Health and Healthcare Systems

Why are millennials better at saving than their parents?

Millennials start saving for retirement in their mid-20s.

Millennials start saving for retirement in their mid-20s. Image: Unsplash/fabian blank

Victoria Masterson
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  • Millennials started saving for retirement in their mid-20s, about 10 years earlier than baby boomers, a new Charles Schwab report says.
  • But experts still predict that millennials will be less secure in retirement than their parents or grandparents.
  • The most common retirement plans today tend to be riskier, with smaller potential payouts.
  • Student loans, soaring housing costs, COVID-19, recessions and gig working are some of the other challenges millennials have faced.

Millennials are now the world’s largest adult generation – and they’re worried about saving for retirement.

Studies suggest this generation – who were born between 1980 and 1994, making them aged between 28 and 42 in 2022 – are more conscientious about saving than their parents.

Why? Here’s a summary of some expert findings.

How are millennials today saving for retirement?

Millennials start saving for retirement in their mid-20s, a new study by investment firm Charles Schwab has found.

This puts them about 10 years ahead of baby boomers – those born between 1946 and 1964, making them aged 58 to 76 now. Baby boomers typically didn’t begin saving for retirement until around their mid-30s, Charles Schwab says.

More than 70% of US millennials save through retirement plans offered by their employers, the Transamerica Center for Retirement Studies found in a December 2017 report. Employees are often automatically enrolled into these plans.

How do millennials compare to Generation X savers?

Millennials also have more money in their workplace retirement plans than older Generation Xers did at a similar age, according to an analysis of US census data by The Pew Charitable Trusts, which uses research to advise governments on policy.

Generation X is defined as those born between 1965 and 1980, making them aged 42 to 57 now.

Millennials are far from “party-loving, job-hopping, and frivolous” – as some stereotypes suggest – and are very focused on saving for retirement, the Pew study says.

This might be because millennials are the first generation to rely mainly on a type of retirement plan that puts the responsibility for saving on them as workers, rather than on their employers, Pew suggests.

How have retirement plans changed over the decades?

In other words, the type of retirement plans offered to workers has changed. Since the 1990s, older, more generous pension schemes that guaranteed a regular monthly payout to workers have been in decline. These older schemes are known as defined benefit plans.

Most retirement schemes are now defined contribution plans. These don’t offer guaranteed payouts like the older schemes, and the risk lies with workers if the value of their investments fall.

Millennials started saving for retirement about 10 years ahead of their parents, a new study finds.
Millennials started saving for retirement about 10 years ahead of their parents, a new study finds. Image: The Pew Charitable Trusts

Could this be why millennials are more cautious savers?

“Workers in defined contribution plans are left with many more financial decisions that expose them to greater financial risk,” Pew says in an article on retirement saving among young workers.

CNN Business reaches a similar conclusion in its write-up of the Charles Schwab report. “The increased saving could be because millennials have no expectations of receiving employer-sponsored pension plans when they retire,” it says.

In 1981, more than 80% of full-time workers at big companies in the US were members of a pension plan, CNN notes. However, less than 30% were by 2020, according to data from the country’s Bureau of Labor Statistics.

Retirement risks are rising

Student debt, high housing costs, COVID-19, the uncertainties of gig economy working and the Great Recession caused by the 2008 financial crash have also squeezed millennials financially. Now they’re facing a second recession, with inflation levels at 40-year highs.

As the world’s population ages, the risk grows of a widening gap in retirement funding across the generations. The World Economic Forum predicts that there will be a savings gap of at least a $400 trillion by 2050. And the United Nations estimates that the global population of people over 60 will double to 2 billion between 2020 and 2050.

In a blog for the World Economic Forum, digital services company Infosys suggests that AI-assisted technology could increase pensions access and improve financial outcomes for savers by making nudges to encourage long-term financial thinking.


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