“I wanted to take advantage of that to help build retirement from the start,” said the 24-year-old, who has worked as an accountant at
Concern that the future of the federal safety net for seniors is precarious and the ubiquity of 401(k)s are prompting those born from 1979 to 1996 to get an earlier start on saving than prior generations, according to a report from the
Though many millennial workers say they’re risk-averse and stock-shy as a result of the most severe recession in the post-
“The concern was that they would be like the Great Depression generation,” which shied away from equities, said
Of millennials offered 401(k) or similar plans, 71% took part, contributing a median 8% of their salaries, the
That stands in stark contrast to surveys showing young adults are risk averse. In 2012, 22% of heads of households younger than 35 who owned mutual funds said they would only invest in financial instruments with no or below- average risk even if it meant getting a below-average return, based on a survey by ICI, the mutual-fund industry’s trade association.
That was more than any other age group except those 65 and older. A separate survey showed that 39% of adults 18 to 29 years old said cash was their preferred investment option for money they didn’t need for at least 10 years, three times the share that picked the stock market, according to a July report from Bankrate.com, a unit of
The increased use of defined contribution retirement plans — especially those with automatic enrollment features or options that reduce risk as an employee ages — is keeping millennials invested in equities in a way that flies under their risk radars, said
Vanguard managed the most money in 401(k)-type retirement plans last year, with
Equities accounted for 81% of the investments in such plans for those 25 to 34 years old on average in 2013, second only to adults younger than 25, with 85%, the report shows.
About one-third of defined contribution plans offered by Vanguard had some type of automatic-enrollment component in
While socking money away now may limit the amount millennials have to spend on things such as clothing, restaurant meals, movies and gym memberships, the total effect should be positive for the economy, said
“If you’re saving more, you are spending less — there’s no question about that, but in the long-run, more savings means more investment, and more investment means more growth,” she said.
For those like Gentry, it’s that concern about the state of
Without legislative changes, Social Security’s trust funds will be depleted by 2033, according to the program’s board of trustees’ annual report. After that, tax income would be able to pay about 75% of scheduled benefits through 2088.
“Whether it’ll be around or not, I don’t know,” Gentry said. “It’s just a lot safer to plan on not receiving that once you retire.”
Some 51% of millennials don’t think there will be any money left for them in the
“Millennials are keenly aware that the program is in trouble and that they are getting the short end of the stick,” said
There are other signs that millennials are paying attention to improving their finances, said
While millennials have a large amount of student-loan debt, they are cutting back on borrowing in other ways by not buying houses or maxing out their credit cards.
“Compared to Generation X, it looks like the millennials are on a lower track of accumulating debt,” Emmons said. Young adults have reduced their debt more aggressively than the generation born between 1965 and 1980, though it’s not yet clear whether it’s voluntary or induced by tight credit conditions, he said.
In the end, it may be their baby boomer parents that millennials have to thank for their saving habits.
“My parents have always preached to save, save, save as much as you can,” Gentry said. “I knew that to just start saving and preparing for that now would make life a lot easier down the road.”
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