to have a strategy to help protect themselves against outliving their savings in retirement (81% vs. 80%). More proof that financial planning, setting long-term goals and having a strategy to get there is a top priority for this younger generation.

4. Millennials are much less likely to rely on Social Security

When preparing for retirement, many Millennials are aware of the sobering trends — traditional defined benefit pension plans are a thing of the past for many workers, and the future of Social Security is coming into question.

As the retirement safety net frays, and younger generations are expected to shoulder more responsibility for funding their own retirement, it’s not surprising that Millennials were far less likely than Boomers to rely on Social Security to protect against outliving their savings in retirement (42% vs. 86%).

Instead, younger investors are open to other solutions. Millennials were far more likely than Boomers to choose an annuity over the next 12 months to protect against outliving their savings as part of their holistic financial plans (75% vs. 44%). Millennials were also far more likely than Boomers to incorporate an in-plan income guarantee (67% vs. 28%), a type of annuity that is becoming more widely available within workplace defined contribution plans.

5. Millennials invest more conservatively than they should

Despite many positive trends, one observation gave us pause. According to Advisor Authority, nearly half of Millennials (49%) felt pressure to revise their investing strategy last year, compared to just 14% of Boomers. And among those who revised their investing strategy, the vast majority of Millennials (93%) said they would invest more conservatively, compared to roughly three-fourths of Boomers (73%).

Investing in the market can be intimidating. But with a longer time horizon and decades until retirement, Millennials have the opportunity to take prudent risks as part of a long-term investing strategy. Time is on your side, if you start early and use the power of tax-deferred compounding. When you have more than 40 years ahead of you, the upside potential of stocks is far greater than bonds or cash in the long term.

If you’re ready to focus on financial planning, set long-term goals and have a strategy to get there, consider partnering with an adviser or financial professional. You can start with this educational resource from Nationwide to help you find an financial professional today.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Head of Nationwide’s Annuity Distribution, Nationwide

Craig Hawley is a seasoned executive with more than 20 years in the financial services industry. As Head of Nationwide’s Annuity Distribution, Mr. Hawley has helped build the company into a recognized innovator of financial products and services for RIAs, fee-based advisers and the clients they serve. Previously, Mr. Hawley served more than a decade as General Counsel and Secretary at Jefferson National. Mr. Hawley holds a J.D. and B.S. in Business Management from The University of Louisville.