Millenials Will Need to Withdraw 270k a Year in Retirement!

Oct 13, 2015

  1. Justin Bilyj

    Justin Bilyj Guru

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    And Now The Bad News: Millennials Will Need To Withdraw $270K Per Year From Their Retirement Accounts | Zero Hedge

    Which profile fits a money manager’s ideal customer – a “Mass affluent” 50-year old or a dead broke 20-something? The wealth management industry would do well to run the numbers, because it is the latter that will generate a larger fee stream over time.

    How can that be? The short answer is that millennials will live longer, require far more in retirement savings, and use more high margin investment products for longer than their parents’ generation.

    This simple calculus seems beyond the reach of an industry that still commonly features high minimum balances for advisory services and does little in the way of outreach to younger customers. So called “Robo-advisors” have begun to gather up this group of younger investors, but there is still plenty of time for the traditional money management industry to service this next, much larger, wave of customers.

    This misguided plan to save later as a means to make up for lost ground in the present circumvents the benefits of compounded returns over time. With that said, young adults are at a disadvantage when taking it upon themselves to hire a financial advisor at a major financial services firm. Minimum investments typically start at $25,000, a large lump sum for millennials trying to pay off record levels of student loan debt. Automated financial advisors have disrupted the banking industry by offering passive money management with lower fees and low/or no minimum investment. The difference between a traditional wealth management firm and robo-advisors boils down to the latter’s ability to realize the future potential earnings power of millennials despite their current cash-strapped state. There’s a lot more to the model that that. No human advisors, a different investment approach, that appeal to tech-savvy millennials.

    Now, it is fair to ask why the traditional money management industry should care about a bunch of millennials with minimal savings, lots of college debt, and uncertain economic futures. The answer, which we will outline in the remainder of this note, is that they are actually worth more today than a typical 50 year old “Mass affluent” customer. We undertook an exercise to compare the current value of millennial customers versus baby boomers. Our findings showed that the industry’s focus on Baby Boomers is shortsighted, and a typical millennial will be a far more profitable customer over time. Here’s an outline of the math:..