Millennials are growing up. The generation with a reputation of being lazy is now ahead of their parents when it comes to 401ks – but they’re trailing behind in terms of total wealth.
Millennials are technically saving for retirement earlier than their baby boomer and Gen X counterparts. They’re putting money into retirement funds in their mid-twenties, about ten years earlier than when their parents started saving.
According to one study, they have higher balances in their 401ks than Gen X-ers at the same age. One reason for this is millennials are prioritizing their 401ks over home ownership. A report from Charles Schwab found that three-quarters of boomers and Gen X-ers expect to own a home in retirement, compared to only 48% of millennials. By contrast, more than 60% of millennials plan to prioritize travel during retirement.
Another reason millennials are saving is because they have to. According to the Bureau of Labor Statistics, in 1981, 84% of full-time employees at large corporations took part in a pension plan, but by 2021 traditional pension plans have nearly disappeared – only a quarter of civilian employees have the option of investing in one.
Despite the higher savings rate, millennials aren’t entirely optimistic about the future. Around 72% are concerned about their ability to be financially secure in their retirement, while only 43% of baby boomers felt that way.
A recent survey also showed that most respondents aged 18 to 35 said they didn’t “see a point in saving for retirement until things return to normal.”
Millennials are starting to save earlier because they don’t have a built-in safety net, but they’re still not in a great financial situation.
Federal Reserve data from 2021 showed that millennials between 28 and 38 make up a majority of the workforce but only about 6% of household wealth. In terms of total wealth, they are way behind past generations. One major factor could be student loan debt. Many millennials graduated college in 2008 when the economy was in a recession, so many had a rocky start to their careers. 40% of millennial households had student debt which was more than 40 percent of their income.
President Joe Biden has offered student loan debt relief to some workers, and Congress appears ready to amend U.S. retirement law this year. A proposal would change some of the rules around saving, making it easier for employees to join retirement plans through auto-enrollment, allow for tax-free “catch up” payments, delay mandatory withdrawals, and even set fewer penalties for emergency withdrawals.