Millennials Not Optimizing Employer Match

As with the Baby Boomer and Gen X, the two generations that preceded it, the Millennials (ages 20-39) are not taking full advantage of employer 401(k) matching contributions, according to data released by Aon Hewitt. Although three out of four eligible employees are participating in a defined contribution plan, 40% of those in their 20's and 31% of those in their 30's are contributing less than the company match threshold. As with the Boomers and Gen X, inertia seems to keep Millennial participants at or near the default rates. In Aon Hewitt's example, it shows that individuals who delay saving at the threshold from age 25 to age 30, can be costing themselves over $200,000 in retirement assets assuming retirement at age 65. 

What strikes this writer in the example is that even the less optimal saver still would have over $700,000 in his or her retirement account. EBRI, by contrast, reports that the average account balance as of year-end 2012 was around $64,000. For "consistent" participants, defined as those with accounts at the end of all the years from 2007 through 2012, the average account balance was $107,000. If we take the lower-end estimate from the Aon Hewitt study, it would seem that there would not be any retirement savings crisis to talk about. With the reality undoubtedly closer to the EBRI figures, we need to consider why Millennial participants are not saving enough. Inertia most likely does play a significant role, but perhaps it is the daily challenges as well that get in the way. The cost of college and graduate school has left many in debt. Millennials also may be getting married, buying their first homes, and starting a family. Saving for retirement may be seen as important, but so are these other events. To quote John Lennon, whom we lost 34 years ago today, "Life is what happens while you're busy making other plans." If you help individuals and families focus on both the long- and short-term needs, rather than looking at either in isolation, then you will be on the road toward helping them gain a more solid financial footing.