Though better educated than their parents, Millennials are having a harder time saving for retirement according to a T Rowe Price study. Burdened by student loan debt and many new to the workforce, the rate of participation by Millennials in their company’s retirement plan is alarming. The issue is worse for women.
The good news is that more Millennials, especially women, have a four-year college education – 43% have a degree compared to just 28% of female Baby Boomers. And though Millennials concede that they need to save 9-10% for retirement, whether because of student loans or because many are at their jobs for two years or less, 68% eligible for their company’s retirement plan do not participate.
The issues are worse for Millennial women who have higher student loan debt than men, make less and often work part-time as they start a family. In addition, the growing use of high deductible healthcare plans forces workers to put more money into benefits other than retirement plan.
Another issue is that Millennials are the first generation that do not use checkbooks and rely less on cash using digital payments which can make awareness of budgeting more challenging.
Some point to financial literacy as part of comprehensive wellness program as the answer but others think that the Ideal Plan which uses auto-enrollment and auto-escalation is more effective to getting Millennials into their employer’s retirement plan and saving at a significant amount as being more effective.
The move from DB (defined benefit) to DC plans like 401k’s was forced in part because workers did not stay long enough at one employer to be eligible for their company’s DB plan. With an even more mobile workforce, is it time to think about more portability between DC plans where a new employee’s deferral rate starts where they left off at their previous employer rather than starting over at a lower deferral rate at their new employer?
