Millennials Kicking Butt on Retirement Savings
Millennials have a reputation for being entitled, but Generation Y is doing one thing better than baby boomers: retirement savings.
The average Millennial with access to a defined contribution plan began saving in a retirement plan at the age of 23, according to a recent Natixis study on retirement savings. That’s compared to age 27 for Generation X and age 31 for baby boomers. (Source: “Running On Empty, Attitudes and Actions of Defined Contribution Plan Participants,” Natixis, December 15, 2016.)
“They [Millennials] report that they have combined retirement savings of $69,570.” Natixis reported. “While this is only 8% of their stated goal of $869,662, they are starting early and they have time on their side, which will provide them a longer timeframe for adding to retirement assets.”
For Generation Y, that early start can make a difference towards achieving their retirement goals. For example, say a millennial starts contributing $5,000 per year at 23 in a tax deferred account. If they plan to retire at 65 and earns a market return of seven percent annually, then they’ll retire with a nest egg of $773,854.
For comparison, say you were to start putting money away at age 27–the average age a “Gen Xer” started saving for retirement. Losing those four years would leave you with only $520,984 at the age of 65. And if you waited until 31, as the average baby boomer did, you would only have $340,925.
But while the study credits Generation Y for getting an early start, the authors did warn that Millennials are generally not saving enough for retirement. A whopping 91% of those surveyed were saving less than 10% of their salaries. Millennials, the authors believe, need to hit a savings rate of at least 10% to reach their retirement savings goals.