Ryan Spiering says he doesn't like to save money, but is starting out his working career with decent saving habits.
The digital art director for the Milwaukee office of HGA Architects and Engineers just started contributing the maximum allowed to his 401(k) plan thanks to his wife's suggestion. They also own a duplex and rent out the other unit for income. And, he recently made his first stock purchase in Marvel Entertainment.
Spiering, 28, was automatically enrolled into his 401(k) plan when he started his job three years ago, and has his contribution deducted from each paycheck. He says he was given three investment strategies: conservative, balanced and aggressive, and chose the middle one. So far he has about $6,000 saved for retirement.
Choosing the balanced approach "sounded like the best of both worlds," Spiering says.
"The way the stock market is, I'm not ready to do a whole lot with it. I don't want to risk it too much."
At a time when millennial workers like Spiering have 30-plus years to save and invest before retiring, many are investing too conservatively—like their baby boomer parents—a new survey by MFS Investment Management shows.
It's cause for concern, says William Finnegan, senior managing director of U.S. retail marketing for MFS in Boston, because an overly conservative approach won't allow these workers to accumulate enough assets to achieve certain goals, like retiring on time. MFS estimates this group includes about 77 million people ages 18 to 30, with nearly $1 trillion in spending power.
"The risk of being too aggressive is equal to being too conservative," Finnegan says. "This could have a long-term negative impact 30 to 35 years out."
About 40 percent of investors in the MFS survey agreed with the statement, "I will never feel comfortable investing in the stock market."
Plus, 30 percent of millennial investors' primary investment objective is to safeguard their money. The survey of nearly 1,000 people with $100,000 or more to invest showed they allocate more money to cash than any other age group—about 30 percent.
It's mostly because millennials reached the investing age during two major recessions and continue to see significant ups and downs in the market today, says Dan Keady, director of financial planning in the Charlotte, North Carolina, office of TIAA-CREF.
"There are things that can be done to help these people invest more prudently based on the number of years they have to work," Keady says.
He says using target-date funds and conducting one-on-one sessions with advisers who use engaging social tools such as iPads are ways millennial investors can achieve a more suitable approach to investing.
"Most people are not comfortable with 100 percent stocks," Keady says. "But to take a modest approach and staying with it over a long period of time can work out well."
And there are more red flags for this generation when it comes to retirement, experts agree.
The MFS survey reveals that 54 percent of millennial investors are more concerned than ever about being able to reach their retirement goal, and 44 percent said they have lowered their expectations about the quality of life in retirement.
Left on their own, only 54.6 percent of millennial workers participate in their company 401(k) plan, compared with 75 percent of Generation X workers and 78 percent of baby boomers, data from consulting firm Aon Hewitt show.
On average, millennial workers contribute 5.3 percent of their pretax salary to their 401(k) plan, compared with Gen X's 6.8 percent and the 8 to 9 percent contributions from baby boomers, according to Aon Hewitt, which reviewed 120 large defined contribution plans with 3 million eligible employees. Most experts agree workers should save between 12 to 15 percent of their pretax salary for retirement.
"Gen Y's future is so dependent on their defined contribution plan, and I don't think that has sunk in broadly," says Pam Hess, director of retirement research for Lincolnshire, Illinois-based Aon Hewitt. "Their [defined contribution] plan could be the only thing they will be able to rely on in retirement. They will be on their own with a lot of costs."
Many millennial investors like automated features, Hess says, and Aon Hewitt's data show companies automatically enroll more millennial workers than any other group. The trick, she says, is to start them at a high contribution rate.
"They do very well … being put on a path," Hess says. "If you automatically put them in a target date fund, they will stay there."
"My instincts are not to save. If given the choice, I would spend it," he says. "I have things set up so I don't have to think about it."
Another way to get millennial workers to become better investors is for advisers to learn and understand what they are worried about, Finnegan says.
"Sometimes we are programmed to give pre-formatted answers," Finnegan says. "We need to understand the emotion behind the decision."