Millennials are looking beyond beach vacations and nights out when it comes to finding the best way to use their cash.
More of them are putting money away for retirement, according to a new analysis released Thursday by Bank of America Merrill Lynch. About 40,000 workers in their 20s and early 30s signed up for their employer’s 401(k) plan for the first time during the first half of this year, the report found. That is up 55 percent from the same time last year and more than the 37 percent increase seen for all age groups.
“If you look at the millennials, they’re actually by nature better savers,” says Kevin Crain, managing director and senior relationship executive for Bank of America Merrill Lynch. The bank analyzed data from its 401(k) business, which has $128.9 billion in assets and includes 2.5 million participants.
What’s pushing millennials to be more responsible? It’s not all due to strong will power. More companies are taking the work out of the saving process by automatically enrolling workers into savings plans and automatically boosting their saving rates by a certain percentage amount each year, the report found. As of June, 213 plans used both auto enrollment and auto escalation to help people save, up 19 percent from a year earlier.
However, millennials might deserve some credit for not opting out of the plans after being automatically signed up, Crain says. And some of the growth was due to choice: The number of people who voluntarily signed up for automatic rate increases grew by 27 percent over the past year, according to the report.
The higher saving rates might also be spurred by a feeling among millennials that they are on their own for retirement. Workers between the ages of 25 and 37 expect to receive 32 percent of their income in retirement from personal savings and investments, compared to 19 percent for baby boomers, according to a separate survey by Merrill Lynch and Age Wave. In contrast, millennials expect 12 percent of their retirement income to come from an employer-sponsored pension, compared to 19 percent for boomers.
Indeed, more employers are asking workers to carry the burden of saving for retirement. Many companies are freezing pension plans, even when they’re over funded, as a way to reduce future liabilities and lower operating costs. As a result, the 401(k) has become the primary vehicle for retirement saving, yet many people are not saving enough. For recent college graduates in particular, goals of setting aside money for retirement are often trounced by more immediate needs like student loan payments.
Often, the biggest advantage younger workers have when it comes to retirement savings is time — since money that is stashed away and invested can grow tax free for decades. But Crain points out that saving isn’t enough. People who are too conservative with their investments when they’re young may end up short in their later years, he says.