The prospect of a vanishing 401k plan among younger workers is becoming a sad reality.
There are few subjects that are more serious and widespread than the prospect of poverty in old age. According to a Pew Charitable Trust study, “less than half of nongovernment workers in the United States participated in an employer-sponsored retirement plan in 2012, the most recent year for which detailed data were available.” The conclusion that younger workers save less for retirement than older workers is really no surprise, but some contributing factors towards this behavior are somewhat troubling.
The Pew study looked at saving habits by generational demographic cells:
- Millennials were born from 1981 through 1997. In this study, only millennials 22 and older—born through 1990—to focus the analysis on those who are likely to have finished their schooling.
- Gen Xers were born from 1965 through 1980.
- Baby boomers were born from 1946 through 1964.
While access to retirement benefit plans such as a 401k rise with age (and work experience), many Millenials and Gen-Xers tend to job-hop very frequently, unlike their baby-boomer counter-parts. Job-hopping frequently can mean that workers never stay long enough to qualify for their respective company 401k plan (or other defined contribution plan), let alone qualify for that other Unicorn…the defined benefit plan.
While job-hopping is an impediment to participation in a retirement plan, overall access is only at 60% of non-government sector. Even when a plan is offered, take-up rates still lag due to real or perceived affordability or eligibility. Many more workers do not work the requisite amount of hours in a week to qualify for their company plan. Since the Affordable Care Act, many employers have rolled-back the number of hours their employees work. Underemployment is a major contributing factor to many employees being ineligible for a company plan.
According to the Boston College Center for Retirement Research, “The reasons young workers save less for retirement range from college loan repayments and low starting salaries to a desire to save for a house.”
In addition, the Pew study found that ” Thirty-five percent of private sector workers 22 and older do not work for an employer that offers a defined contribution plan or a traditional defined benefit plan.” It is clear that beyond behavioral factors, the odds are stacked against workers in their early years that they won’t or can’t save as much for retirement than older workers. Savings from the early years of employment is the most formidable time considering the effects of compound interest over a longer period of time. Younger worker who are shut out of a retirement savings plan lose more than if they stopped saving in later years.
