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Retirement Planning > Saving for Retirement

Millennials aren’t meeting their match (in 401(k)s)

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Millennials are increasingly enrolling in their company 401(k) but many aren’t showing up on payday for the free money. 

So says consultant Aon Hewitt, citing data that indicate many workers in their 20s and 30s are not saving enough to take full advantage of their employer’s 401(k) match, thus walking away from extra money. 

And probably damaging their long-term retirement prospects to boot. 

Aon Hewitt said that its analysis of 3.5 million employees eligible for defined contribution plans show that younger millennials (ages 20–29) are participating at a rate of 73 percent, and older millennials (ages 30-39) at 77 percent. But many of them are not saving very much.

Almost 40 percent of the younger group and 31 percent of the older group aren’t meeting the threshold for the company match. 

“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 Rob Austin, director of retirement research at Aon Hewitt. “However, once they’re in the plan, young workers seem to fall victim to inertia with many continuing to save only at the default rate, or slightly above, and risking their long-term savings by not receiving the full employer matching contributions that are offered.” 

According to Aon’s figures, this can be very costly. 

See also: Younger investors less satisfied with advisors

It gave an example of a 25-year-old making $30,000 a year and working for an employer that provides a typical company match: a dollar for every dollar up to 6 percent. If the employee starts off saving the full 6 percent match amount from Day One and sticks with it until retirement, by age 65 her 401(k) will have more than $950,000 in it. 

However, if that worker waits until age 30 to get to the 6 percent full match level, she’ll have less than $715,000 by age 65, with the delay costing her $225,000. To make that up, she’d have to increase the savings level by 4 percent and sock away 10 percent per year for the next 35 years. 

One way to fix that, according to Austin, is for companies to educate employees more thoroughly on the value of the match and encourage them to save enough to get the whole thing. 

Another is simply to launch employees on a full-match contribution trajectory upon enrollment into the plan — and to offer automatic contribution escalation to make sure their savings keep increasing over time. 

See also: Millennials blame student debt for poor retirement saving


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