As the parent of two Millennial sons, I confess to being more than a little nervous about their financial situations.
So I was more than a little surprised to see the name of the just-released Transamerica Center for Retirement Studies survey about their generation (ages 18 to 34): Millennial Workers: An Emerging Generation of Super Savers.
Super savers? Can that really be true for these young Americans, many of them struggling to find jobs and two-thirds of recent bachelor’s degree recipients carrying student loans averaging roughly $27,000?
Turns out the answer is yes — and no.
Millennials Who Were and Weren't Surveyed
The key word in the Transamerica survey title is “workers.”
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The financial services firm conducted its online poll in late February and early March of 4,143 Millennials, Gen X’ers and boomers who were working full-time or part-time at companies employing 10 or more people.
The reason it matters that the Millennials surveyed had jobs (other than the fact that they’re more likely to have money to save than their unemployed brethren) is that these “Super Savers” are mostly socking money away for retirement through their employer-sponsored 401(k) plans.
“In our survey, those who are employed are off to a great start with their retirement savings,” said Catherine Collinson, president of Transamerica Center for Retirement Studies.
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Generation of Super Savers
The survey’s stats are stunning:
- 70 percent of Millennial workers are saving for retirement, either through employer-sponsored plans or outside the workplace.
- Millennials who are saving for retirement started doing it at age 22, on average. (By comparison, their boomer parents’ generation began at age 35.)
- 71 percent of Millennials offered a 401(k) type plan participate in it and they’re salting away 8 percent of their annual salary in the plans (median).
- When their employers offer a match, 80 percent of Millennials contribute to the plans — and they’re investing 10 percent of salary.
To me, the Transamerica survey shows that getting a job fresh out of college is about more than just pulling down a paycheck. It’s also about the difference between getting an early start saving for retirement and not.
In Collinson’s words: “Having a job is what makes all the difference in the world.”
A Very Different Millennial Survey
That’s why the savings picture didn’t look so hot for this generation in the 2014 Wells Fargo Millennial Study that came out just a month ago.
That survey, released at a Women's Institute for a Secure Retirement forum in Washington, D.C. found that 45 percent of Millennials were not saving for retirement.
The difference between the two surveys? Wells Fargo included unemployed Millennials.
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Why Working Millennials Save So Well
I asked Collinson why she thought so many working Millennials were diligent about saving for the future when their retirement was far off.
“We attribute it to a few things. Millennials saving for retirement are worried about their parents and they’re hearing about it from their parents,” she said. “Also, auto-enrollment in 401(k) plans has dramatically increased in recent years [where employees save through payroll deductions unless they tell their employers they don’t want to]. Older generations would have to make the decision to join a plan, but the Millennials get that extra nudge.”
The Transamerica survey also found that, compared with boomers, Millennials are much more likely to choose professionally-managed 401(k) investments on autopilot, such as target-date funds.
Boomers tend to take more of a DIY approach, selecting an assortment of investments and then deciding when to move money in and out of them. “I remember when I joined my first 401(k) plan, the brochure said: These are your options, make your selections,” recalled Collinson. “At 24, I didn’t have any expertise.”
Faring Better Than Boomers
Transamerica found that the working Millennials’ retirement savings has fared much better since the Great Recession than that of boomers. The median Millennials’ stash nearly quadrupled from 2007 to 2014 (growing from $9,000 to $32,000). By contrast, the median retirement savings of the boomers surveyed didn’t even double (going from $75,000 to $127,000.)
Collinson said one reason for the difference: many Millennials "got into the market at the bottom and were able to grow their money substantially during the market recovery.”
A Disturbing Habit of Millennial Savers
But Transamerica also uncovered one habit of many Millennial savers that concerns Collinson (and me): They’ve been taking loans and early withdrawals from their 401(k)s and IRAs. In fact, 20 percent have done so, most often for unplanned major expenses such as home or car repairs.
“We cannot educate Millennials — or Gen X’ers or boomers — enough about the downside risks of taking loans or early withdrawals,” said Collinson. “They are a wolf in sheep’s clothing.”
This savings plan leakage can sap them of money they’ll need for retirement one day. And they’ll likely owe income taxes and a 10 percent tax penalty on the early withdrawals.
What Some Millennials Better Learn
One more thing some Millennials who began saving for retirement in the past few years may need to understand better: The stock market doesn’t always go up.
“In our survey, 68 percent of the Millennials were confident they’ll be able to fully retire with a comfortable lifestyle and 60 percent expect to retire at age 65 or sooner,” said Collinson. “My view is that there’s a bit of exuberance in their response, because they’ve been so successful with the increase in their savings.”
As Collinson noted, the Millennials haven’t been saving long enough to “experience the full dynamic of equity markets that happens over time.”
So, boomer parents, if your kids are lucky enough to be employed and smart enough to be saving through their 401(k)s, give them a hug. Then sit them down and tell them how the stock and bond markets work.
One day, they’ll thank you.