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Wells Fargo Investment Institute has advice for millennials as they start to take a leading role in shaping the U.S. economy: start saving.
According to the institute's generational research report, a sizable 41 percent of Americans aged 17 to 35 haven't started saving for retirement, a fact many younger workers are attributing to a lack of disposable income.
The median household income for millennials in the United States is $48,039. While some younger millennials have yet to commit to full-time work, that number is still about 20 percent less than Baby Boomers earned at the same stage in life, according to the report.
The lack of savings has consequences down the road, as many people may be forced to delay retirement, the Wells Fargo researchers said. "Half of today's workers expect they will need to work until at least the age of 70 because they will not have enough saved for their retirement years." Their report is called Seeing Wealth Differently Across Generations.
As the largest demographic group in the U.S. labor force (having just surpassed the older baby boomers), millennials are just starting to form households and start families. The report cites Bureau of Labor Statistics reports that wages are beginning to increase.
They are driving consumer discretionary spending: Millennials spend $2,915 per year on average for travel, for example, according to TripAdvisor, and that is expected to increase as the generation enters its higher-earning years, the report said.
But almost 34 percent have student debt, with a median balance of nearly $20,000. And of those who have debt, 75 percent said it is unmanageable, Wells Fargo said.
Those aren't the only changes millennials are bringing to the markets. Wells Fargo's research suggests that the rise of social media and ease of global communication makes younger generations more likely to invest overseas, especially to pursue social goals.
"Social and environmental change is important to millennials," wrote the researchers. "This tendency lends itself perfectly to social impact investing, which offers investors the potential to achieve financial goals while also influencing causes they're passionate about."
Baby boomers, those aged 53 to 71, may also have to make some changes to their portfolios. While about 73 percent of baby boomers are investing for retirement, many are now starting to fear that they may have to work a few years more to have enough capital to retire comfortably; each dollar may not go far enough. That may keep boomers more involved in the stock market longer than in generations past.
While it has been the tendency for savers to shift from stocks to bonds as retirement approaches, "due to today's low interest rates and longer working lives, Baby Boomers may need to maintain a higher allocation to equities," the report said.
Though boomers control over half of the wealth in the United States, the cohort is about to face a significant uptick in health care spending in both absolute terms and as a percentage of income.