Although many financial planners stress that employees aged
18 to 34 should contribute at least 15% of income into their 401(k) plans, a
new survey by Scarborough Capital Management found that
only 22.5% of individuals within that age group are doing so.
Still, the survey unveiled some positive trends. The study
found that 72.8% of this age group are investing anywhere from one to 10% of
their paycheck into a 401(k). Moreover, 58.5% of Millennials are able to save
between five and 10%.
Gregory Ostrowski, a financial planner with the firm, believes
it’s a sign that this generation is developing better money-management habits.
“Understanding the need to save, the ability to obtain ‘free
money’ from an employer match — if available — and the overall concept of
slicing off some of the budget for the future is a wonderful start,” he says.
But Ostrowski cautions that Millennials have plenty of room
“In reality, we need to see savings rates toward 15% to have
the type of long-term outcomes most are looking for,” Ostrowski explains. “A
15% deferral rate over the course of a career puts a saver in a better position
to have a similar lifestyle in retirement as they had during their working
Nonetheless, Ostrowski acknowledges this would be no easy
task, and that merely setting financial goals is a stretch away from taking action.
“So many recent grads have faced the perfect storm: they’re saddled with
student loan debt, many have faced a brutally competitive job market, and those
with jobs have seen little to no wage growth. It’s tough to carve off savings
when everything’s already accounted for.”
But everyone needs to start somewhere, and Millennials at
least have time on their side. Like several certified financial planners (CFPs),
he says there is no rush in saving so much right away. “Start small. At the very least, if your employer
has a 401(k) match, do everything in your power to get it. If you can save 5 or
6% and you’re getting another 5 or 6% from them on top of that, then you have
doubled your savings rate.”
Ostrowski notes that those without access to an employer
match still benefit from compounding.
He suggests “start at 4% and set a note on the calendar to
increase by 1% every 6 months. I’ve advised hundreds of young savers over the
years on this technique and it’s a great way to incrementally make moves in the
right direction, and in a way that your cash flow is not crimped all at once.”
The full results of the survey can be found at scmadvice.com/401k-pulse-report.
Research Now conducted a nationally representative digital
survey on behalf of Scarborough Capital Management. The survey was conducted
from February 10, 2016, through February 17, 2016, and consisted of 1,004
Americans throughout the United States older than 18 with 401(k)s.