Key Points
• Social Security Skepticism: Many under-40 clients doubt they’ll receive benefits and are planning without it. • Beyond Saving: Young investors want guidance on investing and building wealth—not just saving. • Alternative Income Focus: Clients are eyeing rental properties and other income streams for long-term security.
Grappling with anxiety about today’s economic and geopolitical uncertainty, young people less than 40 years old are intent on saving: for homes, for their retirement and ultimately, for their financial freedom.
“Of the younger clients I work with, most are extremely diligent savers,” says Thomas Saunders, a financial advisor with CAPTRUST in Minneapolis. “They are concerned with government deficits, geopolitical issues, the future of the country and economy. I think these anxieties lead them to save more, not less. The questions I get most often is, ‘Am I saving enough?’, ‘To what accounts should I be saving?’ and “How should I be investing?’”.
Mallon FitzPatrick, head of wealth planning at Robertson Stephens in New York City, says that young people in his practice are zeroing in on achieving financial independence and securing a flexible lifestyle amidst economic uncertainties.
“In uncertain times, young investors focus on foundational financial goals, shifting from idealism to pragmatism in pursuit of stability and freedom,” FitzPatrick adds. About 20% of the firm’s 2,000 clients are less than 40 years old and many aim to retire by age 55 or 58.
Many professionals in the under-40 age cohort are wary of what form — or even whether — Social Security retirement benefits will exist when they retire decades down the road.
“Younger generations are palpably concerned about the reliability of Social Security for their future,” says FitzPatrick, adding this unease stems from media reports and discussions about the program’s potential insolvency. “For young earners, Social Security is viewed with scepticism, prompting them to seek financial security through diverse and personal investment strategies.”
Saunders says the lack of confidence in government and elected officials, along with a broad misunderstanding of how Social Security benefits work, has led many young people in his practice to assume the system will not exist for them in its current form.
“Most hope to save and accumulate enough to cover their retirement needs,” he says, adding that nearly all of his clients are the children of existing clients or high earners already saving significantly. “And many aspire to own rental properties or other passive income assets to provide retirement cash flow.”
Tiffany Walker, also financial advisor with CAPTRUST in Minneapolis, says the reliability of Social Security is a topic that frequently emerges during planning conversations with clients less than 40 years old. “Most clients in this age group ask that we do not include Social Security benefits when planning for retirement,” she says. While not necessarily a new concern, the assumption for young people that Social Security won’t be there at all “is a bit more pessimistic than Gen X and Boomer clients.”
“With low inventory, unaffordable home prices, mortgage rates a lot higher than a few years ago, and the costs of homeowners insurance on the rise, it has become increasingly difficult to make such a pivotal investment like buying your first home,” says Morgan Merline, senior associate/relationship management, at CAPTRUST in Greenville, South Carolina.
The high cost of housing, coupled with significant college debt, can be major hurdles for young people intent on saving, says FitzPatrick.
“This situation often leads to prioritizing debt repayment and manageable living solutions before substantial saving,” he says. “High housing prices and college debt are the dual axes holding back savings for many young clients. Breaking free requires strategic wealth planning.”
In addition to buying or upgrading a home, this cohort of investors is also seeking financial advice on saving for their children’s education and risk management measures, such as life insurance, says Jenna Kice, lead wealth manager with Accredited Investors Wealth Management in Minneapolis-St. Paul. “They have started to grow their individual wealth and are interested in investing smartly and protecting what they’ve already accumulated.”
In his practice, Saunders says he sees housing affordability having more impact on young investors under 30 years of age. “With higher interest rates and the appreciation in housing value, saving for a down payment is a challenge, especially for those recently out of college,” he says. He adds that clients between 30 and 40 years old were able to purchase homes when interest rates were extremely low. Yet many of these same clients now feel somewhat locked into their current homes and don’t see the benefits of upsizing and significantly increasing their costs.
Advice from the Advisors
When counselling this cohort, advisors urge young investors to establish their financial goals and a budget. Kice says clients should delineate their goals — whether short-term or lifestyle; mid-term goals, such as saving for a new house; or longer-term goals such as retirement.
Each person likely has a combination of these goals so taking action can be tricky. “Be clear on what you want and why you want it,” she says. “Once you know your priorities, it’s easier to set up systems to save, invest, etc. that will help you achieve your goals over time.”
Walker urges young people to establish a clear sense of a minimum monthly budget and place at least three to six months of spending in emergency reserves earning a decent yield.
“Know your nugget,” Walker says. “When you get a pay raise or bonus, save half and do something fun, meaningful or productive with the rest. Celebrate the small victories along the way. Believe in the power of compounding and make it work to your advantage.”
Merline urges peers in their early to mid-30s to start retirement savings now. “Even though these are fun years to spend, such as on weddings, travel and eating out, procrastination regarding retirement saving can be detrimental,” she said. At a minimum, she encourages her peers to contribute enough to maximize their employer match and contribute more if possible “because you will never get this long-time horizon to capitalize on compounding growth back.”
Saunders reminds his young clients that building wealth is a long game. “Diligent saving and investing, keeping a level head through difficult markets, and allowing your assets to grow and compound is a time-tested strategy to build significant long-term wealth,” he says.
Paula L. Green is a New York City-based freelance journalist with more than three decades of reporting and editing experience that spans coverage of international business and finance issues to murders and politics at the Jersey Shore to presidential press conferences in Argentina and Mexico. She can be contacted by plgreen12004@gmail.com. To read more of her articles, click here.
