“Automatic enrollment has significantly improved participation in 401(k) plans for all employees over the past 10 years—but even more so for young workers,” said
Leaving matching contributions on the table can cost young workers a significant amount of long-term savings. Consider a 25 year old worker who makes
If that same worker waits until age 30 to begin saving 6 percent, she will have less than
“For young workers, it may seem insignificant to increase 401(k) contributions by a few percentage points—particularly at a point in their career and life when they’re likely earning a smaller salary—but the long-term effects can be remarkable,” explained Austin. “Employers can help Millennials improve their financial outlook by encouraging them to save at least at the match threshold through targeted communications and online tools and resources. To take it a step further, they can also increase the default contributions so that workers are saving at the match threshold immediately upon enrollment into the plan, or by offering automatic contribution escalation, which increases a workers’ contribution rate over time. The bottom line is young workers need to save more, starting now.”
Investment Behavior of Millennials
Many Millennial workers are using premixed funds (target-date, target-risk, and diversified investments) and are therefore more heavily invested in equities than older workers. Workers age 20-29 year olds have 83 percent of their balance allocated to equities, while 30-39 year olds have 76 percent of their exposure to equities.
“Younger workers benefit from having a longer time horizon in which to invest and therefore can take more risk with their investments,” said Austin. “It is also not surprising to see so many Millennials using premixed funds since they are the default investment portfolio for the majority of plans.”
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1 Figures assume 2 percent pay growth and a 7 percent annual interest rate.